Making Tax Digital (MTD) for Income Tax Self Assessment — known as MTD ITSA — is one of the most significant changes to how self-employed people and landlords report their tax in a generation. From April 2026, sole traders and landlords with qualifying income over £50,000 must keep digital records and submit quarterly updates to HMRC. This article explains what is changing, who is affected, and what you need to do to prepare.
What Is Making Tax Digital for Income Tax?
MTD ITSA is HMRC’s programme to digitise the tax reporting process for individuals with trading and property income. Instead of completing a single annual Self Assessment tax return, affected taxpayers will:
- Keep digital records of income and expenses using compatible software
- Submit quarterly updates to HMRC summarising income and expenses for each quarter
- Submit a final declaration (replacing the Self Assessment return) after the end of the tax year to finalise their tax position
The aim is to reduce errors caused by annual record-keeping, make it easier for taxpayers to understand their liability throughout the year, and enable HMRC to detect discrepancies more quickly.
Who Is Affected and When?
The rollout is phased:
| When | Who |
|---|---|
| April 2026 | Sole traders and landlords with qualifying income over £50,000 |
| April 2027 | Sole traders and landlords with qualifying income over £30,000 |
| April 2028 (proposed) | Sole traders and landlords with qualifying income over £20,000 |
“Qualifying income” means the combined gross income from self-employment and UK property before expenses. It is not profit — it is your top-line turnover or rental receipts.
If you have multiple income sources, they are combined for this threshold. For example, a landlord with rental income of £30,000 and self-employment income of £25,000 has qualifying income of £55,000 — over the £50,000 threshold from April 2026.
Partnerships are not in scope for the first phase but will follow in a later stage. PAYE employees without significant trading or rental income are not affected.
The Quarterly Reporting Cycle
Under MTD ITSA, your tax year is divided into four quarterly periods:
| Quarter | Period | Submission deadline |
|---|---|---|
| Q1 | 6 April – 5 July | 5 August |
| Q2 | 6 July – 5 October | 5 November |
| Q3 | 6 October – 5 January | 5 February |
| Q4 | 6 January – 5 April | 5 May |
Each quarterly update must summarise income and expenses for that period. Crucially, these are updates, not tax returns — you are not paying tax quarterly or making a formal declaration at this stage. The updates give HMRC (and you) a running picture of where your tax position is heading.
At the end of the tax year, you submit the end of period statement (EOPS) to finalise the figures for each income source, followed by the final declaration to confirm your overall tax position and include any other income (such as employment income, dividends, or savings interest). The final declaration replaces the current Self Assessment tax return.
What Compatible Software Do You Need?
HMRC will not provide its own free MTD ITSA software for most users. You will need to use HMRC-recognised MTD-compatible software from a third-party provider. HMRC maintains a list of approved software on gov.uk.
Many existing accounting and bookkeeping platforms are already developing or have released MTD-compatible versions. Examples of widely used software that is expected to be MTD ITSA compatible include:
- QuickBooks (Intuit)
- FreeAgent (part of NatWest Group — free for NatWest/RBS business banking customers)
- Xero
- Sage
- Crunch and other specialist self-employed accounting platforms
Spreadsheets are permitted only if used in conjunction with bridging software that connects them to HMRC’s MTD API. A basic spreadsheet alone will not be sufficient.
For very simple cases, HMRC says it will ensure free-tier software is available for eligible taxpayers. Check the current list at gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax.
What Records Do You Need to Keep Digitally?
Under MTD ITSA, you must maintain digital records of:
- The date, category, and amount of each income transaction
- The date, category, and amount of each expense transaction
- For landlords: records for each property separately (where you have multiple properties)
You cannot simply total up figures at quarter-end — transactions must be entered individually (though many software packages allow you to import bank transaction data automatically).
Receipts can be stored digitally or on paper, but the transactional data itself must be in a digital format that can feed the quarterly submission.
What Happens Under the Old System While MTD Rolls Out?
If you are not in scope for MTD ITSA from April 2026 — for example, you have qualifying income under £50,000 — you continue with the current annual Self Assessment system until your threshold is reached or HMRC extends the mandation date.
MTD for VAT is already live and mandatory for VAT-registered businesses. If you are already doing MTD VAT, the principles are similar but the systems are separate — your VAT software may or may not include income tax MTD functionality.
Penalties Under MTD ITSA
HMRC has introduced a new points-based penalty system for MTD ITSA. Instead of automatic cash penalties for missing each filing obligation, taxpayers accumulate penalty points:
- 1 point per missed quarterly update
- 1 point per missed final declaration
- Once a threshold is reached (4 points for quarterly filers), a £200 penalty is charged
- Each further missed filing adds another £200
- The points counter resets after a period of full compliance
This is intended to be more proportionate than the current Self Assessment fixed penalty regime, particularly for occasional lapses. However, persistent non-compliance will still result in escalating penalties.
How to Prepare for April 2026
If you are a sole trader or landlord with qualifying income over £50,000, here is what to do now:
- Check if you are in scope — look at your 2024-25 self-assessment return to see your qualifying income
- Choose compatible software — compare options on the HMRC-approved list and start using it now to build the habit of digital record-keeping
- Sign up for MTD ITSA — you must sign up via HMRC before you start using MTD, even if the mandate doesn’t begin until April 2026. HMRC is running a voluntary pilot — signing up early gives you time to iron out any issues
- Talk to your accountant — if you use an accountant to file your Self Assessment, make sure they are MTD-ready and understand how the new quarterly process will affect your working relationship
- Review your record-keeping — if you currently keep records in a shoebox or an annual spreadsheet, start moving to a transaction-by-transaction approach now
Use our self-employment tax calculator to estimate your income tax and National Insurance for the current year.