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Are You Ready for MTD ITSA and Electronic Invoicing? Here’s what you need to know
MTD ITSA (Making Tax Digital – Income Tax Self Assessment)
This is the next phase of the Making Tax Digital journey – payroll being the first, followed by VAT.
Who is affected by this?
This next step is aimed at self-employed individuals including landlords, initially with a turnover of £50,000 or over, followed by those with a turnover of £30,000. Partnerships are soon to follow.
HMRC use the phrase “qualifying income over £50,000/£30,000”. It has been made clear that “qualifying income” refers to turnover. Turnover does not mean profit. It means the total income you receive before any costs have been taken out.
When does it start?
For those with a turnover of £50,000 or more, you need to use the new method from 1st April 2026, making your first return at the beginning of August 2026. For those with a turnover of £30,000 or more, you start on 1st April 2027.
How is the new method different from what I’m doing now?
The three points are:
- Records will need to be held digitally
- You’ll need to use software to submit your tax return
- Returns (or updates) will be submitted quarterly with a final return at the tax year end.
Do I need to do anything now?
Yes absolutely! Don’t wait until it starts, or you might be putting yourself under a huge amount of unnecessary stress.
Implement digitisation of your records at least a year beforehand giving yourself time to get used to the software and a new method of recording your transactions. Once the deadline hits, you’ll be ready to learn how to do your first return.
Whether your deadline is April 2026, or April 2027, you can start now. Digitisation isn’t as scary as it sounds and in most cases, will save you a great deal of time and help to put you in more control of your finances.
Is there easy to use software that can help?
Yes. Software firms are rapidly moving into this space. Companies such as Xero, QuickBooks, Sage, Hammock, and Dext already have versions of their software specifically for MTD ITSA and the small, self employed individual/landlord.
How can COS help?
Through 2025, we will be holding free advice sessions covering the new changes and will demonstrate supporting software. Please register your interest here.
Electronic invoicing
In Spring 2025, the government plans to launch a consultation about electronic invoicing, known as e-invoicing. The consultation is to gather input from businesses on how HMRC can support investment in e-invoicing and encourage uptake within the business community. E-invoicing is likely to be mandatory in future as part of the government’s digitisation strategy.
So what is e-invoicing?
E-invoicing is the process of issuing, sending and receiving invoices in an electronic format. This allows for automatic and electronic processing and will replace the traditional paper and/or PDF invoices. Many governments are already mandating e-invoicing to reduce fraud and increase transparency.
What about PDF invoices and data capture?
PDF invoices sent by email, are a widely used method often used by small to medium companies, but they are not true e-invoices. Although digital, they still require manual data entry, or the use of OCR (Optical Character Recognition) using software such as Dext, Hubdoc, Apron etc. There is still room for errors and requires manual intervention.
What’s next?
We’ll send updates as soon as we know more. If the meantime if you’d like to have a chat about any of the above and how we can support you, please arrange an appointment below.
