For years there has been talk about the digitalisation of tax, but this is no longer theory – it is a reality that is approaching fast. From April 2026 a new obligation will apply to many self‑employed individuals and people letting property in the UK and abroad (landlords): Making Tax Digital for Income Tax Self Assessment, in short MTD for ITSA.
What exactly is MTD for ITSA?
It is simply the requirement to keep business records in a digital format and to submit details of income and expenses to HMRC on a quarterly basis. The aim of this programme is to reduce errors, make tax management easier and increase transparency.
Who will be affected, and when?
The roll‑out is planned in stages:
- From April 2026 – self‑employed individuals and landlords with annual gross income above £50,000.
- From April 2027 – those whose gross income exceeds £30,000.
- From April 2028 – those with gross income above £20,000.
How to determine the income that counts for MTD ITSA?
You must take into account all income in the relevant tax year from self‑employment (trading income) and property income (rental income).
All other sources of income reported via Self Assessment – such as employment income (PAYE), income from a partnership or dividends (including dividends from your own limited company) – are not taken into account when assessing whether you meet the MTD ITSA income threshold.
HMRC will look at your gross income/turnover – that is before deducting allowable expenses. Income is calculated net of VAT where you are VAT‑registered.
For example, Anna has the following income in the tax year to 5 April 2025:
- £25,000 from property rental
- £27,000 from self‑employment
- £10,000 in dividends from a limited company
- £15,000 from employment (PAYE)
Her total income relevant for the MTD ITSA threshold is £52,000, so from 2026 Anna will be required to report quarterly to HMRC. Employment income and dividends will be included only in the final end‑of‑year tax calculation; they are ignored for the purposes of quarterly submissions.
If you let property abroad, this rental income must also be included when assessing your MTD‑relevant income.
Co‑owners of property will have to maintain digital records and submit quarterly updates to HMRC only in respect of their own share of the rental income and expenses. For example, spouses jointly letting a house will each report 50% of the income and costs.
What new obligations will apply?
Each taxpayer within the scope of MTD ITSA will have to:
- Maintain digital accounting records
- Submit quarterly updates to HMRC
- At year‑end, finalise the return, similar to the current Self Assessment process
- Pay the tax due by 31 January; at the moment there is no requirement to pay tax quarterly
What does keeping digital records mean?
All records will have to be maintained in software that is compatible with HMRC’s MTD requirements.
You will no longer be able to log in to your HMRC Government Gateway account, type in your income and expenses and submit a quarterly return manually. You will need appropriate software – this can be a complete accounting package or even Excel connected via so‑called bridging software. If you are VAT‑registered, check whether your current software will also support MTD ITSA.
If your bookkeeping has so far been done in a “notebook”, you can find a list of compatible software here:
Find software that works with Making Tax Digital for Income Tax – GOV.UK
The good news is that alongside paid solutions there are also free or low‑cost options.
What needs to be entered into the software?
For taxpayers with turnover below the VAT registration threshold (£90,000), HMRC will allow quarterly updates on a simplified basis. It will be sufficient to report the total income and expenses without a detailed breakdown by category. For example, if you are an eBay seller, you may enter your total daily sales rather than every single transaction.
The minimum information that must be recorded in the bookkeeping software is:
- Date
- Amount
- Category (income/expense)
The exception is mortgage interest on buy‑to‑let property – these finance costs must be disclosed separately.
A few practical tips
- To avoid problems, enter transactions into your software on the day they occur – when you receive income or incur an expense.
- If you cannot do this immediately, update your records as soon as possible afterwards. Build a habit and avoid postponing entries. Always record your data before submitting the quarterly update to HMRC.
- Download the app for your phone or tablet – this allows you to keep your records anywhere and at any time, keeping you in control of your finances and tax obligations.
Once all data has been entered, the software will generate summaries which must be submitted to HMRC every quarter via your HMRC Government Gateway account. On this basis you will see how much tax is likely to be due, which will help you plan for the end of the tax year.
More than one business?
If you run more than one trade or business, you will have to keep separate digital records for each and submit separate quarterly updates.
Quarterly deadlines
After the end of each quarter, you will have one month to submit the update to HMRC.
- Quarter 6 April to 5 July – filing deadline 7 August
- Quarter 6 July to 5 October – filing deadline 7 November
- Quarter 6 October to 5 January – filing deadline 7 February
- Quarter 6 January to 5 April – filing deadline 7 May
What if the update is late?
HMRC will apply a points‑based penalty system. For every missed filing deadline you will receive a penalty point. Once you reach a specified number of points, a financial penalty will be charged.
Can you be exempt from quarterly reporting?
Yes, HMRC can exempt individuals who are “digitally excluded” due to disability, age, lack of internet access or religious beliefs.
Such taxpayers will need to apply formally for an exemption from MTD ITSA.
The requirement will not apply to those carrying on a business with annual income below £20,000.
Why is it worth preparing now?
Although it might seem that there is still plenty of time, in practice there is not that much left. In accounting everything works with a time lag. Your tax position for 2024/25 will determine whether you fall within the new rules from 2026.
It is therefore worth:
- Checking your current level of income
- Making sure your details are up to date with HMRC and that your Government Gateway account is active
- Looking for MTD‑compatible software that suits your situation
- Speaking to your accountant so that you can prepare for the changes calmly and without stress
- If you are VAT‑registered, checking whether your VAT quarters and your MTD ITSA quarters can be aligned
- If you have been filing your own tax returns so far, deciding whether you will continue to do so or would rather appoint an accountant
If your income for the 2025 tax year reaches £50,000, remember to sign up for MTD before April 2026. The registration link for MTD ITSA is here:
ServiceSigning up for Making Tax Digital for Income Tax – Sign up for Making Tax Digital for Income Tax – GOV.UK cloudcounting
Finally: do not be afraid of technology
This tax “revolution” is designed to make running a business easier, reduce chaos and errors and even help you keep better track of your finances. Many people who have already gone through MTD for VAT say they would not want to return to paper records.
Change always creates resistance – but it does not have to create fear. If planned properly, it can be a step towards greater order and peace of mind in your business.
If you want to know whether and from when the new rules will apply to you, or if you need help choosing software, feel free to get in touch. Together we can get you ready for what is coming – calmly, on time and without unnecessary stress.
