Making Tax Digital for Income Tax (MTD ITSA) is an HMRC requirement that changes how sole traders and landlords report income tax, replacing the single annual Self Assessment return with quarterly digital updates submitted through HMRC-recognised software. It does not change how much tax is owed, only how and how often it is reported. The rollout is phased by income level, starting with higher earners first, which means most affected businesses have a specific date by which they must be ready rather than a single deadline for everyone.
Who Needs to Comply and When
| Qualifying Income | MTD ITSA Start Date |
|---|---|
| Over £50,000 | April 2026 |
| Over £30,000 | April 2027 |
| Over £20,000 | April 2028 |
Qualifying income refers to gross income from self-employment and property before expenses, not profit, which catches some people by surprise since a business with modest profit but high turnover can still be pulled into an earlier phase. Below the lowest threshold, the current annual Self Assessment system continues to apply until further phases are confirmed.
What Actually Changes Under MTD ITSA
- Digital record keeping: Income and expenses must be kept digitally throughout the year using compatible software, rather than being compiled once at year end from paper records or a basic spreadsheet.
- Quarterly updates: Four summary updates of income and expenses must be submitted roughly every three months, rather than one annual return.
- Final declaration: After the tax year ends, a final declaration confirms the total figures and finalises the tax position, replacing the old Self Assessment submission.
- Payment dates unchanged: The quarterly updates are summaries, not payment demands; the final tax bill is still due by the usual 31 January deadline.
What Counts as Compatible Software
HMRC requires either a full accounting platform that handles digital records and submissions end to end, or a simpler bridging tool that connects a spreadsheet to HMRC’s systems for submission purposes. Full platforms suit those wanting an all-in-one system with automatic categorisation and reminders, while bridging software suits those who prefer to keep working in a spreadsheet but need a compliant way to submit the resulting figures. A plain spreadsheet with no digital submission link is not compliant on its own.
Penalties for Non-Compliance
HMRC has confirmed a points-based penalty system for late quarterly submissions, similar to the points system already used for VAT. Missing a deadline adds a point, and once a threshold is reached a fixed penalty, currently set at £200, is applied, with further submissions still required regardless. Penalty points are not currently being enforced for the earliest phase during the initial transition period, giving affected businesses some breathing room to adjust, though this transitional leniency is expected to end as the rollout matures.
Getting Ready Before Your Start Date
- Confirm your actual start date based on gross qualifying income, not profit, since this is the most common point of confusion.
- Choose compatible software well before your mandatory start date, giving time to migrate existing records and learn the new quarterly rhythm.
- Set calendar reminders for each quarterly deadline, since missing the first one before penalties are enforced is a common way businesses fall permanently behind on the new rhythm.
- If you use an accountant, confirm early how quarterly updates will be handled, since this changes the working relationship from an annual to a quarterly touchpoint.
- Keep digital records from day one of your qualifying tax year, rather than trying to reconstruct several months of paper receipts retroactively.
Expert Insight
Accountants supporting clients through the MTD ITSA transition consistently note that the businesses struggling most are not those with complex finances, but those who delay choosing software until close to their start date, then face a rushed migration alongside their first live quarterly deadline. Starting the software transition at least one full quarter before the mandatory date, even informally, gives a genuine trial run without penalty risk.
Frequently Asked Questions
Does MTD ITSA mean I pay tax more often?
No, the quarterly updates are summaries of income and expenses for HMRC’s records; the actual tax payment deadline remains 31 January following the end of the tax year, as under the current system.
Can I still use a spreadsheet under MTD ITSA?
Yes, provided it connects to HMRC-recognised bridging software for digital submission; a spreadsheet with no digital link to HMRC’s systems is not compliant on its own.
What happens if my income drops below the threshold after I’ve started MTD ITSA?
Specific exit rules apply and can change as HMRC refines the rollout, so checking current guidance directly, or with an accountant, is worthwhile if your income fluctuates near a threshold.
Do landlords need to comply with MTD ITSA as well as sole traders?
Yes, landlords with qualifying property income above the relevant threshold are included on the same phased timeline as self-employed sole traders.
Is MTD ITSA the same as Making Tax Digital for VAT?
No, they are separate HMRC initiatives with their own rules and timelines; MTD for VAT has applied to VAT-registered businesses since 2022, while MTD ITSA specifically covers income tax for sole traders and landlords.
Final Thoughts
MTD ITSA is a genuine change in reporting rhythm rather than a change in tax owed, and the businesses that adapt most smoothly are consistently the ones that choose compatible software and start digital record keeping well ahead of their mandatory date rather than close to it. For related reading on choosing the right accounting platform, see our guide to industry specific accounting software, and our guide to AI and HMRC R&D tax claims for another look at how HMRC’s approach to compliance is changing.
