MTD ITSA 2026: Income Tax Goes Digital

The biggest change to UK self assessment since it was launched in 1997 is about to land. From 6 April 2026, sole traders and landlords with income over £50,000 must keep digital records, send four quarterly updates a year, and submit a final declaration through HMRC-approved software. The annual paper or online self assessment return as we know it disappears for affected taxpayers.

This guide covers Making Tax Digital for Income Tax 2026 (MTD ITSA) — who is in, who is out, what each quarterly update has to contain, which software options are approved, the new penalty regime, and what to do in the months before 6 April 2026.

MTD ITSA timeline and thresholds

HMRC has pushed the start date back twice since the original 2018 proposal. The dates locked in for 2026 onwards are firm.

From	Threshold (gross income)	Who is in scope
6 April 2026	£50,000	Self-employed and landlords above £50,000
6 April 2027	£30,000	Self-employed and landlords above £30,000
6 April 2028	£20,000	Self-employed and landlords above £20,000

The threshold tests gross income, not profit. A landlord with £55,000 of rental income and £35,000 of expenses is in scope, even though the taxable profit is £20,000. A sole trader with £45,000 of self-employment turnover and a separate £8,000 of rental income is also in scope because the combined figure is £53,000.

The income figure that decides whether you are in scope is the one on the 2024/25 tax return — the most recent one filed before 6 April 2026. HMRC writes to you in advance if your figures put you over the line.

What MTD ITSA actually requires

The mtd itsa regime has three moving parts. All three have to be in place from day one.

Digital records. Every business income and expense item has to be recorded in MTD-compatible software, with categories that match the HMRC update format. Paper notebooks, spreadsheets without bridging software, and "save the receipts in a shoebox" approaches do not count.
Quarterly updates. Four updates a year, sent to HMRC within one month and seven days of each quarter end. Each is a running cumulative total of income and expenses for the tax year so far, broken down into the same categories used on the current self assessment pages.
Final declaration. The replacement for the annual self assessment return. Due by 31 January following the tax year, the same deadline as today. The final declaration confirms the four quarterly updates, adds any year-end adjustments (capital allowances, use of home, year-end stock), and brings in any other income such as savings interest, dividends, or employment.

The HMRC overview page is Making Tax Digital for Income Tax.

Quarterly update mechanics

The standard quarterly periods are aligned with the tax year:

Quarter 1: 6 April – 5 July. Submission due by 7 August.
Quarter 2: 6 July – 5 October. Submission due by 7 November.
Quarter 3: 6 October – 5 January. Submission due by 7 February.
Quarter 4: 6 January – 5 April. Submission due by 7 May.

You can elect to use calendar quarters instead (1 April – 30 June and so on). The election is per business and is irrevocable mid-year.

Each update breaks down income and expenses into the categories on the existing self-employment or property pages — turnover, cost of sales, premises costs, motor expenses, professional fees, and so on. The numbers are running cumulative figures for the tax year, not figures for the standalone quarter. The software calculates the comparison against the previous update.

Quarterly updates are not full tax returns. You do not have to apply year-end adjustments at each quarter. Capital allowances, use of home, and year-end stock corrections all wait for the final declaration. That keeps the quarterly burden manageable but does mean the in-year figures do not show actual taxable profit until year end.

What counts as a digital record

HMRC's definition of a digital record is narrower than most people expect. To meet the rules, the record has to:

Be stored in functional compatible software (not on paper, not in a non-MTD spreadsheet without bridging software).
Include for each transaction the amount, date, category, and a description sufficient to identify the entry.
Be linked to the next stage of the process by digital means — copying and pasting numbers between systems breaks the digital link.

The phrase "digital link" trips up the most. You can use multiple pieces of software (a bookkeeping app plus a tax submission tool, for example), but the data has to move between them by API, import/export of a structured file, or linked cells in a spreadsheet. Retyping a figure from one system into another is not allowed.

The hard cut-off on digital links applies from year one. There is no soft-landing period this time — HMRC withdrew that concession after the equivalent VAT phase.

Get MTD-ready with ICM

MTD-compatible software options

HMRC keeps a public list at Software for sending Income Tax updates. The major MTD software categories are:

All-in-one bookkeeping packages. Xero, QuickBooks, FreeAgent, Sage Business Cloud. Each handles records, quarterly updates, and the final declaration in one product. Subscription costs range from £10 to £40 a month.
Bridging software for spreadsheets. If you want to keep using Excel for bookkeeping, a bridging tool (such as Tax Filer, 123 Sheets, or BTC Software) sends the data to HMRC from approved templates. Costs around £40 to £100 a year.
Free or low-cost options. A handful of free packages exist for very small businesses — typically with a transaction or turnover cap. They are workable for landlords with a single property or sole traders with a handful of invoices a month.

The right choice depends on transaction volume, whether you also need invoicing and payroll, and whether you already have a preferred accountant who works in a particular package. Switching software mid-year is allowed but creates digital-link issues, so most accountants encourage a clean switch before 6 April 2026 if you are moving systems.

The points-based penalty regime

MTD ITSA brings a new penalty system that is more forgiving on first slips but more punishing on repeat offences. Late filing and late payment are treated separately.

Late filing — points-based. Each missed quarterly update or final declaration earns one point. For quarterly filers (which is everyone in MTD ITSA), the threshold is four points before a £200 fixed penalty kicks in. Each subsequent late submission triggers another £200, regardless of how many points you have. Points expire after 24 months of compliance — you have to file the next four returns on time and have no outstanding obligations.

Late payment — interest-and-penalty. Late payment of the balancing tax bill carries interest from day one (HMRC rate, currently 7.5%). At 16 days late, a 3% penalty applies on the unpaid amount. At 31 days late, a further 3%. From day 31, a daily penalty at an annualised 10% accrues until the tax is paid.

The combination is harsher than the existing self assessment regime, particularly for taxpayers who tend to file on time but pay slowly. A £5,000 tax bill paid 60 days late could attract around £300 to £400 of penalties plus interest under the new system.

What to do before 6 April 2026

Most of the work is groundwork that pays off in the first quarter. Working backwards from the start date:

By December 2025. Check whether your 2024/25 return puts you over £50,000 of gross trading and property income. If yes, you are in scope from April 2026.
By January 2026. Pick MTD-compatible software. If you have an accountant, ask which package they support — most firms have standardised on one or two.
By February 2026. Open the new account, import any opening balances, and start running it in parallel with your existing system for a month. This catches mapping issues before they matter.
By March 2026. Switch to the new system for live transactions and stop the parallel run. Confirm the digital link to your accountant's filing software works.
6 April 2026. Day one of MTD. First quarter ends 5 July and the first update is due 7 August.

Landlords have one extra step. UK and overseas property income are treated as separate businesses inside MTD. If you own a buy-to-let in the UK and a holiday home let in Spain, that is two property businesses, with two sets of digital records and two quarterly updates per period.

Common questions about MTD ITSA in practice

Some niche issues are not obvious from the headline rules but catch many sole traders out.

Furnished holiday lets were folded into ordinary property income from April 2025 and are inside MTD ITSA from April 2026 if they push the landlord over the threshold.
Partnerships are not in MTD ITSA in April 2026. HMRC has not set a confirmed date for general partnerships yet; review the HMRC roadmap annually.
Multiple businesses each need their own set of quarterly updates. A sole trader plumber who also has rental income files updates for both.
Joint property is split based on ownership share at quarterly update time. Each owner files their own updates.
Exemptions exist for taxpayers who cannot reasonably use digital tools (typically on grounds of age, disability, remoteness, or religious reasons). The exemption has to be applied for in advance — HMRC will not back-date it.

The transition is the largest piece of compliance change most sole traders and landlords will see in their working life. Treat it as a project, not a Sunday-night job in March.

FAQ

Frequently asked questions

Who has to use MTD ITSA from April 2026?

Self-employed sole traders and landlords with combined gross trading and property income over £50,000 must use Making Tax Digital for Income Tax from 6 April 2026. The threshold drops to £30,000 from April 2027 and to £20,000 from April 2028.

What are quarterly updates?

A quarterly update is a summary of business income and expenses for the three-month period, sent to HMRC through compatible software. Updates are due one month and seven days after each quarter ends. They are running totals from the start of the tax year, not standalone quarters.

What is MTD-compatible software?

Software that connects to HMRC's MTD API and can record transactions in digital form, store the digital records for six years, and submit quarterly updates and the final declaration. HMRC publishes a full list of approved options at gov.uk — both paid packages and free tools are on it.

What happens if I miss a quarterly deadline?

MTD ITSA uses a points-based penalty system. You get one point per missed quarterly submission. At four points (for a quarterly filer) you trigger a £200 fixed penalty, with further £200 penalties for each subsequent late submission until your record is back to zero points after 24 months of compliance.

Does MTD apply to landlords?

Yes. Landlords with property income above the threshold have to follow MTD just as sole traders do. UK and overseas property income are treated as separate businesses, each with its own digital record and quarterly update.

This article is general guidance, not personal tax advice. Speak to a qualified accountant before acting on it.