What is Making Tax Digital for Income Tax (MTD ITSA)?
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is a UK government initiative that requires certain individuals — sole traders and landlords — to keep digital records and submit quarterly updates of income and expenses to HMRC using compatible software. (gov.uk)
Who’s in Scope & When It Starts
| Qualifying Income | From | Requirement |
|---|---|---|
| Self-employed / property income over £50,000 | 6 April 2026 | Must register and comply with MTD ITSA (gov.uk) |
| £30,000+ | 6 April 2027 | Will be included under phased extension (gov.uk) |
| £20,000+ | 6 April 2028 | Final stage of threshold reduction (gov.uk) |
Some individuals may be exempt (e.g. digitally excluded, certain property income arrangements) — review HMRC guidance to determine whether you’re exempt. (gov.uk)
What You’ll Need to Do
- Digital record-keeping: All income and expense records must be stored digitally using HMRC-recognised software. Manual or paper-only systems won’t suffice. (gov.uk)
- Quarterly updates: Every quarter, submit an update reporting business or property income and allowable expenses to HMRC. These are in addition to the annual Self Assessment return. (gov.uk)
- Compatible software: Choose software that connects to HMRC for quarterly updates and full tax return submissions. If you have multiple income sources or partnership profits, ensure software supports all relevant reporting needs. (gov.uk)
- Sign up in advance: If you’re over the £50,000 threshold, you must be registered by 6 April 2026. Voluntary signup is available earlier to help ease transition. (gov.uk)
Practical Example
Sarah is a landlord whose rental income (after allowable expenses) totals £55,000 for 2025–26. She has been self-employed in a side business earning £10,000. Combined annual qualifying income from property plus self-employment exceeds £50,000. From 6 April 2026, Sarah must:
- Use digital software to manage both rental and self-employment income and expenses.
- Submit quarterly updates for both income streams.
- Still submit her annual Self Assessment return as usual, but reporting through MTD-compatible software.
Tips to Prepare
- Review your 2024–25 tax return to see if your self-employment + property income exceeded £50,000. If close, plan as if you’re in scope.
- Research and test digital accounting software now to understand how to categorise income/expenses properly.
- Keep clear records for partnership income, rental distributions, and jointly owned properties — especially where profits are shared.
- Budget for possible costs: software subscriptions, training, and possibly accountant/legal advice.
Risks of Non-Compliance
- HMRC imposes penalty points for late or missing quarterly updates after April 2026. While the first year won’t have late-update penalties for new users, penalties for late returns or late payments still apply. (gov.uk)
- Errors in categorising income (self-employment vs. property vs. savings/dividends) can lead to wrong tax rates applied, which may result in underpayment, fines, or the need for adjustments.
Summary
MTD ITSA represents one of the most significant changes to how sole traders and landlords report tax in decades. From 6 April 2026, those over £50,000 qualifying income must comply. Thresholds will gradually drop, affecting increasing numbers in subsequent years. Early preparation — understanding thresholds, getting the right software, and keeping excellent records — will make the transition smoother and avoid unwanted surprises.