Making Tax Digital for Income Tax (MTD ITSA): What Self-Employed and Landlords Must Do in 2026

Quick answer

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is the most significant change to personal tax reporting in a generation. For self-employed individuals and landlords with income above £50,000, the rules are mandatory from 6 April 2026. The annual paper-or-click Self Assessment form is replaced by a new system of digital record-keeping and quarterly summary updates sent directly to HMRC via compatible software.

If you are in scope from April 2026 and have not yet signed up for MTD ITSA or obtained compatible software, this is urgent. HMRC's penalty points system begins applying from the first quarterly deadline.

The MTD ITSA rollout timeline

MTD ITSA was originally planned for April 2019, then delayed multiple times. The current confirmed rollout schedule is:

Qualifying income means total gross income from self-employment and/or UK property, added together. If you have £30,000 of self-employment income and £25,000 of rental income, your qualifying total is £55,000 — putting you in the April 2026 mandate.

Note: employment income (PAYE salary), dividends, savings interest, and pension income do not count as qualifying income for the MTD ITSA threshold. But you must still report these through the MTD system if you are in scope for other reasons.

What exactly is changing?

Old system: Self Assessment once a year

Under the traditional system, you gathered your records at the end of the tax year, filed your Self Assessment return by 31 January, and paid any tax due by 31 January. HMRC had no real-time visibility of your position until you filed.

New MTD ITSA system: four quarterly updates + annual finalisation

Under MTD ITSA, the same information is collected in stages throughout the year:

1. Digital record-keeping (ongoing): You must record income and expenses digitally as they occur, using MTD-compatible software. You cannot reconstruct records annually from a shoebox of receipts.

2. Quarterly updates (four times a year): You submit a summary of income and expenses to HMRC for each income source. These are cumulative, running figures — not independent quarterly snapshots.

3. End of Period Statement (EOPS): At the end of the tax year, for each income source, you confirm your final figures and make any adjustments (e.g., capital allowances, basis period adjustments, opening/closing stock).

4. Final Declaration: Replaces the current SA return. You combine all income sources, add any other income not covered by MTD (e.g., capital gains, foreign income), and confirm your overall tax position. Deadline is 31 January following the end of the tax year — the same as now.

Key differences in practice

Quarterly update deadlines

Quarterly updates must be submitted within one calendar month of the end of each update period:

Important: Quarterly updates are NOT tax payments. You do not pay any tax at the quarterly deadline. Tax remains due by 31 January (and payments on account by 31 July) — the same payment schedule as before. The quarterly updates are reporting-only obligations.

Compatible software options

HMRC maintains an approved software list. Your key options are:

Full accounting software

• QuickBooks Self Employed / Simple Start — popular with sole traders, cloud-based, automatic bank feed connections, approximately £10–£20/month.
• Xero Starter — more feature-rich, better for businesses with invoicing needs, approximately £15/month.
• FreeAgent — particularly popular with contractors, often included free with certain business bank accounts (e.g., NatWest, Royal Bank of Scotland), approximately £19/month retail.
• Sage Accounting — established enterprise-grade tool, approximately £15/month for sole traders.

Bridging software (for spreadsheet users)

• 123 Sheets — connects Google Sheets or Excel to HMRC MTD API, approximately £9/month.
• Coconut — mobile-first bookkeeping app with MTD bridging, includes bank feed.
• BTCSoftware — aimed at accountants but available direct, good for complex cases.

All software on HMRC's approved list has passed API testing. However, features vary — check whether your chosen software handles multiple income sources (e.g., both self-employment and rental income) before subscribing.

Can I use HMRC's own free tool?

HMRC is providing a basic free tool for sole traders with simple affairs (no employees, single source of self-employment income, income below £30,000). This is aimed primarily at the 2027 and 2028 cohorts rather than the higher-income April 2026 group.

The new quarterly penalty points system

MTD ITSA replaces the old flat-rate penalties with a points-based system designed to be more forgiving of one-off failures while penalising persistent non-compliance.

How points work

For most self-employed individuals and landlords, the annual filer threshold of two points applies. Miss two quarterly updates in succession (or two in 24 months) and a £200 charge is levied.

This is less punishing than the old Self Assessment penalty structure (£100 on day 1, £10/day for 90 days, etc.), but the quarterly frequency means there are more opportunities to accumulate points.

End of Period Statement and Final Declaration penalties

Late EOPS or Final Declarations are subject to separate penalties, similar in structure to the current SA late filing penalties. A late Final Declaration triggers a £100 fixed penalty from day 1.

Exemptions from MTD ITSA

Not everyone must comply. HMRC has confirmed the following exemptions:

• Digital exclusion: Individuals who cannot use digital tools due to age, disability, religious belief, or lack of internet access can apply to HMRC for an exemption and continue filing on paper.
• Insolvency: Those subject to formal insolvency proceedings.
• Non-residents: Certain categories of non-UK resident, where their UK income is of a type that falls outside MTD ITSA scope.
• Certain trusts and estates: These remain outside the current MTD ITSA mandate.
• Income below the threshold: If your qualifying income is genuinely below £50,000 (for April 2026 mandate), you are not required to join yet.

To apply for a digital exclusion exemption, write to HMRC with details of your circumstances. Do not simply fail to sign up — this will result in penalties.

How to sign up for MTD ITSA

1. Obtain compatible software — choose and set up your software before signing up, as the sign-up process assumes you already have it.
2. Create or log into your Government Gateway account at gov.uk/log-in-register-hmrc-online-services.
3. Sign up for MTD ITSA via the Government Gateway — search for "Sign up for Making Tax Digital for Income Tax." You will need your National Insurance number and Self Assessment UTR.
4. Connect your software to HMRC — most software handles this automatically during setup by linking to your Government Gateway credentials via OAuth authorisation.
5. Start keeping digital records from your MTD start date — do not wait until your first quarterly deadline.

The benefit for taxpayers: real-time tax estimates

One genuine benefit of MTD ITSA is that both you and HMRC will have a near-real-time estimate of your likely tax liability throughout the year. Instead of discovering you owe £8,000 in January when you file your return, you will be able to see your estimated liability building throughout the year in your software.

This allows better cash flow planning: you can set aside tax as you earn, avoid year-end surprises, and potentially adjust your payment on account figure if your income has dropped significantly.

What accountants and agents should know

Agents (accountants, tax advisers) can authorise their software to submit MTD ITSA updates on behalf of clients. The agent authorisation process through HMRC's Agent Services Account replaces the old 64-8 process for MTD clients.

Accountants dealing with in-scope clients should already be:

• Registering their practice for the Agent Services Account if not already done
• Contacting all in-scope clients to discuss software options and pricing
• Reviewing their own workflow for quarterly submission cycles

Monthly or quarterly bookkeeping review services are likely to become the norm for MTD ITSA clients, replacing the traditional annual accounts preparation. This may increase the cost of accountancy services for some clients.

Frequently asked questions

I have rental income under £10,000 — do I need MTD ITSA?

Your qualifying income is assessed across all sources. If your self-employment income plus rental income together exceed £50,000, you are in scope regardless of how small the rental component is. If your total qualifying income is below the applicable threshold, you are not currently required to comply.

My income varies year to year — what if it sometimes drops below the threshold?

HMRC assesses your qualifying income based on your most recent Self Assessment return. If your income genuinely drops below the threshold for two consecutive years, you may be able to exit MTD ITSA. Conversely, if income rises above the threshold, you must join at the start of the next tax year.

Can I sign up voluntarily before the mandate date?

Yes — HMRC's MTD ITSA pilot has been open since 2017 on a voluntary basis. Signing up early can be useful for testing systems and processes. However, voluntary participants are subject to the same rules as mandatory participants once enrolled.

Will MTD ITSA affect my payments on account?

Your payment on account schedule (31 January and 31 July) remains unchanged under MTD ITSA. HMRC has discussed potentially using quarterly data to make payments on account more accurate in future, but this is not part of the April 2026 launch.

My business is a limited company — does MTD ITSA apply?

No. MTD ITSA applies only to unincorporated self-employed individuals and landlords filing Self Assessment. Limited companies are subject to Making Tax Digital for Corporation Tax, which is a separate — and still-delayed — programme. MTD for Corporation Tax has no confirmed mandatory date as of May 2026.