Making Tax Digital for Income Tax: Self-Employed Guide from April 2026

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is one of the most significant changes to the UK tax system in a generation. From April 2026, hundreds of thousands of self-employed people and landlords must begin reporting their income and expenses to HMRC digitally every quarter, replacing the familiar annual self assessment return for qualifying taxpayers.

If your self-employment or property income exceeds GBP 50,000 in the 2024/25 tax year, you are in the first wave. Here is everything you need to know to prepare.

Who Is Affected and When?

MTD ITSA is being rolled out in phases:

• April 2026: Self-employed individuals and landlords with combined qualifying income over GBP 50,000 in the previous tax year
• April 2027: Self-employed individuals and landlords with qualifying income over GBP 30,000
• TBC: Those earning between GBP 20,000 and GBP 30,000 (HMRC has indicated this group will be mandated at a later date)

"Qualifying income" means gross income from self-employment plus gross property income, before expenses. If you run two businesses earning GBP 35,000 and GBP 20,000 respectively, your combined qualifying income is GBP 55,000 -- above the April 2026 threshold.

General partnerships are not included in the first phases; a separate date will be set for these.

What Does MTD Actually Change?

Under MTD ITSA, the annual self assessment return is replaced by a more frequent but lighter-touch digital reporting cycle:

Quarterly Updates

Every three months, you submit a digital update to HMRC covering your income and expenses for that quarter. This is not a tax return -- it does not calculate a final tax bill. It is more akin to a running report of your business transactions.

Quarters follow fixed dates:

• Q1: 6 April to 5 July (deadline 7 August)
• Q2: 6 July to 5 October (deadline 7 November)
• Q3: 6 October to 5 January (deadline 7 February)
• Q4: 6 January to 5 April (deadline 7 May)

You can opt for calendar-quarter dates (end of March, June, September, December) if your accounting already follows those months.

End-of-Period Statement

After the fourth quarter, you submit an end-of-period statement that includes any adjustments, allowances, and claims not captured in the quarterly updates. This is equivalent to the current "income and expenses" section of a self assessment return.

Final Declaration

The final declaration confirms your total income from all sources (not just self-employment) and replaces the current self assessment tax return. The tax bill is calculated and the payment deadline remains 31 January following the tax year.

Why Is This Happening?

HMRC's stated rationale is that more frequent reporting means fewer accumulated errors, closer-to-real-time tax estimates, and ultimately a reduction in the "tax gap" -- unpaid tax estimated at GBP 39.8 billion in 2022/23. The system also allows HMRC's app and online account to show taxpayers a running estimate of their tax bill throughout the year, reducing the January bill shock familiar to self-employed people.

What Software Do You Need?

MTD ITSA requires HMRC-compatible software. A simple spreadsheet that cannot connect to HMRC's API is not sufficient on its own (though bridging software exists that can connect a spreadsheet to the system).

Options include:

Full MTD-compatible accounting software: QuickBooks, Xero, FreeAgent, Sage, KashFlow, and others offer MTD-ready plans. These connect directly to HMRC and can auto-submit quarterly updates from your recorded transactions.

Free-tier solutions: HMRC maintains a list of free and freemium software on its website. Some are very basic; compare features before committing.

Bridging software: If you prefer to continue using spreadsheets for bookkeeping, bridging tools can read your spreadsheet data and submit it to HMRC. This is compliant but adds a manual step each quarter.

Check the HMRC software choices page and filter specifically for "MTD for Income Tax" as some products only cover MTD for VAT.

What to Prepare Now

Even if your mandatory start date is April 2026, preparation should begin immediately.

1. Confirm your qualifying income. Check whether your 2024/25 gross self-employment plus rental income exceeds GBP 50,000.

2. Choose software now. Migration to a new bookkeeping system mid-year is disruptive. Starting in or before April 2025 gives you a full year of familiarisation before MTD becomes mandatory.

3. Digitalise your records. MTD requires you to keep digital records of income and expenses. If you currently track transactions in a notebook or basic spreadsheet, begin migrating now.

4. Consider your accountant. If you use an accountant for self assessment, discuss who will be responsible for submitting quarterly updates. Some accountants will handle this entirely; others will expect you to prepare and submit updates yourself.

5. Understand the income estimate feature. HMRC's online account will show you a running tax estimate based on quarterly updates. You can use this to budget for the January payment rather than being surprised.

Penalties Under MTD

HMRC is replacing the current late-filing penalty regime with a points-based system for MTD. Each missed quarterly submission earns one point. Once your points reach the threshold (four points for quarterly submissions), you incur a GBP 200 penalty. Points expire after a period of full compliance.

Late payment penalties continue to apply: 5% of unpaid tax outstanding after 30 days, another 5% after 6 months, and 5% again after 12 months -- on top of interest.

The message is clear: regular, timely quarterly submissions are the expectation. Building a quarterly rhythm into your business routine from day one will prevent accumulated problems.