Request a
call back
HMRC is changing how self-employed people and landlords report their earnings to the tax authority. The old annual Self Assessment model is on its way out. In its place comes Making Tax Digital for Income Tax (MTD ITSA), a system that requires you to keep digital records and send income summaries to HMRC four times a year.
If you earn income from self-employment, property, or both, this change affects you directly. The rules come into force from 6 April 2026 for those above the first income threshold, with further rollout planned for subsequent years.
This guide explains who needs to comply, what the process actually looks like in practice, how to choose the right software, and what happens if you fall behind.
What Is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax is a government programme that requires sole traders and landlords to manage their business records digitally and report their income to HMRC on a quarterly basis, rather than once at the end of the tax year.
The underlying objective is straightforward. HMRC wants more accurate, real-time visibility of taxable income across the UK. For taxpayers, it means fewer end-of-year surprises, more regular contact with your numbers, and less room for error when January’s Self Assessment deadline comes around.
MTD ITSA is not a new tax. It does not change how much tax you pay. It changes the frequency and method by which you report your income and expenses to HMRC.
Already registered for VAT? Read our guide to Making Tax Digital for VAT to see how your existing MTD setup affects your ITSA obligations.
Not everyone moves onto MTD ITSA at the same time. HMRC introduced a phased rollout based on income levels, giving taxpayers at lower thresholds more time to prepare.
£50,000 Threshold from April 2026
From 6 April 2026, you must use MTD for Income Tax if all three of the following apply to you:
- You are an individual registered for Self Assessment
- Receive income from self employment, property rental, or both
- Your qualifying income exceeds £50,000 per year
Qualifying income means your gross income, not your profit. If you earn £55,000 from a building business before expenses, you qualify, regardless of whether your taxable profit after deductions is considerably lower.
HMRC calculates your qualifying income based on your 2024/25 tax return. If you have not yet filed that return, or if your income sits close to the threshold, your accountant should review this with you as a matter of priority.
The £30,000 Threshold from April 2027
From 6 April 2027, the obligation extends to sole traders and landlords whose qualifying income exceeds £30,000. This brings a significantly larger portion of the self employed population within scope.
If you fall between the £30,000 and £50,000 income bracket, you have until April 2027, but the sensible approach is to treat 2026 as your preparation year rather than your compliance year.
What Changes from April 2028
The timeline does not stop at April 2027. The Chancellor confirmed a third phase in the 2024 Autumn Statement, extending Making Tax Digital for Income Tax to sole traders and landlords with qualifying income above £20,000 from April 2028.
This phase captures a far wider population. HMRC estimates suggest roughly 900,000 additional taxpayers fall inside the £20,000 to £30,000 band, many of whom currently file a paper return or use basic spreadsheet workflows. If your combined self-employment and property income sits anywhere near £20,000 across the 2026/27 tax year, treat April 2028 as your live compliance date.
The government has also signalled an ongoing review of whether the threshold should drop further below £20,000 in future fiscal events. Plan your bookkeeping software migration now rather than waiting for the Spring Statement that confirms it.
Jointly Owned Property and MTD ITSA
Spouses and civil partners who jointly own rental property face a specific question HMRC guidance buries deep in its manual: does the £50,000, £30,000, or £20,000 threshold apply to your share of the gross rental income, or the total property gross?
HMRC applies the threshold to your individual share of the gross rental income, not the property total. A couple jointly owning a portfolio generating £80,000 in gross rent splits that income 50:50 by default. Each spouse holds £40,000 of qualifying income and falls inside the April 2026 phase. The same portfolio held solely by one spouse would push that individual into the same bracket, but the other spouse would sit outside MTD entirely.
A signed Form 17 election changes the split where beneficial ownership differs from the default 50:50 position. If you hold property as tenants in common with a 70:30 beneficial split and lodged a valid Form 17 with HMRC, each partner uses their actual share to test against the threshold. Properties held through a partnership follow separate MTD partnership rules and currently sit outside the ITSA phased rollout.
Get the ownership structure documented before April 2026 lands.
MTD ITSA vs Making Tax Digital for VAT Key Differences
Both regimes share the same underlying principle of quarterly digital submissions through HMRC-approved software, but the operational mechanics diverge sharply. Confusing the two trips up sole traders who already manage VAT and assume the ITSA workflow mirrors what they file every quarter.
The table below pins down the four differences that matter for compliance planning. For a deeper walkthrough of the VAT regime specifically, read our full MTD VAT compliance guide.
| Comparison Point | MTD for VAT | MTD for Income Tax (ITSA) |
|---|---|---|
| Submission Frequency | Quarterly VAT return plus annual reconciliation | Four quarterly updates, one End of Period Statement per income source, one Final Declaration |
| Threshold | £90,000Taxable turnover, or voluntary registration | Apr 2026£50,000 Apr 2027£30,000 Apr 2028£20,000 qualifying income |
| Software Requirement | MTD-compatible bridging software or full accounting package | Full HMRC-recognised MTD ITSA software with digital record keeping per income source |
| Penalty System | Points-based late submission system, separate late payment penalties | Identical points-based system applies, but each income source counts independently |
Treat the two as separate compliance projects with separate software permissions, separate quarter-end deadlines, and separate penalty point trackers.
Who Is Exempt?
HMRC does provide an exemption process. You may qualify for an exemption from MTD for Income Tax if:
- You have a disability or health condition that prevents you from using computers.
- Religious beliefs are incompatible with using electronic communications.
- You live in a location with no reliable internet access.
- You are over state pension age and have no digital access.
Exemptions are not automatic. You must apply to HMRC and receive written confirmation before treating yourself as exempt. Assuming you qualify without a formal decision is a compliance risk.
Find out if you can get an exemption from Making Tax Digital for Income Tax HMRC guidance, updated January 2026.
What MTD for Income Tax Actually Requires You to Do
MTD ITSA has three practical components. Understanding each one removes the anxiety that often comes with a change of this scale.
Digital Record Keeping
You must maintain digital records of all your business income and expenses throughout the tax year. A paper receipt in a shoebox or a memory on your phone does not count.
Digital records must capture, at a minimum:
- The date of each transaction.
- Amount received or paid.
- The category of the transaction (for example: labour, materials, professional fees, travel).
- Any relevant reference, such as an invoice number.
You do not have to use accounting software to record transactions. In theory, a well-structured spreadsheet can serve as your digital record, provided you use bridging software to send data to HMRC. In practice, moving to dedicated cloud accounting software is significantly less stressful, less error-prone, and better suited to the quarterly rhythm MTD demands.
Quarterly Updates to HMRC
Every three months you send a summary of your income and expenses for that period directly to HMRC through your MTD-compatible software. These are called quarterly updates.
The four quarterly update deadlines under MTD ITSA are:
| Quarter Covered | Submission Deadline |
|---|---|
| 6 April to 5 July | 7 August |
| 6 July to 5 October | 7 November |
| 6 October to 5 January | 7 February |
| 6 January to 5 April | 7 May |
You can also elect to use calendar quarter periods (1 April to 30 June, etc.) if your current bookkeeping runs on calendar months. Most software packages support both.
A quarterly update is not a tax payment. It is a data submission. HMRC uses the accumulating data from your four updates to build a running picture of your likely tax liability for the year. You still pay your tax bill through the existing Self Assessment payment schedule.
The Final Annual Declaration
After your four quarterly updates, you submit one end-of-period statement and a final declaration (the equivalent of your current Self Assessment tax return) by 31 January following the end of the tax year. This is where you confirm your figures, add any additional income not captured in your quarterly updates (such as savings interest or dividends), and finalise your tax liability.
The final declaration does not replace the annual tax payment deadlines. You still pay any tax owed by 31 January.
How to Sign Up for MTD ITSA
The sign-up process runs through HMRC’s online services. Before you begin, you need:
- Your Government Gateway credentials the User ID and password you use for Self Assessment.
- Your National Insurance number.
- Your MTD-compatible software already set up and ready to connect to HMRC.
Once you have those in place, the sign up steps are as follows:
- Log in to your HMRC online account.
- Navigate to the MTD for Income Tax sign-up section.
- Confirm your income sources (self-employment, property, or both).
- Authorise your accounting software to connect to HMRC on your behalf.
- If you use an accountant or agent, authorise them as your MTD agent through the agent authorisation service.
Important: Once you sign up, you cannot revert to standard Self Assessment reporting. The switch is permanent for as long as MTD applies to you. This is another reason to get the software right before you sign up, not after.
If your accountant manages your Self Assessment already, speak to them before signing up independently. Agent authorisation under MTD works differently to the existing 64-8 authorisation, and your accountant needs to be set up correctly in the MTD system to manage your submissions on your behalf.
Choosing Compatible Software
HMRC maintains a list of approved MTD-compatible software products. The right choice depends on the nature of your income, your comfort with technology, and your budget.
When selecting software, look for these capabilities:
For sole traders:
- Direct bank feed integration to reduce manual data entry.
- Expense categorisation that maps to HMRC’s approved categories.
- Quarterly update submission built into the platform.
- Mobile access so you can record expenses on the go.
For landlords:
- Property specific income and expense tracking.
- The ability to manage multiple properties as separate income streams.
- Integration with your letting agent’s statements where possible.
For those with mixed income
- Software that manages both income types and sends separate quarterly updates for each, as HMRC requires.
For trades people & construction workers - CIS
- CIS specific modules that track deductions, separate labour from materials, and record verification references.
If you work in construction under CIS, read our dedicated guide to MTD for CIS Subcontractors and Contractors before selecting your software. The requirements have additional layers beyond standard MTD.
Bridging software remains an option for those committed to spreadsheet-based bookkeeping. It acts as a connector between your spreadsheet and HMRC’s MTD system, translating your data into a compliant format for submission. However, bridging tools add a manual step to every quarterly cycle, and they do not provide the real-time visibility that dedicated accounting platforms offer.
At IBISS & CO, we assess each client’s workflow individually before recommending a platform. The wrong software at the wrong price point creates friction and increases the risk of missed deadlines.
What Happens If You Miss a Quarterly Deadline?
HMRC introduced a points based penalty system specifically for MTD ITSA. Missing a submission earns you a penalty point. Accumulate enough points and a fixed financial penalty follows.
The system works as follows:
- Each missed quarterly update earns one penalty point.
- Once you reach the threshold of four points, HMRC charges a £200 fixed penalty.
- A further £200 penalty applies for each subsequent missed submission while your points total remains at threshold.
- Points expire after a set period, provided you remain compliant during that time.
This system is more forgiving than the old Self Assessment late filing penalties for occasional lapses, but it penalises persistent non-compliance firmly. The most effective way to avoid the points system entirely is to build your quarterly submission into a consistent monthly routine rather than scrambling four times a year.
HMRC can also charge a late submission penalty separately from the points system for the final annual declaration if you miss the 31 January deadline.
How IBISS & CO Prepares Clients for MTD
We work with sole traders and landlords across London and the UK, and we have been preparing clients for MTD compliance since the pilot programme launched. Our approach covers every stage of the transition.
Software selection and setup
We review your current record-keeping process, income sources, and technology comfort level, then recommend the MTD compatible platform that fits your workflow. We handle the setup and connect it to your HMRC account.
Agent authorisation
We get authorised under the MTD system so that we can manage your quarterly updates and annual declaration on your behalf. You hand us your records each quarter and we handle the submission.
Quarterly review calls
Before each submission, we review your figures with you. We check for categorisation errors, missed expenses, and anything that might create a problem at year end.
Annual declaration
We prepare and submit your final annual declaration, reconcile your quarterly data, and ensure your tax liability is accurate before the 31 January deadline.
Ongoing training
Ongoing training: For clients who prefer to manage their own submissions, we offer hands on training for your chosen software and remain available for questions throughout the year. Whether you are an established landlord with multiple properties, a self-employed consultant approaching the £50,000 threshold for the first time, or a sole-trader builder already working under CIS, we have a compliance pathway built for your situation.
Frequently Asked Questions
What is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax (MTD ITSA) is HMRC’s programme that requires sole traders and landlords to keep digital records and send quarterly income summaries to HMRC, rather than a single annual Self Assessment return. It starts for those earning over £50,000 from 6 April 2026.
When does MTD for Income Tax start?
The first phase starts on 6 April 2026 and applies to sole traders and landlords with qualifying income above £50,000. A second phase starting April 2027 brings in those with income above £30,000.
Does MTD for Income Tax change how much tax I pay?
No. MTD changes how and how often you report your income, not the tax rates or rules that determine your liability. Your tax bill is calculated in the same way as under Self Assessment.
Can my accountant manage MTD for Income Tax on my behalf?
Yes. Accountants and tax agents can manage your quarterly updates and annual declaration on your behalf once they complete the MTD agent authorisation process. IBISS & CO manages this for clients across the UK.
Do I need new software for MTD for Income Tax?
You need MTD-compatible software to send quarterly updates to HMRC. Most modern cloud accounting platforms such as FreeAgent, Xero, and QuickBooks have already built MTD ITSA functionality. Spreadsheet users will need bridging software as a minimum, though switching to dedicated accounting software is the more reliable long term approach.
What is qualifying income for MTD?
Qualifying income is your combined gross income from self-employment and UK property before expenses or allowances. HMRC measures this against the £50,000, £30,000, and £20,000 thresholds, not your taxable profit. Employment salary, dividends, pensions, and savings interest do not count. Foreign self-employment and overseas property count if you are UK resident.
Do I need MTD if I am a landlord with one property?
It depends on gross rent, not property count. A single-property landlord with rental income above £50,000 must comply from April 2026. Three properties totalling £18,000 stay outside the rules. For jointly owned property, only your share counts toward your personal threshold. Below-threshold landlords can register voluntarily if income is rising.
Can I opt out of MTD for Income Tax once signed up?
Not at will. MTD applies for as long as your qualifying income stays above the relevant threshold. HMRC permits opt-out only when your qualifying income falls below the threshold for three consecutive tax years. Digitally excluded individuals can apply for a formal exemption at any time, but HMRC assesses each application individually.
What software is free for MTD for Income Tax?
Several HMRC-recognised products offer free tiers as of May 2026. HMRC’s own tool suits single-trade sole traders. QuickFile covers 1,000 ledger entries yearly. Sage Sole Trader Free works for non-VAT registered users. Landlord Studio Free handles up to two properties. Bridging tools like VitalTax cost under £36 annually for spreadsheet users.
