What Is Making Tax Digital for Income Tax? A Beginner's Guide

The short version

Making Tax Digital for Income Tax (MTD for ITSA) is a new HMRC requirement that replaces your annual Self Assessment tax return with quarterly digital reporting. Instead of filing once a year, you'll submit income and expense summaries to HMRC every three months — using approved software.

It's the biggest change to personal tax filing in a generation. And for hundreds of thousands of sole traders and landlords, it starts on 6 April 2026.

Who does MTD for ITSA affect?

Not everyone is caught straight away. HMRC is rolling this out in waves based on your gross income — that's your total income before any expenses are deducted.

• April 2026: Sole traders and landlords with gross income over £50,000
• April 2027: Those with gross income over £30,000
• April 2028: Those with gross income over £20,000

If you have both self-employment income and rental income, HMRC combines them when calculating your threshold. So a sole trader earning £35,000 from their business plus £20,000 from a rental property hits £55,000 combined — caught in Wave 1.

Partnerships, limited companies, and those earning under £20,000 are not in scope yet (and some may never be).

What exactly changes?

Right now, you file one Self Assessment return by 31 January each year covering the previous tax year. Under MTD for ITSA, that process is replaced by:

1. Quarterly updates

Every three months, you submit a summary of your income and expenses to HMRC using MTD-compatible software. These are not full tax returns — they're more like progress reports. You don't pay tax quarterly; you just report.

The four quarterly deadlines fall in August, November, February, and May each year, giving you roughly a month after each quarter ends to file.

2. An End of Period Statement (EOPS)

Once a year, after the tax year ends, you confirm your figures are complete and make any adjustments — things like allowable expenses you forgot to include, or claims for capital allowances.

3. A Final Declaration

This replaces the old Self Assessment return. You confirm everything is correct, include any other income (dividends, interest, etc.), and that's it. HMRC calculates what you owe.

Why is HMRC doing this?

The official reason is to reduce the tax gap — the difference between what HMRC is owed and what it actually collects. Real-time reporting means errors are caught earlier, and HMRC gets a clearer picture of what you're earning throughout the year.

The secondary benefit — which HMRC is keen to promote — is that you'll know your approximate tax bill throughout the year, not just when January comes around and it hits you all at once.

Do I need special software?

Yes. You cannot file MTD for ITSA submissions through the HMRC website or your old Self Assessment login. You must use HMRC-recognised software that connects directly to their systems via API.

The good news: there are plenty of options, from simple apps aimed at sole traders to full accounting packages for more complex businesses. Some are free or low-cost; others are subscription-based with more features.

The key is choosing something that works for how you run your business — whether that's snapping receipts on your phone, connecting your bank account, or keeping a simple spreadsheet-style ledger. You can compare MTD software to find the right fit for your income type and budget.

What about landlords?

Landlords are fully included in MTD for ITSA — this is not just for self-employed people. If you receive rental income above the thresholds, you'll need to report quarterly, just like a sole trader.

If you own property jointly with a spouse or partner, each person reports their share separately. Both of you will need your own MTD-compatible software accounts.

Furnished Holiday Lettings (FHLs) are also included — HMRC confirmed these count as a separate income source alongside regular rental income.

What do I need to do right now?

If you're in Wave 1 (over £50,000), April 2026 is not far away. Here's what to do:

Step 1: Check if you're affected

Add up your gross self-employment income and rental income for the last tax year. If the total exceeds £50,000, you need to act now. If it's between £30,000 and £50,000, you have until April 2027 — but getting ready early is never a bad idea.

Step 2: Sign up for MTD for ITSA with HMRC

You (or your accountant) will need to register for MTD for ITSA through HMRC's online service. This is separate from your existing Self Assessment registration. You'll need your Government Gateway credentials to do this.

Step 3: Choose and set up your software

Pick an HMRC-recognised MTD-compatible application and start using it before your first quarterly deadline. Don't wait until April — get familiar with it now so the first filing isn't stressful.

If you already use accounting software, check whether your provider has MTD for ITSA support. Most of the major platforms — QuickBooks, Xero, FreeAgent, Sage — are already compliant or have updates in progress. You can compare MTD software options side by side to check features and pricing.

Step 4: Get your records in order

MTD requires digital record-keeping. If you currently track income and expenses in a notebook or a basic spreadsheet, you'll need to move to a digital system. The sooner you start, the less painful the transition.

Will my accountant handle this for me?

If you have an accountant or bookkeeper, they can submit on your behalf — but you'll both need to act. The software must be in place, and your records need to flow into it regularly throughout the year, not just dumped on their desk in January.

Even if your accountant handles the submissions, you're the one responsible for keeping digital records. Think of it as a year-round process now, not an annual scramble.

What happens if I miss a deadline?

HMRC is introducing a new points-based penalty system for MTD for ITSA. Miss a quarterly deadline and you get a penalty point. Accumulate enough points and a financial penalty kicks in — currently set at £200 per further missed filing.

The threshold for a penalty charge depends on how frequently you file. For quarterly filers, you'd need to accumulate four points before a financial penalty is triggered. It's designed to be lenient for one-off mistakes but firm with persistent non-compliance.

The bottom line

MTD for ITSA is coming regardless. The April 2026 deadline for higher earners is firm, and the lower thresholds follow closely behind.

The practical steps are straightforward: check your income, sign up with HMRC, pick software that suits you, and start keeping digital records now. The people who will struggle are those who leave it until March 2026 and try to figure it out in a panic.

Start with the software — that's the first real decision. Compare the main MTD-compatible options and pick one that fits your workflow. Everything else follows from there.