What UK Self-Employed Workers and Landlords Need to Know About MTD ITSA and FreeAgent

In recent years, the UK government has been making significant changes to the way self-employed individuals and landlords manage their taxes. The introduction of Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is one of the most important changes, and it’s crucial that you understand what it means for you and your business.

If you’re self-employed, a landlord, or managing any form of income that’s subject to Income Tax, you’ll need to comply with MTD ITSA. Fortunately, tools like FreeAgent can help you stay on top of this new digital tax system and simplify your financial reporting.

Let’s break down what MTD ITSA is, what you need to know, and how FreeAgent can make the transition smoother.

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What is MTD ITSA?

Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is part of the UK government’s drive to digitalise the tax system. The aim is to make the process of reporting income, calculating tax, and making payments more efficient and accurate by using digital tools.

The rollout of MTD ITSA is being phased in, and it will affect self-employed individuals, landlords, and other income earners who currently submit their Income Tax returns through the self-assessment system.

Under MTD ITSA, all taxpayers who are self-employed or earn rental income will need to:

1. Use compatible software to maintain records of income and expenses.
2. Submit quarterly updates to HMRC with details of their income and expenses, rather than just submitting an annual Self-Assessment tax return.
3. Submit a final End of Period Statement (EOPS) at the end of the tax year, which will be used to calculate the final tax liability.

This means more frequent reporting, and ultimately, a more streamlined system for both individuals and HMRC.

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Key Dates for MTD ITSA

MTD ITSA will be introduced in three phases:

• From April 2026, for individuals with qualifying income over £50,000.
• From April 2027, for individuals with qualifying income over £30,000.
• From April 2028, for individuals with qualifying income over £20,000.

This phased approach allows you time to prepare for the changes. However, you can choose to voluntarily sign up for MTD ITSA earlier if you wish. For smaller businesses and landlords with income under these thresholds, MTD ITSA will not apply immediately, but it’s still a good idea to start preparing.

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What Do You Need to Do to Comply with MTD ITSA?

1. Register for MTD ITSA: When it becomes mandatory, you’ll need to register for MTD ITSA through your HMRC online account.
2. Use Software for Record-Keeping: You’ll need to keep records of your income and expenses using compatible software. This is where FreeAgent comes in.
3. File Quarterly Updates: Instead of just an annual Self-Assessment return, you’ll need to file quarterly updates with HMRC. This requires keeping track of your income, expenses, and other financial data regularly.
4. End of Period Statement (EOPS): At the end of the year, you’ll need to submit a final statement summarising your income and expenses, which will then be used to calculate your final tax liability.

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How FreeAgent Can Help You with MTD ITSA

FreeAgent is an accounting software solution that’s fully compatible with MTD ITSA, making it an excellent choice for self-employed individuals and landlords looking to stay compliant. Here’s how FreeAgent can make managing your tax easier:

1. Seamless MTD ITSA Integration

FreeAgent is recognised by HMRC as a compatible software for MTD ITSA, meaning it can automatically submit your quarterly updates and final End of Period Statement directly to HMRC. This removes the hassle of manually submitting information or worrying about compliance.

2. Effortless Income & Expense Tracking

FreeAgent helps you keep track of your income and expenses in real time, so you don’t have to scramble to gather data when it’s time to file. It allows you to connect your bank accounts directly to the software, making it easy to categorise transactions and track your profits.

3. Simple Quarterly Reporting

With FreeAgent, submitting your quarterly updates to HMRC is straightforward. The software allows you to input your income and expenses easily, and it automatically generates the necessary reports for each quarter, ensuring you stay on track with MTD ITSA requirements.

4. Tax Calculations & Forecasting

FreeAgent will calculate your tax liability based on your real-time income and expenses. This feature helps you anticipate your tax bill and avoid any surprises at the end of the year. Plus, it can help with budgeting and forecasting for the future.

5. Automated End of Period Statement (EOPS)

At the end of the tax year, FreeAgent will automatically prepare your End of Period Statement, which is then submitted to HMRC. This makes filing your annual return quicker and easier than ever before.

6. Access to Professional Support

If you need help along the way, FreeAgent provides access to expert advice from accountants. You can also integrate FreeAgent with your accountant’s software to make collaboration even easier.

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Why MTD ITSA is a Positive Change

Though MTD ITSA may seem like a lot of work at first, it actually provides many benefits:

• Better Accuracy: By using digital tools and submitting information regularly, there’s less chance of errors or mistakes that can occur when filing at the end of the year.
• Real-Time Financial Overview: Quarterly updates give you a clearer picture of your financial situation, which can help you make more informed business decisions.
• Easier for HMRC: Regular updates from taxpayers mean HMRC can process information faster, reducing the chances of delays or disputes.

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FreeAgent at No Extra Cost

We understand that navigating these changes can feel overwhelming. That’s why, as part of our commitment to supporting our clients, we provide FreeAgent at no extra cost. This powerful tool makes it easier to comply with MTD ITSA and keeps your business finances in order without the hassle.

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Conclusion

With the transition to MTD ITSA, the way we handle taxes in the UK is changing. The good news is that tools like FreeAgent can make the process easier, helping you stay on top of your tax obligations and avoid costly mistakes. By getting started early and using MTD-compliant software, you’ll be well-prepared for the future of tax reporting.

Need Help?
If you’re not sure where to start or want assistance with MTD ITSA compliance, feel free to get in touch with us. We can help you choose the right software and guide you through the process.