About Making Tax Digital for Income Tax
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) changes how sole traders and landlords report income to HMRC. Instead of filling in one Self Assessment return at the end of the year, you keep digital records throughout the year and send HMRC updates on a regular schedule.
Digital records
Once MTD ITSA applies to you, you must keep your business income and expense records digitally, in software rather than on paper or in a general-purpose spreadsheet that is not connected to HMRC-recognised software. Each transaction needs a date, an amount, and enough detail to show what it was for. Paper receipts and invoices are still fine to keep as evidence, but the record of the transaction itself needs to be digital.
Quarterly updates
Instead of one annual return, you send HMRC four updates a year, one per business. Each update covers a three-month period and reports your income and expenses so far. Updates are cumulative within the tax year, meaning each one builds on the last rather than replacing it, so small errors in an earlier quarter can be corrected in a later one before the year is finalised.
Quarterly updates are a running total, not a tax calculation. They tell HMRC what has happened in your business so far. They do not, by themselves, work out how much tax you owe.
Year-end and the Final Declaration
After the fourth quarterly update for a tax year, you complete the year-end process for each business, adding any adjustments, allowances, or reliefs that quarterly updates do not cover. Once every business is finalised, you submit a Final Declaration, which confirms your total income across all sources for the tax year and replaces the old Self Assessment return. This is the point at which your tax liability is actually calculated.
What this service does today
Right now, this service helps you record income and expenses against a business, tag them against HMRC's category set, attach supporting documents, and see a running profit and loss summary for the current tax year. It connects to HMRC so you can send your quarterly updates for self-employment and UK property straight from those records, using the categories HMRC's own system expects.
The year-end process and the Final Declaration are not part of the service yet. Until they are, you will need to finalise your tax year separately, using other software or through HMRC.
Business entertainment and depreciation
Some costs, such as business entertainment and depreciation, are normal accounting costs but are not allowable against tax. This service records them alongside everything else, then flags them separately on your profit and loss summary as add-backs, so your accounting profit and your taxable profit can be told apart.