MTD for Income Tax: What Small Businesses Need to Know in 2025

Making Tax Digital (MTD) has been one of the most significant shifts in UK tax administration in recent years. Designed to modernise the way individuals and businesses interact with HMRC, the initiative aims to make tax reporting more efficient, more accurate, and easier for taxpayers. While MTD for VAT has already been in place for several years, the next major rollout—MTD for Income Tax Self Assessment (MTD for ITSA)—is on the horizon.

As a small business owner, landlord, or self-employed professional, understanding how MTD for ITSA will affect you is crucial for compliance and for maintaining financial control. Whether you’re navigating this transition alone or working with professionals like Self Assessment Accountants in London, it’s important to prepare now.

This article explores the upcoming changes, what they mean for small businesses, and how the right support—from Tax Accountants London to a reliable Small Business Accountant London—can help ensure a smooth journey into the digital future of tax.

What is MTD for Income Tax?

MTD for ITSA refers to HMRC’s requirement that certain taxpayers keep digital records and submit quarterly updates of income and expenses using MTD-compatible software. It replaces the current annual Self Assessment process for many individuals, shifting from one yearly submission to regular digital reporting throughout the year.

MTD for ITSA is currently set to become mandatory from April 2026 for self-employed individuals and landlords with an income over £50,000, and from April 2027 for those earning over £30,000. Those earning below this threshold will not yet be required to join the scheme, although voluntary participation is allowed.

Who Will Be Affected?

The following groups will fall under the new MTD for ITSA rules:

• Self-employed individuals
• Landlords receiving income from UK property
• Partnerships (implementation delayed until a later stage)
• Sole traders earning over the stated thresholds

This means millions of taxpayers who currently complete a Self Assessment tax return annually will need to switch to digital record-keeping and provide quarterly updates instead.

For these individuals, the assistance of Self Assessment Accountants in London becomes more valuable than ever. These professionals are already familiar with MTD requirements and can provide practical advice and support to ensure compliance.

Key Requirements of MTD for ITSA

Under MTD for Income Tax, affected taxpayers will need to:

1. Keep digital records of income and expenses.
2. Submit quarterly updates to HMRC through MTD-compatible software.
3. Submit an End of Period Statement (EOPS) at the end of the year, adjusting for any allowances or reliefs.
4. Submit a Final Declaration, confirming all income from all sources and finalising the tax position.

This new process is intended to provide more real-time insight into a taxpayer’s financial position and help reduce errors that often occur in annual returns.

How MTD for ITSA Will Impact Small Businesses

For small business owners, particularly sole traders and freelancers, the transition to MTD for ITSA will require some operational changes. These may include:

• Digitalising accounting systems: Businesses that currently keep paper records or use spreadsheets will need to move to cloud-based accounting platforms.
• Adapting to quarterly submissions: Rather than focusing on tax only once a year, businesses will need to adopt a more continuous approach to financial management.
• Managing cash flow more closely: With more regular reporting, understanding real-time financial performance becomes essential.

This is where a Small Business Accountant London can be an invaluable partner. By offering guidance on software, helping interpret financial data, and ensuring accurate quarterly reporting, they allow business owners to focus on operations while staying compliant.

Benefits of MTD for Small Businesses

Though the transition might seem daunting at first, MTD offers a number of potential benefits to small businesses:

• Improved record-keeping: Digital systems reduce the risk of lost paperwork and help maintain organised, timely records.
• Greater financial visibility: Regular reporting gives business owners more frequent insights into profits, expenses, and tax obligations.
• Reduced errors: Automated software can catch mistakes before they reach HMRC, reducing the risk of penalties.
• Better decision-making: With accurate financial data available year-round, business owners can make more informed decisions.

Partnering with professionals like Tax Accountants London ensures these benefits are fully realised, while also minimising compliance risks.

Choosing the Right Support

As the MTD for ITSA deadline approaches, many self-employed professionals and landlords are looking for trusted advisors to guide them through the change. When choosing support, consider the following:

• Expertise in MTD: Look for accountants who have already helped clients transition to MTD for VAT or those actively preparing for MTD for ITSA.
• Location and accessibility: Working with a Small Business Accountant London ensures you’re getting local insight and someone who understands the business landscape in the capital.
• Tailored services: Every business is different. Choose Self Assessment Accountants in London who can tailor their advice based on your income streams, structure, and software preferences.
• Use of modern tools: Ensure your accountant uses or recommends MTD-compatible software like QuickBooks, Xero, or FreeAgent.

Don’t Wait—Start Preparing Now

While April 2026 might seem like a distant deadline, the reality is that preparing for MTD for Income Tax takes time. From finding the right software to training your team and updating your accounting workflows, early action will ensure you’re ready for a smooth transition.

Start by assessing your current record-keeping methods. If you’re still using spreadsheets or paper systems, consider speaking to a Tax Accountants London specialist about digital alternatives. If your income hovers near the £50,000 threshold, begin budgeting for quarterly tax management and reporting support.

Final Thoughts

The introduction of MTD for Income Tax represents a fundamental change in how self-employed individuals, landlords, and small business owners interact with HMRC. While the process demands adjustments, it also opens the door to more efficient, transparent, and accurate financial management.

Whether you’re a sole trader, a landlord, or running a growing business, having the right support system in place is key. By working with experienced professionals—whether that’s Self Assessment Accountants in London, a trusted Small Business Accountant London, or seasoned Tax Accountants London—you can confidently embrace the changes ahead and focus on building a stronger financial future.