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Common mistakes to avoid when transitioning to Making Tax Digital for Income Tax Self-Assessment

Making Tax Digital (MTD) is a Government initiative designed to make it easier for individuals and businesses to get their taxes right and keep on top of their finances.

One of the areas impacted by this transition is Income Tax Self-Assessment (ITSA).

From April 2026, self-employed individuals and landlords with an annual turnover above £50,000 will be required to use software to keep digital records and submit Income Tax updates. This will be from April 2027 if your income is between £30,000 and £50,000.

Transitioning to a digital system can be quite the task, especially for those accustomed to traditional record-keeping and tax reporting methods.

While the transition to MTD is generally designed to simplify the tax process, there are some common mistakes you should be aware of to ensure a smooth transition.

Waiting until the last minute

Procrastination is a common issue, but when it comes to transitioning to MTD for ITSA, it can be costly.

There is a fair bit of work involved, including choosing compliant software, importing existing records, and understanding new workflows; you should give yourself plenty of time to adapt.

Failing to keep accurate digital records

One of the main requirements of MTD is maintaining digital records of your financial transactions.

Some may make the mistake of keeping partial records, or not updating records regularly. Such an approach can lead to incorrect tax calculations and subsequent penalties.

Choosing the wrong software

It’s critical to choose software that is compatible with MTD for ITSA. Not all accounting software options are compliant, so make sure you select a solution that is recognised by HM Revenue & Customs (HMRC).

It is important to research and consider whether you need additional functionalities like payroll or inventory management.

Not seeking professional guidance

Many people assume they can manage the transition themselves and then find that they are overwhelmed by the complexities.

If you are not confident about the process, it’s important to seek guidance from tax advisors or accounting professionals who are already familiar with MTD.

Incorrectly setting up accounting periods

When setting up your accounting software, you’ll have to define your accounting periods correctly.

Failing to do so may lead to discrepancies in your reporting, affecting your tax liabilities.

Mixing personal and business transactions

If you use a single account for both personal and business transactions, you might find it challenging to separate them when you transition to MTD.

Create a dedicated business account to simplify your record-keeping and keep your different expenditures separate.

Overlooking quarterly reporting

Under MTD for ITSA, businesses are required to send quarterly summaries of their income and expenditure to HMRC.

Neglecting this requirement could lead to financial penalties for failing to comply with MTD rules.

Neglecting data security

Your financial information is highly sensitive. Using software that doesn’t comply with security standards can put your data at risk.

It is vital to make sure that whatever accounting solution you choose is secure and complies with GDPR laws.

If you would like support with MTD for ITSA from our expert team, please contact us today.


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