Making Tax Digital for Income Tax: What to Know Since April 2026

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. Since 6 April 2026, sole traders and landlords with qualifying income over £50,000 (assessed on their 2024-25 tax year) have been required to keep digital records and submit quarterly updates to HMRC. This article explains what changed, who is affected, and what you need to do now, whether you are already in scope or in a later wave.

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:

1. Keep digital records of income and expenses using compatible software
2. Submit quarterly updates to HMRC summarising income and expenses for each quarter
3. 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:

“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 that has applied since 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:

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 finalise your income tax position: you confirm the figures for each income source, add any other income (such as employment income, dividends, or savings interest) and submit the final declaration to confirm your overall tax position. The final declaration replaces the current Self Assessment tax return.

For the exact 2026-27 dates - including the calendar-quarter election option and what happens if you miss one - see our Making Tax Digital deadlines calendar.

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 If You Are Not Yet in Scope?

If you are not yet in scope for MTD ITSA — for example, your 2024-25 qualifying income was under £50,000 — you continue with the current annual Self Assessment system until your wave begins (April 2027 for income over £30,000, April 2028 for income over £20,000). HMRC says that if you need to use the service now or in a later tax year, you should follow the steps and sign up, and it will review your Self Assessment return each year to check your qualifying income.

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:

• No penalties apply for missing a quarterly update deadline in the 2026-27 tax year, though you still must send the updates before you submit your final declaration
• From 2027-28, 1 point per missed quarterly update and 1 point per missed final declaration deadline
• Once the threshold is reached (4 points), a £200 penalty is charged
• Each further missed deadline adds another £200
• Points below the threshold drop off automatically after 24 months; once you hit the threshold you must submit on time for 12 months and send everything outstanding to clear them

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.

What to Do Now

If you are a sole trader or landlord whose qualifying income was over £50,000 in 2024-25, you should already have started using MTD for Income Tax, and HMRC says you can still sign up if you have not. If your qualifying income is lower, use the time before your wave starts to get ready. Here is what to do:

1. Check if you are in scope — look at your 2024-25 self-assessment return to see your qualifying income, or use our Making Tax Digital checker
2. Choose compatible software — compare options on the HMRC-approved list and start using it to build the habit of digital record-keeping
3. Sign up for MTD ITSA — you must sign up via HMRC before you start using MTD. If you are in the first wave and have not signed up, do so now. If your wave starts later, HMRC’s guidance is to be signed up and prepared before you need to use it, which gives you time to iron out any issues
4. 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 affects your working relationship
5. Review your record-keeping — if you currently keep records in a shoebox or an annual spreadsheet, move to a transaction-by-transaction approach

Use our self-employment tax calculator to estimate your income tax and National Insurance for the current year.