Making Tax Digital for Income Tax: What You Need to Know

What Is MTD for Income Tax Self Assessment?

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is the next major phase of HMRC's ambitious programme to digitalise the UK tax system. From 6 April 2026, self-employed individuals and landlords with gross annual income exceeding £50,000 are required to keep digital records and submit quarterly updates to HMRC using MTD-compatible software. This replaces the traditional approach of filing a single Self Assessment tax return at the end of the year.

The rationale behind MTD for ITSA is to reduce the tax gap — the difference between what HMRC is owed and what it actually collects. HMRC estimates that errors and carelessness on tax returns account for billions of pounds in lost revenue each year, and digital record-keeping with quarterly reporting is intended to catch mistakes earlier, give taxpayers a clearer picture of their liabilities throughout the year, and ultimately make the system more efficient for everyone involved.

If you are self-employed or earn rental income, this is one of the most significant changes to the tax system in decades, and understanding what is required of you is essential to staying compliant and avoiding unnecessary penalties.

Who Is Affected by MTD for ITSA in 2026?

The first wave of MTD for ITSA, which began on 6 April 2026, applies to individuals who meet both of the following criteria:

• They are self-employed and/or receive income from property (as a landlord)
• Their gross qualifying income exceeds £50,000 per year

Qualifying income means your total gross income from self-employment and property before deducting any expenses. If you have both self-employment income and property income, these are combined when determining whether you exceed the threshold. For example, if you earn £35,000 from freelance work and £20,000 from rental properties, your qualifying income is £55,000, which places you above the threshold.

Importantly, this applies to individuals, not to limited companies. If you operate through a limited company, MTD for Corporation Tax is expected at a later date, but no firm timeline has been announced. Partnerships are also excluded from the April 2026 mandate but are expected to be brought into scope in the future.

From April 2027, the threshold drops to £30,000, bringing a much larger group of taxpayers into scope. HMRC has indicated that further reductions may follow, potentially bringing those earning over £20,000 into scope in subsequent years. If you are currently below the threshold, it is still wise to prepare now. Our Self Assessment service can help you assess your readiness.

What Software Do You Need?

Under MTD for ITSA, you must use software that is recognised by HMRC as MTD-compatible. This software must be capable of maintaining your digital records, submitting quarterly updates to HMRC via their Application Programming Interface (API), and filing your final declaration at the end of the tax year. HMRC publishes a list of compatible software on GOV.UK, and the major cloud accounting platforms — including Xero, QuickBooks, FreeAgent, and Sage — all support MTD for ITSA.

If you currently use spreadsheets to manage your finances, you have two options. You can either transition to dedicated accounting software (which we strongly recommend) or use bridging software that connects your spreadsheet to HMRC's systems. However, bridging software can be clunky and still requires you to maintain proper digital links between your data sources, so it is generally a less efficient long-term solution.

At London Accountants, we are authorised partners for Xero and QuickBooks, and our cloud accounting team can set up your software, connect your bank feeds, configure your chart of accounts, and ensure everything is fully MTD-compliant from day one. Moving to cloud accounting software offers benefits far beyond MTD compliance — real-time financial visibility, automated invoicing, and streamlined expense tracking, to name just a few.

How Quarterly Reporting Works

The quarterly reporting schedule under MTD for ITSA follows the tax year calendar. You are required to submit four quarterly updates per year, covering the following periods:

• Quarter 1: 6 April to 5 July — due by 7 August
• Quarter 2: 6 July to 5 October — due by 7 November
• Quarter 3: 6 October to 5 January — due by 7 February
• Quarter 4: 6 January to 5 April — due by 7 May

Each quarterly update is a summary of your business income and expenses for that period. It does not need to be perfectly accurate — it is an estimate based on the information available at the time. You are not making a tax payment with each quarterly submission; these are informational updates only. HMRC uses them to build a running picture of your tax position throughout the year.

After the final quarter, you must submit a final declaration by 31 January following the end of the tax year. This is where you confirm your overall income and expenses, make any adjustments, claim reliefs and allowances, and finalise your tax liability. The final declaration effectively replaces the traditional Self Assessment tax return, though the payment deadlines remain the same (31 January and 31 July for payments on account).

What Records Must You Keep Digitally?

Under MTD for ITSA, you must maintain digital records of all your business transactions. For self-employed individuals, this includes all sales and income, all purchases and expenses, the date of each transaction, the amount, and the category of income or expense. For landlords, the records must cover rental income received, allowable property expenses (such as repairs, insurance, letting agent fees, and mortgage interest), and details of each property.

The records must be kept in your MTD-compatible software — not in paper notebooks, not in a shoebox of receipts, and not in a standalone spreadsheet that is disconnected from your filing software. Digital links must exist between your source data and the submitted figures. This means if you use a spreadsheet to initially record transactions, there must be an automated digital pathway from that spreadsheet to your submission software, with no manual re-keying of figures.

In practice, the easiest approach is to use a cloud accounting platform with bank feeds connected. Transactions are imported automatically from your bank, you categorise them (or set up rules for automatic categorisation), and the software handles the quarterly submission at the click of a button. This is far less burdensome than it might initially sound, and many of our clients find that MTD actually simplifies their record-keeping once the initial setup is complete.

Penalties for Non-Compliance

HMRC has implemented a points-based penalty system for MTD for ITSA, consistent with the system already in place for MTD for VAT. Here is how it works:

• You receive one penalty point for each late quarterly submission
• Once you accumulate 4 points (the threshold for quarterly submissions), you receive a £200 penalty
• Every subsequent late submission after reaching the threshold also triggers a £200 penalty
• Points can be removed after a period of consistent compliance (24 months for quarterly submissions)

For late payments, the penalties are separate and financial from the outset:

• 15 days late: A first penalty of 2% of the tax outstanding at that date
• 30 days late: An additional 2% of the tax still outstanding at day 30
• 31+ days late: A daily penalty calculated at 4% per annum on the outstanding amount

On top of penalties, HMRC charges interest on all late payments from the due date. The current late-payment interest rate is 7.25%, which is substantially higher than most savings accounts, making it expensive to delay. The message is clear: submit on time, pay on time, or face escalating costs.

How MTD for ITSA Interacts with Self Assessment

A common question is whether MTD for ITSA replaces Self Assessment entirely. The short answer is: not quite, but nearly. If you are within MTD for ITSA, you no longer file a traditional Self Assessment tax return. Instead, your four quarterly updates plus your final declaration fulfil the same function. However, the payment schedule remains unchanged — your balancing payment is still due on 31 January, and payments on account (if applicable) continue on 31 January and 31 July.

If you have other sources of income that are not covered by MTD for ITSA — such as employment income, dividends, or capital gains — these are reported through your final declaration. The final declaration is more comprehensive than the quarterly updates and allows you to bring together all sources of income, claim personal allowances and reliefs, and calculate your overall tax liability for the year.

For more detail on Self Assessment timelines, read our guide on Self Assessment deadlines for 2025/26, and if you are interested in how MTD fits into the broader digital tax landscape, our comprehensive MTD guide covers all three pillars of the programme.

How to Prepare: A Practical Checklist

Whether you are already within scope (income over £50,000) or expect to be caught by the lower thresholds in future years, preparation is key. Here is a practical checklist to get MTD-ready:

1. Determine your qualifying income: Add together your gross self-employment income and gross property income. If the total exceeds £50,000, you are in scope from April 2026. If it exceeds £30,000, you will be in scope from April 2027.
2. Choose your software: If you are not already using cloud accounting software, now is the time. We recommend Xero or QuickBooks for most sole traders and landlords — both are user-friendly, MTD-compatible, and integrate with hundreds of other business tools.
3. Connect your bank feeds: Automating transaction imports from your bank account saves hours of manual data entry and reduces the risk of errors in your quarterly updates.
4. Set up expense categories: Ensure your software has the correct categories mapped to HMRC's requirements so that your quarterly submissions are accurate and complete.
5. Establish a quarterly routine: Get into the habit of reviewing and categorising your transactions at least monthly, so that your quarterly submission is a quick and painless process rather than a stressful scramble.
6. Register for MTD with HMRC: You can sign up for MTD for ITSA through your Government Gateway account. If you use an accountant, we can handle the registration on your behalf.
7. Speak to your accountant: An experienced accountant can ensure your setup is correct, advise on the most efficient software configuration, and handle your quarterly submissions if you prefer not to do them yourself.

Common Misconceptions About MTD for ITSA

There are several myths circulating about MTD for ITSA that are worth addressing:

"I need to pay tax quarterly." This is false. The quarterly updates are informational only — you are reporting your income and expenses, not making tax payments. Your payment dates remain 31 January and 31 July, as with traditional Self Assessment.

"My quarterly figures need to be exact." They do not. HMRC accepts that quarterly updates are based on the best information available at the time. You can make adjustments in your final declaration. However, deliberately inaccurate figures could attract scrutiny.

"MTD means more work for me." In the short term, there is a transition cost — setting up software, learning new processes, and adjusting to a quarterly rhythm. However, once established, most users find that MTD actually reduces their administrative burden because transactions are captured in real time rather than reconstructed months later from faded receipts and incomplete records.

"I can use my spreadsheet as before." Only if you combine it with bridging software that creates digital links to HMRC. Standalone spreadsheets without bridging software do not meet MTD requirements. Our strong recommendation is to move to purpose-built cloud accounting software for a smoother experience.

How London Accountants Can Help You With MTD

At London Accountants, we have been preparing our clients for MTD for ITSA since the programme was first announced. We offer a comprehensive MTD service that covers everything from initial setup to ongoing quarterly submissions:

• Software setup and migration: We will set up your Xero or QuickBooks account, import your historical data, connect your bank feeds, and configure your chart of accounts to be fully MTD-compliant.
• Quarterly submission service: We review your transactions each quarter, ensure they are correctly categorised, and submit your quarterly update to HMRC on your behalf — so you never miss a deadline.
• Final declaration: At the end of the tax year, we prepare and submit your final declaration, incorporating all sources of income, claiming all available reliefs, and calculating your tax liability accurately.
• Ongoing support: Our team is available throughout the year to answer questions, resolve software issues, and provide guidance on tax-efficient practices.

Our MTD packages are offered on a fixed-fee basis, so you know exactly what you are paying with no surprises. Whether you are a freelancer, a self-employed tradesperson, or a portfolio landlord, we have a service tailored to your needs.

Use our self-employment tax calculator to estimate your liability, or get in touch for a free initial consultation to discuss your MTD readiness. If you are also interested in cloud accounting beyond just MTD compliance, explore our cloud accounting services to see how we can transform the way you manage your business finances.