Budget Focus: MTD ITSA expands to sold traders and landlords

In the latest Autumn Budget, the UK government doubled down on its commitment to digitalising tax processes, announcing that Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will extend to sole traders and landlords with income over £20,000 by the end of this Parliament.

For industry leaders, this budget announcement marks a pivotal opportunity for the UK tax system to embrace technology as a transformative tool for compliance and operational efficiency.

Russell Gammon, Chief Solutions Officer at Tax Systems, emphasized the importance of modernising tax reporting, particularly given the current fiscal pressures.

“The UK continues to navigate a period of significant uncertainty, underscored by the reported £22 billion ‘hole’ in public finances,” said Gammon. “While increased taxes were expected in the autumn budget, this is not the only answer. Embracing technology to streamline financial processes will enable easy, efficient, and accurate tax reporting.” Gammon highlighted the complexities unique to UK tax, noting that partial exemptions alone reveal the unique challenges businesses face in an outdated system.

HMRC’s decision to pursue digital upgrades, with plans to modernise its systems through a technology-focused approach, is aimed at closing the tax gap, a move Gammon sees as encouraging for businesses that are already taking initiative in their digitised tax efforts.

Industry Readiness and Support

As MTD ITSA expands to cover more taxpayers, accounting software providers are gearing up to help businesses transition smoothly. Xero, for example, has been an active participant in MTD trials, and the company stands ready to support accountants, bookkeepers, and small businesses.

“Following the budget, we now have the certainty we all needed to hear around MTD for Income Tax,” shared Kate Hayward, UK Country Manager for Xero. “This will be a big change for everyone, especially now with the lower revenue threshold of £20,000. But typically, when regulation impacts accountants and bookkeepers, the industry responds well and adapts, finding new opportunities from change.”

Xero, in close collaboration with HMRC since 2022 as part of the MTD beta, has announced that its Xero Cashbook plan will soon feature enhancements specifically for MTD ITSA. These improvements aim to make the transition seamless, and Xero plans to roll them out ahead of the public testing phase in April next year​.

Momentum Builds for MTD ITSA

With government momentum behind MTD, Intuit QuickBooks has also reinforced its commitment to ensuring a smooth rollout. Nick Williams, Director of UK Product Management, shared that QuickBooks has been active in testing and refining MTD functionality for the last two years.

“We are in full support of the government’s confirmed commitment to delivering MTD for Income Tax on time,” he stated. “Our work with HMRC has enabled us to support our customers well in advance of the change.” QuickBooks was an early participant in the MTD test phase and has been refining its platform in anticipation of these requirements.

Williams highlighted the broader benefits that digital accounting brings to businesses, especially SMEs. “Using software to keep financial records, while keeping you compliant, encourages you to stay on top of your finances. This approach allows you to manage cash flow better, gain insight into profitability, and know when to chase payments,” he explained. For many businesses, MTD is expected to be a catalyst for improved financial visibility and control​.

A Call for Support and Collaboration

The expansion of MTD ITSA reflects a growing focus on digital compliance, yet successful implementation requires both government support and industry collaboration.

As Gammon aptly put it, “Now is not the time to stagnate. Now is the time to push forward and realise the full potential of the digitalisation of tax.” For the government, delivering a robust support framework and maintaining open dialogue with stakeholders will be crucial as more businesses prepare for the MTD ITSA era.

This commitment to modernising tax processes, alongside HMRC’s broader digital overhaul, signals a critical step in transforming the UK’s tax landscape. With industry support and continuous collaboration, the digitalisation of tax could lay the groundwork for a more efficient, compliant, and transparent system in the years to come.