Making Tax Digital for Income Tax (MTD IT) — What You Need to Know by 2026

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.

MTD - How to Get Ready

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.

What Is Making Tax Digital (MTD ITSA)?

Making Tax Digital (MTD) is HMRC’s flagship initiative to modernise the UK tax system. Instead of filing one big annual Self Assessment tax return, affected taxpayers will keep digital records and send HMRC quarterly updates, followed by a year-end declaration.

The first stage of MTD covered VAT-registered businesses. The next stage is Making Tax Digital for Income Tax Self Assessment (MTD ITSA), which applies to the self-employed and landlords with qualifying income above certain thresholds.

Why MTD ITSA Matters: Benefits & Policy Goals

MTD isn’t just about compliance—it’s designed to make life easier for taxpayers and reduce HMRC’s £5 billion tax gap caused by errors.

Benefits of MTD ITSA include:

• Fewer mistakes thanks to digital record-keeping

• Less stress at year-end with quarterly submissions instead of one big tax return

• Better visibility of income and expenses, improving cash flow planning

• A simpler, more modern process for those already comfortable with apps and online accounting software

For businesses already using accounting software, the shift is less disruptive and can even provide efficiency gains.

Pros	Cons
Fewer errors thanks to digital record-keeping	Extra admin with quarterly submissions
Improved visibility of tax position during the year	Software costs may increase for small businesses
Smoother year-end process with no full tax return	Learning curve for those used to paper/spreadsheets
Compatible with modern cloud accounting tools	Potential penalties for missed quarterly deadlines

Key Reporting Requirements Under MTD ITSA

Report	Frequency	Deadline
Quarterly Update	Every 3 months	7th of the month following quarter end
End of Period Statement (EOPS)	Annually	By 31 January after tax year end
Final Declaration	Annually	By 31 January after tax year end

From your first MTD-mandated tax year, you’ll need to:

1. Keep digital records – Income and expenses must be logged using compatible software or spreadsheets linked via bridging tools.

2. Submit quarterly updates – You’ll send a summary of income and expenses to HMRC every three months. Deadlines are normally the 7th of the month following the quarter end.

3. File an End-of-Period Statement (EOPS) – Once the tax year ends, you’ll confirm any adjustments, reliefs, or allowances.

4. Make a Final Declaration – This replaces the Self Assessment tax return. It’s due by 31 January after the end of the tax year, confirming your full tax liability.

💡 Important: Payment dates (31 January and 31 July) don’t change under MTD ITSA.

Who Is Affected & Who Is Exempt?

Start Date	Who Must Join MTD ITSA
6 April 2026	Self-employed & landlords with gross income over £50,000
6 April 2027	Self-employed & landlords with gross income between £30,000–£50,000
6 April 2028 (expected)	Potential extension to those with gross income over £20,000

Exemptions may apply if:

• It’s not reasonably practicable to use digital tools (e.g. due to age, disability, or lack of internet access)

• You fall into specific excluded categories, such as ministers of religion or certain tax allowance recipients

• Your combined self-employment and property income is below the threshold

If you’re under the threshold, you can still sign up voluntarily to benefit from digital record-keeping.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)

Penalties & Compliance Rules

MTD ITSA brings a new points-based penalty system:

• Every missed submission earns a penalty point.

• When you reach the penalty threshold, a financial fine applies.

• Points expire after a set period of compliance, encouraging good habits.

This system is designed to be fairer than automatic fines, giving taxpayers a chance to correct mistakes before being penalised.

💻 MTD IT-Compatible Software Comparison

Choosing the right Making Tax Digital for Income Tax (MTD IT) software is key to staying compliant and saving time. Below is a comparison of popular HMRC-approved options based on features, pricing, and ease of use.

Provider	Key Features	Starting Price	HMRC Approved	Best For
QuickBooks	Cloud accounting, bank feeds, mobile app, automated tax estimates	From £12/month	✅ Yes	Small businesses and landlords
Xero	Easy invoicing, payroll, real-time reports, multi-user access	From £15/month	✅ Yes	Growing businesses
FreeAgent	User-friendly dashboard, expense tracking, direct HMRC integration	Free with certain bank accounts	✅ Yes	Freelancers and contractors
Sage	Advanced reporting, inventory management, robust security	From £14/month	✅ Yes	Established businesses

💡 Tip: Always check the latest HMRC list of approved software before committing, as new providers are regularly added.

✅ 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.

📅 MTD IT Timeline — From 2025 to 2026

🗓️

April–June

First quarterly update for the tax year submitted via MTD-compatible software.

💻

July–September

Second quarterly update — a chance to check if tax savings are on track.

📊

October–December

Third update — helps plan for the upcoming self-assessment payment.

✅

January–March

Final quarterly update for the year — keep all records accurate and complete.

📄

31 January

Final Declaration deadline — replaces the traditional Self Assessment submission.

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.

Real Scenarios: How MTD IT Works in Practice

Profile	Income & Situation	MTD IT Approach	Outcome
Freelance Graphic Designer Sarah, earning £38,000/year	Self-employed, works from home, previously filed annually	Adopted MTD-compatible software to submit quarterly updates	Eliminated last-minute stress, improved cash flow tracking
Landlord with Two Properties John, £22,000 rental income	Keeps records in spreadsheets, no previous digital submissions	Used bridging software to link spreadsheets to HMRC	Avoided penalties, kept preferred record-keeping method
Side Hustle Sole Trader Emma, online shop owner	Earns under £30k, runs business alongside full-time job	Simple cloud-based bookkeeping for quarterly submissions	Kept business and personal finances separate, ready for growth

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.

⚠️ MTD IT Penalty Points System

HMRC’s penalty system for Making Tax Digital for Income Tax (MTD IT) works on a points basis. Points are given for late submissions, and once you hit the threshold, a financial penalty applies. Staying compliant helps you avoid unnecessary costs.

Submission Frequency	Points Threshold	Penalty Trigger
Annual	2 points	£200 fine when threshold reached
Quarterly	4 points	£200 fine when threshold reached
Monthly	5 points	£200 fine when threshold reached

How Points Expire

• Annual filers: Points expire after 24 months of compliance
• Quarterly filers: Points expire after 12 months of compliance
• Monthly filers: Points expire after 6 months of compliance

💡 Tip: Keep track of your points via your HMRC online account to avoid accidental penalties.

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.

📝 How to Register for Making Tax Digital for Income Tax (MTD IT)

Registering for Making Tax Digital for Income Tax (MTD IT) is a straightforward process if you have the right information ready. Follow the steps below to ensure a smooth sign-up and avoid delays.

1. Check if You’re Eligible
   Confirm that your income from self-employment or property exceeds £10,000 per year. If so, you’ll need to follow MTD IT rules from your mandated start date.
2. Get a Government Gateway ID
   If you don’t already have one, register for a Government Gateway account.
3. Gather Your Information
   You will need:
   • National Insurance number
   • Business or trading name
   • Email address
   • Accounting period start and end dates
4. Choose HMRC-Approved MTD Software
   Select a provider from the HMRC-approved list.
5. Sign Up via HMRC
   Use the HMRC online service to register. Your software may guide you through this process.
6. Wait for Confirmation
   HMRC will confirm your registration via email. This can take up to 72 hours. Do not submit returns until you receive confirmation.
7. Start Keeping Digital Records
   From your mandated start date, record income and expenses digitally and submit updates quarterly through your chosen software.

💡 Tip: Register early to avoid last-minute issues, especially if you’re approaching your first submission deadline.

✅ MTD IT Compliance Checklist

Use this checklist to make sure you meet all the requirements for Making Tax Digital for Income Tax (MTD IT). Tick each item as you complete it to stay compliant and avoid penalties.

Task	Status	Notes
Check if your income meets the £10,000 threshold	⬜	Includes combined self-employment and property income
Set up a Government Gateway account	⬜	Register here
Choose HMRC-approved MTD IT software	⬜	View list
Register for MTD IT via HMRC	⬜	Sign up here
Digitally record all income and expenses	⬜	Required from your mandated start date
Submit quarterly updates via software	⬜	Deadlines usually 1 month after each quarter
Submit end-of-period statements and final declaration	⬜	Replaces the current Self Assessment return

⚠️ Missing deadlines can result in penalties. Set reminders in your calendar to stay on track.

🚫 Common MTD IT Mistakes to Avoid

Even with the right software and guidance, many taxpayers make avoidable errors when complying with Making Tax Digital for Income Tax (MTD IT). Here’s how to steer clear of the most common pitfalls.

• Missing the Registration Deadline
  Waiting too long to register with HMRC can delay your ability to file and may trigger penalties. Tip: Register at least a month before your mandated start date.
• Choosing Non-Approved Software
  Not all accounting software is MTD IT compliant. Always pick from HMRC’s approved software list.
• Not Keeping Digital Records from Day One
  HMRC requires income and expense records to be digital from your start date — spreadsheets alone may not meet the standard.
• Submitting Incomplete Data
  Missing transactions or forgetting to include certain income sources can lead to inaccurate tax calculations and possible audits.
• Ignoring Quarterly Deadlines
  Late submissions can result in penalties. Deadlines are typically one month after each quarter ends.
• Forgetting the Final Declaration
  MTD IT replaces the Self Assessment return with a final declaration — failing to submit this means your tax year isn’t officially closed.
• Assuming MTD IT is Optional
  If your total qualifying income exceeds £10,000, it’s a legal requirement — not a choice.

✅ Pro tip: Create a recurring reminder for all quarterly deadlines and keep a checklist of your income sources to ensure nothing is missed.

📖 Case Study: A Self-Employed Landlord’s Journey to MTD IT Compliance

Real-life scenarios can make tax rules easier to understand. Here’s how one landlord successfully navigated the switch to Making Tax Digital for Income Tax (MTD IT) — and avoided costly mistakes.

👤 Background

Sarah is a self-employed graphic designer who also rents out two residential properties. Her total combined income from self-employment and property was around £28,000 per year, which placed her well over the £10,000 threshold for MTD IT compliance.

📅 Step 1: Understanding the Requirements

Initially, Sarah thought MTD IT only applied to her design business. After reading HMRC’s guidance, she realised her rental income had to be included too. This early understanding helped her avoid under-reporting her earnings.

💻 Step 2: Choosing the Right Software

Sarah compared several accounting tools but eventually chose one from HMRC’s approved list that integrated her property management and business accounts in one platform. This saved her time and reduced the risk of errors.

📝 Step 3: Registering for MTD IT

She registered for MTD IT through her Government Gateway account two months before her start date, ensuring she had time to test the software and get comfortable with digital record-keeping.

⏱ Step 4: Meeting Quarterly Deadlines

Sarah set up calendar reminders for each quarterly submission deadline. Her software also sent alerts one week before each due date, which prevented any last-minute rush.

✅ Results

- All quarterly updates were submitted on time.
- No penalties or late fees were incurred.
- Sarah reported saving approximately 5–6 hours per quarter compared to her old manual record-keeping process.

💡 Key takeaway: Early preparation and choosing the right software are the two biggest factors in a smooth MTD IT transition.

🚨 MTD IT Penalties & How to Avoid Them

Failing to comply with Making Tax Digital for Income Tax (MTD IT) can lead to penalties that add unnecessary financial burden. Understanding how the penalty system works and taking proactive steps can help you stay penalty-free.

How the Penalty Points System Works

HMRC uses a points-based penalty system for MTD IT late submissions:

• Points are awarded for each late quarterly update submission.
• Once you reach the points threshold (e.g., 4 points for quarterly filers), a penalty of £200 is applied.
• Points expire after a period of compliant submissions (typically 12 months for quarterly filers).

Common Reasons for Penalties

• Missing the quarterly submission deadlines
• Failing to register for MTD IT on time
• Submitting incomplete or inaccurate data
• Not keeping digital records as required

Tips to Avoid Penalties

• Register early: Don’t wait until the last minute to sign up for MTD IT.
• Use approved software: Ensure your software is HMRC-certified and set up correctly.
• Set reminders: Mark quarterly submission dates in your calendar well in advance.
• Keep digital records: Maintain up-to-date and accurate digital records of all income and expenses.
• Review submissions: Double-check data before sending to avoid errors.

⚠️ Important: If you receive a penalty notification, contact HMRC promptly to discuss possible appeals or payment plans.

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.