The Road to MTD ITSA: What We’re Building at Coconut & Why

Making Tax Digital for Income Tax Self Assessment is a topic that’s very much on our minds at Coconut. Whilst 2026 might still feel far off for some, especially as many accountants and bookkeepers only usually interact with their clients on an annual, year-end basis. That only leaves a couple of conversations in which you can bring them up to speed with the changes, and make sure they’re fully onboarded and using a digital product correctly.

‍Ensuring that our software is compliant ahead of time is our primary focus at Coconut, but it’s also critical that we keep our Partner Firms up-to-date with what we’re working on and why; not only to help you use it to its maximum capability, but also because listening to customers and building features based on feedback is a key part of our product process.

So, in this article we’ll be running through the two main projects that we're working on at present, that will ensure that our accounting and tax software is ready for this major change to millions of taxpayers’ processes. These are:

• Supporting individuals with multiple income streams (including property)
• Building the infrastructure necessary to be MTD-compliant

Time to digitise your ITSA clients

First up, a short reminder of the context we’re working in. Under MTD ITSA, individuals with self-employment and/or property income earning over £50,000 per year will need to submit quarterly updates, an end of period statement (EOPS), and final declaration to HMRC using a digital product. This will be the biggest change to the UK tax system since Self Assessments were introduced over 20 years ago, and though subject to various delays, MTD ITSA is now written into law and scheduled to come into effect in April 2026.

Accounting practices are looking for solutions that will help cater to the new requirements for their existing clients, many of whom don’t use software today. And many are also considering the major revenue growth opportunity presented by MTD ITSA—as potentially more than a million taxpayers who don’t currently use an accountant say they’d be willing to pay for accounting services to help with the new requirements.

Coconut: the home for your MTD ITSA clients

Here at Coconut, we’ve been combing through the new technical requirements and adapting our product to cater to all taxpayers that will be affected by the changes.

Whether the clients are sole traders or unincorporated landlords, the workflow for ITSA will be much the same, pulling together income and expenses figures on a quarterly basis, and submitting them to HMRC within 30 days of the period end.

2026 is a tight deadline to be hitting: tighter than it was for MTD for VAT, where clients were much more likely to be on accounting software already. That’s why we’re building software that can be used by both property owners and sole traders (including CIS subcontractors) in a simple way, so that practices of any size can manage their quarterly submissions efficiently, without the additional hassle of teaching clients to use a complex new tool. 

Support for clients with multiple businesses and/or properties

Some ITSA clients are very straightforward: they do one thing and one thing only. But others can get pretty complicated. For instance:

• 320,000 people have a second self-employed job
• 15% of landlords are also self-employed
• 55% of unincorporated landlords have more than one property

Untangling these finances (many of which will span both personal and business accounts) for the purposes of tax returns can be a real headache for accountants and bookkeepers. 

Being able to cater to multiple sole trader and/or property businesses will mean any permutation of these can be served without struggle. Whilst some products out there already offer some support for multiple properties or multiple sole trader business, this often has two problems:

1. It requires using tracking categories built for larger businesses for the purposes of departmental reporting
2. Most software caters to multiple properties OR multiple sole traders business, but not both—meaning nuances such as charts of accounts differences and shared ownership are missed.

That’s why we’ve launched our new ‘Income Streams’ feature, which enables clients to manage income from multiple sole trader or property sources—or both—under a single licence.

We’ve introduced our Income Streams feature entirely in compliance with MTD ITSA reporting requirements from the ground up. This means you can record and submit what are usually messy combinations of income sources much more simply.

Below is a walkthrough of our Income Streams functionality and how we’re building it with MTD ITSA in mind.

MTD ITSA-driven income sources 

In order to guarantee smooth digital submissions, we’ve built the Income Streams feature to align directly with MTD ITSA requirements. 

HMRC requires taxpayers to register their business income under the following five income source categories:

• Sole trader
• UK Property (not FHL)
• UK Furnished Holiday Let (FHL)
• Overseas Property (not EEA FHL)
• EEA FHL

When a client or accountant creates an income stream in Coconut, they will be required to select the type. This will impact which reports are available later in the journey for that income stream.

Note that whilst the category is selected up front when you create a new Income Stream, you can change it later on. This is important because you don’t always know whether a property will qualify as a FHL until the end of the year when occupancy patterns are known.

Unmuddling transactions from business and personal accounts

At Coconut, we believe that cash is king when it comes to bookkeeping. It’s why we’ve built our product with bank feeds via Open Banking at its core, and operate all our accounting on a cash basis. This keeps things simple, and reduces manual work.

Not only does this reduce the reliance on crumpled receipts as the source of truth for record keeping, but means you can be much smarter about building in some initial automation of the categorising transactions.

One of the key selling points that accountants love is that we have two ‘modes’ for the bank or credit card accounts that a user connects, which reflect the reality of bank account usage for sole traders and landlords:

1. Dedicated Business Account: in this case, our category engine will automatically categorise transactions to the appropriate code. 
2. Mixed Personal & Business Account: we’ll give suggested coding for transactions in the background, but the user will have to mark transactions as ‘Business’ to apply that category.

Imagine a scenario where you have a sole trader client that also has a property, who runs all of their finances through one personal bank account. Wouldn’t it be great if that client could connect that bank feed and then syphon off the relevant transactions into each Income Stream, and be ready for MTD ITSA submissions for both from a single licence? 

That’s how Coconut’s Income Streams functionality works.

Setting a primary income stream

Our approach to client record-keeping is to combine light automation with ease of review. The Bookkeeping view in the Accountant Portal makes it super easy to review and amend transaction coding in seconds.

It’s why we are happy to automate transaction coding without needing the user to ‘review’ or ‘complete the bank reconciliation’ as a ceremony (although you can still ‘review’ transactions for peace of mind).

When your clients are managing more than one Income Stream under a single licence, you can specify which one will be the primary one, so that we can assign this by default for any new business transactions.

As clients and accountants assign transactions to other Income Streams, you’ll be creating rules, which will continually improve that automation over time.

The issue of shared ownership

When you have a property with two or more owners, as is very common, this will ultimately require several quarterly submissions for those who qualify for MTD ITSA.

A client in a shared ownership situation will need to be treated differently depending on who they share the property with, particularly when it comes to how figures are presented from a financial performance perspective.

If the client owns a property with their husband or wife, then they will likely care more about the ‘whole’ than their share, and will generally want to see figures grossed up to 100%. But if the relationship is with, say, a friend or sibling, then the client may only want to see their share of the pie.

As far as ITSA submissions are concerned, these will always be based on the client’s ‘own share’. But often an accountant or customer will also want to do the submission for a related party, based on the same set of figures.

That’s why in Coconut, we will be introducing the ability to add ‘related parties’ to an income stream that has shared ownership—meaning that submissions can be completed side by side, and without doubling the workload unnecessarily.

Building the infrastructure necessary to be MTD-compliant

Now that we’ve neatly split out a customer’s income streams, the foundations are laid for us to send HMRC the information needed to meet the MTD ITSA requirements. 

Quarterly submissions

Under the new rules, taxpayers will have to submit at least four 'periodic updates' each year to meet their four quarterly 'obligations'. They have 30 days to send in their updates after each obligation period ends. 

HMRC have said that they are only requiring timeliness of submission for these, and will not be assessing them for accuracy (at least not at first). The sum of the submissions throughout the year will be reviewed and potentially corrected at year end. 

Speed is important 

Given that practices might be doing a lot of these every three months, speed of processing is key—especially as services for sole traders and unincorporated landlords are tight on margins. 

To account for this, we are making our quarterly submission process lightweight and fast. 

Who does the work?

Typically, we see three ways in which accountants are planning to offer MTD ITSA services to their clients:

1. Support only: the client does the bookkeeping and submissions, and can ask questions along the way. The accountant will perhaps complete the year-end declaration.
2. Submission only: the client does the bookkeeping, then the accountant reviews for accuracy and completes the quarterly and annual submissions. 
3. Managed: the accountant does both the books and the submissions. 

These three approaches were also reflected in the results of a survey we ran amongst accountants and bookkeepers to find out whether they think that clients should be able to submit their own quarterly summaries. 

Each approach is usually priced differently to accommodate the wallet and inclination of the client. But whatever the mode of working, the ability to lock transactions once submitted is important. 

Reporting more than quarterly?

HMRC has said that software vendors must give the option for taxpayers to submit data as frequently as they want, e.g. daily. 

You’ll get a new tax liability estimate from HMRC every time you do this—but you'll also have another submission to manage. The annual end of period statement process involves reviewing the sum of periodic updates against the annual figures held in software, and then either correcting the previously submitted updates or posting an annual adjustment. 

As such, we’ll allow these more frequent submissions as required, but we won’t encourage them. 

Consolidated expenses

In the current Self Assessment process, clients with less than £85,000 turnover can complete the SA103S form (S for short), which also lets the client elect to submit consolidated expenses as a single sum rather than a breakdown. 

It has been confirmed by HMRC that this concept will be carried over, and the option is there to submit either consolidated or individual expenses. This may appeal to many taxpayers who don’t wish to share more than they are legally required to with the tax man. 

You’ll determine whether you’re submitting on a consolidated basis when you submit your first periodic update for an accounting period. Once this first submission is done, all of the others for the year must follow suit, including the annual statement. 

In-year tax calculations

Each time a submission is made, a client’s tax liability will be updated. HMRC offers two in-year tax calculations that software may show to clients and their agents:

1. Tax liability to date: based on income reported so far
2. Full-year tax estimate: based on estimated full-year income, which HMRC will calculate by extrapolating what has been submitted so far

Neither is perfect, but both are useful. 

It’s important that clients understand that the tax liability to date is not a forecast, and is also going to be back-weighted to later quarters once allowances and basic tax bands have been consumed. 

Likewise, the full-year tax estimate is likely to be least accurate in quarter one, when it calculates annual income on that basis. It’s also unclear how it will include employment and other income in the forecast, so should be treated with a pinch of salt. 

Coconut will focus on presenting the tax liability first and foremost, with appropriate explanations of what the figure is and how it may be interpreted. 

End of period statement process

At the end of the year, there are three steps to complete:

First, annual accounting adjustments and capital allowances must be completed (although this may be done at any time throughout the year).

Secondly, the total income and expenditure reported must be aligned with what’s in the software, and any adjustments posted. This can be done by:

1. Amending any periodic update figures that no longer match what was originally reported, e.g. due to new transactions being added or recordings post-submission
2. Completing the annual adjustment process, where high-level adjustments can be posted per reporting category. This can either be to correct totals, or for accounting adjustments such as ‘use of home as office’. 

The third step is to provide an end of period statement declaration once the figures are finalised. 

This must be repeated for each sole trader and property income stream. 

Additional income sources

Once each business income source has been locked in via the EOPS, some taxpayers may be able to move straight to the final declaration. 

Others will have additional income to report, such as employment income, capital gains, dividends etc. 

There are a few options for adding this extra information:

1. Coconut will be supporting the major items on this list, to enable an end-to-end workflow
2. HMRC is developing a final declaration user interface for taxpayers wishing to add their additional information
3. Tax software (such as TaxCalc and Taxfiler) that focuses on comprehensive support for 100% of the existing Self Assessment forms—from seafarers to vicars—will be offering similar support with the new MTD ITSA process. 

The exciting thing with MTD ITSA is that the flow of information is no longer ‘submit only’. It’s now possible to pull data from HMRC, whether held by them or submitted through other software. 

Annual EOPS data submitted through Coconut will be available in any tax filing software integrated with MTD ITSA, meaning that accountants can pick up a final declaration process for a client who completed their sole trader or landlord submissions in Coconut, and have all of that information available in tax filing software, with HMRC being the point of data sharing between the two. 

This means that practices can choose to use Coconut for final declarations for clients with simple tax setups, and defer to tax filing tools for more complex or obscure tax requirements. Alternatively, practices may choose to use Coconut for the EOPS, and tax software for final declaration, to keep everything in one place. 

Either way, Coconut will know if a final declaration has been completed in tax software rather than in Coconut, allowing it to be an end-to-end workflow tool—wherever you choose to complete the annual declaration from. 

Want to find out more?

Keen to learn more about how Coconut will help you and your clients manage the changes on the horizon with MTD ITSA?

The best approach is to book a short demo with our team, in which we can show you how both the app and Portal work, and answer any questions you have around how Coconut will optimise your practice's workflows.

Book a call now