Overview of Making Tax Digital for Income Tax (MTD ITSA)
Starting 6 April 2026, sole traders and landlords with combined gross income over £50,000 from self-employment and property will need to adopt the new digital reporting rules.(gov.uk)
Phase-ins follow: from April 2027 the threshold drops to £30,000, then to £20,000 in April 2028.(gov.uk)
What the new requirements are
- Use compatible digital software to record business and property income & expenses.(gov.uk)
- Send quarterly updates of income and expenses to HMRC instead of waiting until year-end.(gov.uk)
- File Self Assessment returns by 31 January following the tax year, as usual, but now informed by quarterly data already lodged.(gov.uk)
Penalties and easing period
- For the first tax year of MTD (2026-27), penalty points for late quarterly updates will not be enforced—providing leeway during transition.(gov.uk)
- After that, late or missed quarterly updates and full returns will accrue penalty points; once 4 points are reached, a £200 penalty will apply.(gov.uk)
How to prepare now
- Choose and test software that is MTD compatible—many providers offer free or low-cost options.
- Organize your record-keeping—digitize receipts, invoices, and expenses.
- Budget for adjustments in your cash flow: reduced surprise liabilities due to quarterly updates.
- Talk to your accountant or adviser to ensure they understand what the changes mean for you.
Example case: Landlord with rental income + self-employment
- Jane earns £45,000 from a self-employed business and £8,000 net from a rental property in 2024-25. Gross income from both exceeds £50,000, so she must join MTD ITSA from April 2026.
- She uses digital software to log expenses, sends 4 quarterly updates across 2026-27 (Aug 2026, Nov 2026, Feb 2027, May 2027), then files full Self Assessment by 31 Jan 2028.
- If Jane misses one quarterly update, she won’t be penalised in the first year; repeat misses beyond 4 points may attract the £200 penalty.
Advantages and hidden risks
Pros:
- Better visibility of income and expenses throughout year—easier planning.
- Potential reduction in late-filing stress.
- Less chance of missing deductions or allowances.
Risks to avoid:
- Poor bookkeeping leads to incorrect quarterly updates.
- Software not configured correctly may misclassify expenses.
- Ignoring cash-flow implications of quarterly estimates.
Key takeaways
- If you’re over £50,000 gross from self-employment + property in 2024-25, get ready now: choose software, organise digital records.
- Take advantage of the penalty-free transition year.
- Monitor upcoming thresholds (April 2027 & 2028) if your income hovers around them.
- Non-resident income and cross-border landlords must also watch changes to tax credits (covered in our next article).