Making Tax Digital rules, which already apply to VAT, are rolling out for income tax self-assessment (MTD for ITSA) from 2026.
To comply with the new rules, you’ll need to keep digital records and file your taxes using MTD for ITSA software. There’s no way around it right now, so it’s vital to start researching the options and choose something that works for you now.
Let’s dive into what MTD for ITSA means and how to pick the right software that works for you and keeps you compliant going forward.
What is MTD for ITSA?
MTD for ITSA is like a tech upgrade for tax reporting. Launched by HMRC, it’s all about digitalising the UK tax system.
From April 2026, self-employed individuals and landlords with annual incomes over £50,000 will need to comply with MTD.
From April 2027, this extends to those earning above £30,000, who will also need to keep digital records and send quarterly updates to HMRC.
MTD represents a shift from the annual self-assessment scramble to a more streamlined process, making tax management more accurate and less headache-inducing. At least, that’s the idea!
The impact on your accounting procedures
MTD-compatible software integrates tax management with everyday business processes. For example, you’ll tag different transactions – like income or expenses – and it’ll categorise and log them into reports. If you link your software to your bank feed, it can also learn to categorise these transactions automatically.
You’ll use this information to send HMRC a quarterly summary of your business income and expenses. After the end of the tax year, you’ll need to send a final report to confirm the full year’s figures. This replaces the current self-assessment tax return.
Using cloud-based accounting software also makes it easier to work with your accountant, who can access your accounts directly via the software.
What are the best MTD software options?
In order to comply with MTD, you’ll need to use special MTD-ready software.
While there are several options, big names like Xero, Sage, and QuickBooks are often a safe bet. The major software providers have been in the digital accounting game for a while and have adapted well to the MTD requirements.
Xero cloud accounting
As Xero Gold Partners, we could sing the praises of Xero cloud accounting all day. Here are a few of the key benefits of using Xero:
Xero is known for its user-friendly interface, making it accessible even for those who aren’t tech-savvy. Its dashboard provides a clear view of financials at a glance, making it easier to keep track of your money.
With an extensive range of add-ons available in the Xero app store, Xero’s integration capabilities and customisation options are unparalleled in the cloud accounting sphere.
As cloud-based software, Xero allows you to easily access your real-time data and collaborate with your accountant. You can use Xero wherever you are, which is ideal if you’re always on the move or often work remotely.
Xero cloud accounting software includes invoicing, inventory management, bank reconciliation, and more features. It also offers a mobile app for on-the-go financial management.
Xero has proactively updated its features to comply with MTD regulations, ensuring seamless VAT returns and income tax submissions.
Other MTD for ITSA software options
Of course, Xero isn’t the only cloud accounting software on the market. Here’s what you should consider when weighing up your options:
- Versatility: Sage caters to businesses of all sizes, making it a versatile choice for different types of businesses.
- Customisation: Offers extensive customisation options to suit various business needs.
- Comprehensive features: Known for its range of features, including payroll processing, invoice management, and financial reporting.
- MTD features: Sage has developed tools and features to aid in MTD compliance, such as digital record-keeping and direct submission of tax returns to HMRC.
- Support and resources: Provides strong customer support and a wealth of learning resources, beneficial for businesses adapting to digital tax systems.
- Intuitiveness: QuickBooks is lauded for its intuitive design, making navigation and operation straightforward.
- Scalability: Well-suited for small to medium-sized businesses, QuickBooks scales as the business grows.
- MTD integration: Offers integrated MTD solutions, simplifying VAT and income tax submissions.
- Advanced features: Besides basic accounting capabilities, QuickBooks provides advanced features like time tracking, full-service payroll, and advanced reporting.
MTD for ITSA marks a step towards a more modern, efficient, and transparent tax system.
For both accountants and businesses, it’s an opportunity to streamline processes and focus more on strategic financial planning rather than just number-crunching.
Contact James Scott if you need more information on choosing the right cloud accounting MTD for ITSA software and staying compliant.