Making Tax Digital for Income Tax: Complete 2026 Guide
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is the biggest change to UK tax reporting in decades. From 6 April 2026, sole traders and landlords with income over £50,000 must keep digital records and submit quarterly updates to HMRC.
This comprehensive guide covers everything you need to know to comply with MTD ITSA.
What is Making Tax Digital for Income Tax?
MTD ITSA requires self-employed individuals and landlords to:
- Keep digital records using MTD-compatible software
- Submit quarterly updates to HMRC
- Submit an End of Period Statement (EOPS) after each accounting period
- Submit a Final Declaration instead of the traditional Self Assessment tax return
The goal is to make tax reporting more accurate, reduce errors, and give taxpayers a clearer real-time picture of their tax position.
Who Must Comply with MTD ITSA?
Mandatory from 6 April 2026
- Self-employed individuals with gross income over £50,000
- Landlords with gross property income over £50,000
Mandatory from 6 April 2027
- Self-employed and landlords with gross income over £30,000
Mandatory from 6 April 2028
- Self-employed and landlords with gross income over £20,000
Currently Exempt
- Individuals earning under the threshold (until phased in)
- Partnerships (separate rules to be announced)
- Companies (already under MTD for Corporation Tax)
- Trusts and estates
- Those digitally excluded (by application)
MTD ITSA Key Deadlines 2026/27
| Deadline | What's Required |
|---|---|
| 6 April 2026 | MTD ITSA goes live for £50k+ earners |
| 7 August 2026 | Q1 quarterly update (April-June) |
| 7 November 2026 | Q2 quarterly update (July-September) |
| 7 February 2027 | Q3 quarterly update (October-December) |
| 7 May 2027 | Q4 quarterly update (January-March) |
| 31 January 2028 | Final Declaration for 2026/27 |
What You Need to Submit
Quarterly Updates (4 per year)
Each quarterly update must include:
- Total income received in the quarter
- Total expenses incurred in the quarter
- Summary by category
Important: These are cumulative figures, not just the quarter's data. Each update shows year-to-date totals.
End of Period Statement (EOPS)
After your accounting year end, you must submit an EOPS confirming:
- Your business income and expenses are complete
- Any accounting adjustments
- Capital allowances claimed
Final Declaration
The Final Declaration replaces the Self Assessment tax return. It:
- Confirms all income sources
- Calculates your total tax liability
- Must be submitted by 31 January following the tax year
MTD-Compatible Software Options
You must use HMRC-recognised MTD-compatible software. Here are the main options:
Cloud Accounting Software
| Software | Monthly Cost | Best For |
|---|---|---|
| Xero | £15-£47 | Established businesses |
| QuickBooks | £12-£32 | Growing businesses |
| FreeAgent | £19.50 | Freelancers, contractors |
| Sage | £12-£33 | Traditional businesses |
| Coconut | £9-£15 | Sole traders |
Free/Low-Cost Options
- HMRC MTD software (basic, free)
- 123 Sheets (spreadsheet bridge, from £60/year)
- SimpleTax (basic MTD compliance)
Bridging Software
If you prefer spreadsheets, bridging software connects Excel/Google Sheets to HMRC:
- 123 Sheets
- BTCSoftware
- TaxCalc
How to Prepare for MTD ITSA
Step 1: Check If You're Affected
Calculate your gross income for 2024/25:
- Self-employment income (before expenses)
- Rental income (before expenses)
If combined total exceeds £50,000, you're in scope from April 2026.
Step 2: Sign Up for MTD ITSA
- Go to gov.uk/guidance/sign-up-for-making-tax-digital-for-income-tax
- Sign in with your Government Gateway ID
- Follow the sign-up process
- Receive confirmation of your MTD ITSA status
Step 3: Choose Your Software
Consider:
- Your technical confidence
- Business complexity
- Integration with bank accounts
- Accountant compatibility
- Cost
Step 4: Set Up Digital Record Keeping
Your software must record:
- All business income
- All allowable expenses
- Bank transactions
- Receipt/invoice details
Step 5: Establish Quarterly Routine
Before each deadline:
- Reconcile bank accounts
- Categorise all transactions
- Review for accuracy
- Submit quarterly update
Penalties for Non-Compliance
HMRC is introducing a new points-based penalty system:
Late Submission Penalties
| Points Accumulated | Consequence |
|---|---|
| 1-3 points | Warning only |
| 4 points (annual filers) | £200 penalty |
| Each additional late submission | £200 penalty |
Points expire after 24 months of compliance.
Late Payment Penalties
| How Late | Penalty |
|---|---|
| Up to 15 days | None |
| 16-30 days | 2% of tax owed |
| 31+ days | Additional 2% + daily interest |
| 6 months late | Further 5% |
| 12 months late | Further 5% |
MTD ITSA vs Traditional Self Assessment
| Aspect | Self Assessment | MTD ITSA |
|---|---|---|
| Frequency | Annual | Quarterly + annual |
| Record keeping | Any format | Digital only |
| Deadline | 31 January | Multiple throughout year |
| Tax estimate | At year end | Real-time |
| Software | Optional | Mandatory |
Frequently Asked Questions
Am I affected by Making Tax Digital?
If your self-employment or rental income exceeds £50,000 gross, you're affected from April 2026. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028.
What if I have both self-employment and rental income?
You assess each income source separately against the threshold. If either exceeds £50,000, you must comply with MTD ITSA.
Can I still use a spreadsheet?
Yes, but you'll need bridging software to submit to HMRC. The spreadsheet must meet MTD digital record-keeping requirements.
What happens if I miss a quarterly deadline?
You'll receive a penalty point. Accumulate too many points and you'll face financial penalties. However, there's a soft landing period in the first year.
Do I still need to file a Self Assessment tax return?
The Final Declaration replaces the traditional Self Assessment return for MTD ITSA users. You'll submit this through your MTD software instead of the HMRC website.
Can my accountant do this for me?
Yes. Your accountant can submit quarterly updates and the Final Declaration on your behalf using agent services.
MTD ITSA Checklist
- Calculate gross income to determine if affected
- Sign up for MTD ITSA on gov.uk
- Choose MTD-compatible software
- Set up digital record keeping
- Link bank accounts to software
- Create quarterly submission calendar
- Submit Q1 update by 7 August 2026
- Continue quarterly submissions
- Submit EOPS after year end
- Submit Final Declaration by 31 January 2028
Related Calculators
- Self-Employed Tax Calculator - Calculate your tax bill
- MTD ITSA Checker - Check if you're affected
- Rental Income Calculator - Calculate property tax
- Income Tax Calculator - Understand your tax bands