The way you report your income tax is changing. Making Tax Digital for Income Tax (MTD ITSA) is being phased in over the next few years, and if you're a sole trader or landlord, it's important to start preparing now ...
Making Tax Digital, For Income Tax, a new way, Efficiency reigns
This is the biggest change to income tax reporting since self-assessment was introduced, and while it will mean more frequent reporting and the use of software, getting ready in advance will make the transition much easier.
So, who will be affected? MTD for Income Tax applies to individuals who earn income from self-employment or property (including overseas property). Whether you're a sole trader, a landlord, or both, here's when it will apply:
From 6th April 2026: If your gross income is more than £50,000
From 6th April 2027: If your gross income is more than £30,000
From 6th April 2028: If your gross income is more than £20,000
The income thresholds refer to gross income - your total income before deducting expenses. For example, if you have £30,000 in business income and £21,000 in rental income, you'll be included from April 2026 because your total is over £50,000. Many will not be affected, as some individuals and businesses are outside the scope of MTD for ITSA:
Those earning below the income thresholds
Partners in partnerships (including LLPs), unless they also have sole trader/rental income
Limited companies
Individuals who qualify for an exemption based on specific circumstances
If you think you might qualify for an exemption, HMRC has guidance available on how to apply; otherwise, how will you know if you're included? Well, HMRC will review the tax returns you submit for the 2024–25 tax year, and if your income places you within the threshold, you'll receive a letter letting you know that you need to start using MTD for ITSA from April 2026. The same process will apply to future phases.
Once you receive notification, you'll need to:
Choose MTD-compatible software
Authorise the software
Sign up for MTD for Income Tax
HMRC offers an online tool to help you check whether you're within the scope of MTD and when you need to start.
There are three key parts to MTD for ITSA:
Keeping Digital Records
You will need to keep digital records of income and expenses related to your self-employment and/or property business using compatible software.
Sending Quarterly Updates
Every three months, you will send a summary of your income and expenses to HMRC. These are known as quarterly updates. You won't need to make tax or accounting adjustments at this stage, so just report what you've earned and spent.
You can choose to report using:
Standard periods aligned with the tax year, or
Calendar months, which may be simpler if your year-end is 31 March
Submitting an End-of-Year Return
After your final quarterly update, you will complete a digital end-of-year return that includes any additional income and all necessary adjustments. This return will finalise your tax position for the year.
From April 2026, you will no longer be able to file your self-assessment return through HMRC's website if you are within MTD for ITSA, and remember that even though the way you report changes, the tax payment deadlines remain the same. You'll still pay your tax in the usual way.
Some possible good news is that if your qualifying income drops below £30,000 (or the relevant threshold), you may qualify for an exemption after three consecutive years of being under the limit, based on your submitted tax returns or quarterly updates.
MTD for ITSA also introduces a new points-based penalty system, so every missed deadline earns a point. Once you reach the points threshold, you'll receive a £200 penalty. Additional late submissions after that will trigger additional penalties. There is also a right to request a review or appeal if you believe a penalty or point was issued incorrectly.
Although the official start dates may still seem a while away, preparation now will make the process smoother. Consider:
Keeping your records up to date
Exploring suitable MTD-compliant software
Setting reminders for deadlines
Staying informed as more guidance becomes available
If you're not sure where to begin or how this will apply to your specific situation, it's a good idea to start asking questions now. With the right tools and some early planning, Making Tax Digital for Income Tax can become a manageable part of your tax routine.
My team and I are always happy to give advice and help with your MTD for ITSA obligations, just as we do now with normal self-assessment.
If anything I've written in my blog post resonates with you and you'd like to discover more of my thoughts about Making Tax Digital for Income Tax (MTD for ITSA) then do call me on 01908 774320 and let's see how I can help you.
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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