Making Tax Digital for Income Tax

Making Tax Digital (MTD) is part of the government’s strategy to modernise the UK tax system and close the tax gap. With the Income Tax element now firmly on the horizon for sole traders and landlords, what do Self Employed Musicians need to know?

KEY ELEMENTS of MTD-ITSA

1 – You will be required to maintain digital business records and use compatible software to submit tax information to HMRC.

MTD compatible software will mean an accounting app, or a spreadsheet linked to bridging software, which can electronically transmit your tax information to HMRC.

HMRC have confirmed that they are not producing their own software so freelancers will need to choose or purchase something appropriate for their business.

2 – You will need to submit 4 quarterly digital updates to HMRC to declare your income and expenses for each annual quarter period. These quarters will be cumulative, so as the year progresses, HMRC will build a picture of your annual income and expenditure.

Each quarter submission will be due on the 7th day of the following month. For example, the quarter ending 5 July 2026 will be due by 7th August 2026. You can elect for your quarters to match calendar quarters if that’s more appropriate.

An End of Period Statement (EPOS) ensures all data is accurate and complete and then a Final Declaration, due by the following 31st January, takes on the core function of the Self Assessment tax return as we currently know it, and confirms your total tax liability for the year.

3 – There is a phased rollout as follows:

From 6 April 2026: Self-employed individuals and landlords with annual gross income exceeding £50,000 must comply with MTD requirements.

From 6 April 2027: The threshold lowers to include those earning over £30,000 annually.

From 6 April 2028: The threshold lowers again, to include those earning over £20,000 annually

WHAT NEXT?

As a musician, you likely juggle multiple income streams, and MTD-ITSA will have a big impact on how you manage your financial records and report your income. Here are our top tips to help you get ready:

Assess your income level: Determine when your annual gross income will exceed the MTD thresholds. Remember, 'gross income' means to total income before any expense deductions.

Do some software shopping: Research and select accounting software that is compatible with MTD-ITSA requirements.

Watch out for this key phrase: Full Software Journey. This means that your chosen MTD software can also complete the final step of submitting your Self-Assessment tax return or Final Declaration as it will become known. The HMRC minimal functional standards for MTD compatible software providers do not include being able to complete this full software journey. So read the fine print on your chosen software.

If you already use software to report your quarterly VAT, check it will be compatible with MTD-ITSA submissions. It’s likely, but not a given!

Practice makes perfect: You know this better than anyone! Start by getting set up on an accounting app to record your income & expenses as soon as possible.

This will enable you to run a trial year of recording income and expenses, and if you get things wrong, you can edit and correct your records before you submit information to HMRC. This way, you can be a confident user of the software by the time you are submitting records in real time to HMRC.

Consider becoming a Beta tester of MTD-ITSA this year. You can sign up voluntarily with HMRC to test the process in the 25/26 tax year. Check your software provider is also ready to do this.

Equally, you can apply for digital exclusion if, for example, you have unreliable broadband or a disability that prevents you using computers. Not wishing to be part of the scheme is not a reasonable claim for digital exclusion unfortunately. The process to claim exemption is expected to be in place by October 2025.

Final Thoughts

Challenges on MTD-ITSA include:

The Learning Curve: Adapting to new software and digital reporting

Cost: Investing in software and perhaps additional accountancy support costs

Time Management: The requirement for regular attention to financial records, when you might previously have done this as an annual blitz on your accounts.

Despite these challenges, MTD offers some genuine upsides such as:

A Real-Time Financial Overview: Your annual tax bill will be updated each time you submit your quarterly return, so you’ll be much more informed about your final tax bill as you go through the year

Reduced Errors: Digital record-keeping can minimise mistakes associated with manual entries

Streamlined Processes: These digital tools should simplify your tax management in the long run.

Resources for Making Tax Digital

Musicians’ Tax Advisor has a regular newsletter, YouTube channel and a programme of MTD-ITSA education events which you can subscribe to for updates.

If you are a member of an organisation such as Musicians’ Union, ISM or Equity, get in touch with your representative and ask what resources they are offering to support you. If you have an accountant, check what their plans are for MTD-ITSA next year.

There are a number of great sites for tax advice but the Low Incomes Tax Reform Group are a particular fave. They have a useful checklist of questions for your potential software provider.

HMRC offers videos and webinars well as a step by step guide for starters.

Our main advice is to stay informed!

We wrote this article for Classical Music Magazine - you can check it out here