Making Tax Digital for Income Tax (MTD ITSA)
If you earn income from self-employment or property, MTD ITSA could apply to you soon — and getting prepared now is the best way to avoid penalties and stress later.
What Is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax – often shortened to MTD ITSA (Income Tax Self Assessment) – is part of HMRC’s long-term digital transformation. It affects how self-employed individuals and landlords must report their income to HMRC.
The government initiative is designed to modernise the UK’s tax system by requiring taxpayers to keep digital records and send quarterly income updates to HMRC using compatible software.
This replaces the traditional once-a-year Self Assessment tax return with a more regular, digital reporting process.
Who Will Be Affected by MTD for Income Tax?
MTD IT will apply to you if:
You are self-employed (sole trader)
You are a landlord receiving income from UK property
Your combined income from self-employment and property exceeds £30,000 per year
✅ Example: If you earn £22,000 from self-employment and £12,000 in rental income, you’ll need to follow MTD rules (total: £34,000).
Key Dates for MTD ITSA
| Phase | Details | Date |
|---|---|---|
| Pilot Testing | Open to voluntary participants | Ongoing |
| Mandatory Start | For self-employed and landlords earning over £30,000 | April 2026 |
| Expansion | Expected for income between £10,000–£30,000 | TBC (post-2027) |
What Are the MTD for Income Tax Requirements?
Under MTD ITSA, you must:
Keep digital records of all business income and expenses
Submit quarterly updates to HMRC (every 3 months)
Submit an End of Period Statement (EOPS) to finalise business income
Submit a Final Declaration (formerly Self Assessment)
🧠 Tip: Your Final Declaration replaces the traditional tax return and confirms all income sources.
What Counts as Digital Record Keeping?
You must use HMRC-approved software (such as Xero, FreeAgent, QuickBooks, or Sage) to record:
Sales and income
Purchases and expenses
Bank transactions
Allowable business deductions
❌ Spreadsheets alone won’t meet the requirements unless they’re connected to bridging software.
What Software Can I Use?
HMRC has confirmed over 500 compatible products. Popular choices include:
| Software | Pros | Ideal For |
|---|---|---|
| Xero | Intuitive, good for small business | Freelancers, limited companies |
| FreeAgent | Free with some bank accounts | Sole traders |
| QuickBooks | Payroll and VAT options | Small to medium enterprises |
| Sage | Scalable for growing firms | Larger businesses |
✅ Choose software that integrates bank feeds, automates VAT (if applicable), and simplifies year-end reporting.
What If I Don’t Comply with MTD IT?
Non-compliance with MTD for Income Tax could lead to:
Late submission penalties
Interest on unpaid tax
Fines for incorrect records
From 2026, HMRC will introduce a points-based penalty system, replacing the current fine-based regime. Each missed quarterly update may incur a penalty point — and after a threshold, a financial penalty will apply.
How to Prepare for MTD IT
Here’s how to get ready before MTD becomes mandatory:
✅ Step 1: Review your income
Make sure your combined self-employment and rental income is above £30,000. If not, you won’t be included (yet).
✅ Step 2: Choose MTD-compatible software
Start trialling software that fits your business, and migrate your records well before April 2026.
✅ Step 3: Keep digital records now
Begin maintaining digital bookkeeping records. This will make the transition smoother when MTD becomes compulsory.
✅ Step 4: Speak to your accountant
A qualified accountant can help you automate updates, reduce tax liability, and avoid MTD penalties.
MTD IT vs Self Assessment – What’s the Difference?
| Feature | MTD for Income Tax | Self Assessment |
|---|---|---|
| Submissions | 5 per year (4 quarterly + 1 final) | 1 per year |
| Format | Digital via software | Online or paper |
| Record-keeping | Ongoing, digital | Often manual |
| Deadlines | Every 3 months + Final Declaration | 31 January annually |
Is MTD for Income Tax Mandatory?
Yes — from April 2026, it will be mandatory for anyone who:
Is self-employed or a landlord
Has gross income over £30,000 per year
Falls under the Self Assessment system
Partnerships and income below £30,000 will be brought in at a later date.
Benefits of Making Tax Digital for Income Tax
While the change may feel disruptive, MTD IT offers real benefits:
✅ Fewer surprises at year-end
✅ Better cash flow forecasting
✅ Reduced tax errors and penalties
✅ More accurate business records
✅ HMRC integration to pre-fill data
Need Help with MTD IT?
Our experienced team of tax advisers and accountants can:
Help you set up MTD-compatible software
Provide training and support
Ensure you meet all deadlines
Act as your MTD agent with HMRC
Contact us today to stay ahead of the 2026 changes and ensure a smooth transition to Making Tax Digital.
FAQ: Making Tax Digital for Income Tax
What is MTD ITSA?
MTD ITSA stands for Making Tax Digital for Income Tax Self Assessment. It’s HMRC’s new system for digital tax reporting.
When does MTD for Income Tax start?
It becomes mandatory from April 2026 for self-employed individuals and landlords with income over £30,000.
Do I still have to do a tax return under MTD?
You’ll no longer submit a single annual tax return. Instead, you’ll submit quarterly updates plus a final declaration.
Do I need an accountant for MTD IT?
Not required by law, but highly recommended. An accountant can reduce errors, manage deadlines, and help with software.
Is FreeAgent or QuickBooks better for MTD?
Both are MTD-compliant. FreeAgent suits sole traders and freelancers; QuickBooks works well for small businesses with employees.