Preparing for MTD for ITSA (April 2026)

From 6 April 2026, Making Tax Digital for ITSA becomes mandatory for sole traders and landlords with qualifying income over £50,000. The annual tax return as we know it is being phased out - replaced by a system of quarterly digital submissions throughout the year.

What actually changes?

Under the current system, sole traders and landlords complete a single Self Assessment return each year, reporting all income and expenses for the prior tax year. Under MTD for ITSA, you will instead submit four quarterly updates to HMRC during the year, followed by a Final Declaration that closes out the tax year. The quarterly updates are not mini tax returns - they are cumulative summaries of income and expenses, giving HMRC (and you) a running view of your likely tax liability throughout the year.

• Keep digital records of all income and expenses - paper records will no longer be acceptable.
• Submit quarterly updates within one month of the end of each quarter (quarters run from 6 April, 6 July, 6 October, and 6 January).
• Submit a Final Declaration by 31 January following the end of the tax year - replacing the current Self Assessment deadline.

Who is in scope from April 2026?

"Qualifying income" means gross income from self-employment and/or UK property before any expenses or deductions. If your combined income from these sources exceeded £50,000 in the relevant prior year, you must comply from April 2026. HMRC will write to those it believes are in scope, but the responsibility to comply rests with the taxpayer - not with HMRC's notification.

Employed individuals who also have self-employment or rental income above the threshold are included. PAYE income does not count towards the £50,000 threshold calculation.

The timeline

Software requirements

You cannot comply with MTD for ITSA using a spreadsheet alone (unless bridging software connects it to HMRC's API). You must use MTD-compatible software. HMRC maintains an approved software list; popular options include Xero, QuickBooks, FreeAgent, and a range of specialist landlord software. The software must be able to submit updates directly to HMRC's API - simply emailing a spreadsheet to your accountant will no longer suffice.

If you use an accountant, they must also be authorised to submit MTD updates on your behalf through Agent Services - a different authorisation to the current SA agent code. Many accountants have already migrated clients; if yours has not contacted you about this, it is worth raising proactively.

Penalties for non-compliance

HMRC is introducing a new points-based penalty regime alongside MTD for ITSA. Each missed quarterly submission earns a penalty point. Once a threshold is reached (four points for quarterly filers), a £200 penalty is automatically charged. Points reset after a period of full compliance. Late payment penalties also apply on unpaid tax identified through the process. The regime is designed to be proportionate - occasional lateness accumulates points rather than triggering immediate fines - but persistent non-compliance can be costly.

What you should do now

If you are within six months of the April 2026 start date and have not yet begun your MTD journey, the following steps are urgent: assess whether you are in scope, select and implement compatible software, migrate your historical records, and ensure your accountant is authorised under Agent Services. A rushed implementation close to the deadline is far more stressful - and error-prone - than a planned migration.