Making Tax Digital for Self Employed

Self Employed individuals were asked to join the new digital filing system from 1 April 2024. Just before Christmas 2022 HMRC has announced new dates. Check out what has changed and how this affects you as a tax payer.

The most recent update says that in 2026, HMRC will launch the next phase of its plans to digitalise the tax process in the UK under their Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) initiative. The dates have already been moved twice so watch this space. With the new rules, self-employed and landlords who earn more than £50,000 in a tax year will need to submit regular updates to the HMRC and use MTD-compatible software to keep digital records. Those earning £30,000 and above will follow this in 2027.

From April 2026, sole traders and landlords that fall within the above criteria will need to use MTD-compatible software to keep digital records of business transactions and submit updates to HMRC for MTD for ITSA. Please note, submissions from the online HMRC portal will no longer be available.

Instead of the annual Self Assessment, the new rules mean that you will be obliged to send the following:

  • Four quarterly updates using MTD-compatible software
  • One End of Period Statement – by 31 January following the end of the tax year
  • One Final Declaration – by 31 January following the end of the tax year

Benefits to the tax payer

With regular updates and quarterly submissions to HMRC, sole traders and landlords will benefit from real-time visibility of their estimated tax liability. The move to quarterly submissions should also help businesses plan their budget and cash flow much more accurately.

If you choose and accountant do perform all the submissions for you. They need to authorised through HMRC portal to be able to do that.

Taxpayers or their accountants must send quarterly updates within a month of the period’s end date. Here’s a list of the standard quarterly periods and deadlines: HMRC has also stated that, in the future, taxpayers will be able to use calendar quarters. They are expected to inform taxpayers, accountants, and bookkeepers when this becomes available.

 

This is how it is going to work –  Dates & submissions

Quarterly period                                        Quarterly deadline

6 April to 5 July                                                 5 August

6 July to 5 October                                          5 November

6 October to 5 January                                   5 February

6 January to 5 April                                          5 May

 

The End of Period Statement

The End of Period Statement (EOPS) allows taxpayers to finalise their business income for the period. It’s an opportunity to make final adjustments to the accounts, claim any reliefs, and confirm that the information that has been submitted is accurate. By submitting an EOPS, you will be declaring that:

  • The information provided for their business is correct and complete.
  • You have finalised your tax position for their business for the tax year

It’s also worth noting that sole traders and landlords who earn over £50,000 from multiple income sources will need to submit an EOPS for each source of business income.  For example, sole traders who make £27,000 per year from their business and an additional £24,000 from rental property income will need to send an EOPS for both sources of revenue. Qualifying businesses can complete an EOPS at the end of their accounting period. They will have until January 31st following the end of the tax year to submit their EOPS or risk paying a late submission penalty. Qualifying sole traders and landlords or their accountants and bookkeepers can submit an EOPS using HMRC-approved accounting software.

Final Declarations

A Final Declaration refers to finalising a taxpayer’s end-of-year position for tax and determining what they owe. The Final Declaration is also known as ‘crystallisation.’ Before you can start the Final Declaration process, you need to make sure that the following steps have been completed:

  • All four quarterly updates for the tax year have been submitted
  • End of Period Statement (EOPS) for all businesses have been finalised
  • All incomes for the relevant tax year, e.g., interest and dividends have been provided

Sole traders, landlords, and their accountants or bookkeepers, will have up to 12 months from the filing deadline to make any changes to the Final Declaration. If the deadline for submitting the Final Declaration is missed, a penalty will be charged under the new points-based penalty system.

 

MTD for ITSA penalties

Failure to comply with these obligations will result in penalties. Non-compliance with MTD for ITSA regulations will follow similar protocols as HMRC’s Making Tax Digital for VAT. This means there will be two possible penalty regimes, including late submissions (like missing the new quarterly submission deadlines in MTD for Income Tax) and late payments.

Late submissions will work on a points-based system, with a £200 fine issued once a predetermined threshold is met. Each submission deadline missed will result in one point. The threshold for MTD for Income Tax will be four points, as affected taxpayers must make quarterly submissions.

Sole traders and landlords can also be penalised for late payments. Based on the new late payments penalty system, sanctions will be calculated as follows:

  • Late payments up to 15 days after payments are due: no penalty.
  • Late payments up to day 30 after the payments are due: 2% of the amount owing.
  • Late payments on day 31 after payments are due: 2% of what was owed on day 15, plus 2% of income tax was due on day 30.
  • Late payments from day 31 onwards: 4% of the outstanding amount. This is applied daily.

 

As the implementation of the new system is still a while ahead, currently we are working on education clients on their new obligations. It is important for us to be prepared for the upcoming changes this mainly involves finding a suitable HMRC approved software for your business needs, easy to use and also reasonably priced.

We are available to answer any questions regarding the new changes for the MTD ITSA. Our aim is to have the knowledge and be equipped with the right accounting system beforehand in order to have a smooth transition and be ready for the first quarter for submission 2026. Our primary objective is for all our clients to feel that they are looked after and no unnecessary delays are caused.

As statistics show that most people don’t like change, our role as accountants is to make the transition from the old system to the new smooth and stress free. We are here to handle it all for you and help you along the way so that your tax affairs are intact.

 

Anna @ Greenlight Accountancy