The UK tax landscape is undergoing a significant transformation with the introduction of Making Tax Digital for Income Tax Self Assessment (MTD ITSA). This initiative aims to modernise the tax system, making it more efficient and easier for taxpayers to manage their obligations. For sole traders, landlords, and small business owners, understanding and preparing for MTD ITSA is crucial to ensure compliance and avoid potential penalties.
Introduction: The Shift Towards Digital Tax
The UK tax system is going digital – and that’s not a future concept anymore. Making Tax Digital (MTD) is a government-led initiative designed to make it easier for individuals and businesses to keep on top of their tax affairs.
The next phase, Making Tax Digital for Income Tax Self Assessment (MTD ITSA), is especially significant for sole traders, landlords, and small business owners. If you fall into one of these groups, it’s crucial to understand your upcoming obligations.
This article will walk you through everything you need to know about MTD ITSA – what it is, who it affects, how to prepare, and why acting early is the smartest move.
What is MTD for ITSA?
MTD for ITSA stands for Making Tax Digital for Income Tax Self Assessment. It’s part of HMRC’s broader plan to digitise the UK tax system.
Instead of submitting one Self Assessment return per year, businesses and landlords will be required to:
- Keep digital records of income and expenses
- Submit quarterly updates to HMRC via approved software
- Make an End of Period Statement (EOPS) and final declaration each tax year
The idea is to make tax more accurate, reduce errors, and give individuals better visibility over their tax liabilities throughout the year – rather than facing a surprise bill at the end.
Understanding MTD ITSA: The Essentials
MTD ITSA is a government initiative that requires certain taxpayers to maintain digital records and submit quarterly updates of their income and expenses to HM Revenue & Customs (HMRC) using compatible software. The goal is to reduce errors, improve accuracy, and provide taxpayers with a clearer view of their tax liabilities throughout the year.GOV.UK
Who Needs to Comply?
MTD ITSA isn’t for everyone just yet. Initially, it applies to:
- Sole traders (self-employed individuals)
- Property landlords (UK or overseas)
- Those with combined gross income of over £50,000 from self-employment and/or property
From April 2027, it will expand to include those earning over £30,000. HMRC is considering future thresholds for individuals earning £20,000+, but this is not yet mandatory.
If you’re unsure whether your income qualifies, HMRC will use your Self Assessment data from the previous tax year to assess whether you need to join the MTD ITSA regime.
Note: The qualifying income threshold is based on gross income, before any deductions or expenses.
When Does MTD ITSA Start?
Here are the key rollout dates:
- 6 April 2026 – MTD ITSA becomes mandatory for individuals with income over £50,000
- 6 April 2027 – Mandatory for those earning over £30,000
- Future – Potential rollout to £20,000+ income earners (TBC)
If you’re currently within the £50,000+ bracket, you must be fully compliant from the 2026/27 tax year onwards.
What Are the Key Requirements?
To comply with MTD ITSA, individuals will need to:
- Maintain digital records of income and expenses
- Use MTD-compatible software to manage records and send reports to HMRC
- Submit quarterly summaries of income and expenses
- Submit a year-end final declaration (replacing the traditional tax return)
This will involve a more structured, frequent approach to tax reporting, moving away from the once-a-year rush of the January deadline.
How Does Quarterly Reporting Work?
Under MTD ITSA, you’ll need to file reports every three months. Each update should summarise your income and expenses for the quarter. Here’s a typical schedule:
| Accounting Period | Update Deadline |
| 6 Apr – 5 Jul | 5 Aug |
| 6 Jul – 5 Oct | 5 Nov |
| 6 Oct – 5 Jan | 5 Feb |
| 6 Jan – 5 Apr | 5 May |
Then, by 31 January following the end of the tax year, you must submit:
- An End of Period Statement (EOPS) to finalise your income
- A Final Declaration (similar to the current Self Assessment return)
You’ll still pay your tax as usual on 31 January and 31 July, but the overall process becomes more digital and spread across the year.
Choosing the Right Digital Tax Software
HMRC will not provide the software themselves. Instead, you’ll need to choose an MTD-compatible solution.
Good digital tax software should help you:
- Record and categorise income and expenses
- Submit updates directly to HMRC
- Manage multiple income streams (especially for landlords or freelancers)
Examples of approved software include FreeAgent, QuickBooks, Xero, Sage, and more. HMRC publishes a full list here.
Tip: Consider software that can grow with your business, offers mobile functionality, and integrates with your bank accounts.
Speak to an advisor at Bloom Financials for help selecting the right platform for your needs.
What Happens if You Don’t Comply?
From April 2025, HMRC is overhauling its penalty system.
Late submission penalties:
- 1 point per missed submission
- £200 fine once you reach the threshold (usually 4 points)
Late payment penalties:
- 15 days late: 2% of the unpaid tax
- 30 days late: 4% total
- Additional interest accrues daily
The new system is more lenient for occasional errors but becomes increasingly strict for persistent delays.
Failing to comply with MTD ITSA not only attracts penalties but can also lead to audit scrutiny. It’s not worth the risk.
Step-by-Step: How to Prepare for MTD ITSA
Step 1: Confirm your qualifying income
Check whether your total income from self-employment and property exceeds £50,000. If so, you’ll need to comply from April 2026.
Step 2: Choose your software
Start testing and familiarising yourself with MTD-compliant software now. Some platforms offer trial periods or account access to help you get started.
Step 3: Start keeping digital records
Even if you’re not legally required yet, getting into the habit of recording transactions digitally will make the eventual transition smoother.
Step 4: Speak to your accountant
They can help you set up your systems, understand category mappings, and even handle submissions on your behalf.
Step 5: Sign up for MTD ITSA (when invited)
You can voluntarily join the pilot now if you meet the eligibility criteria. Otherwise, HMRC will guide you when your start date approaches.
Frequently Asked Questions
When does MTD ITSA start?
1. 6 April 2026 for those earning over £50,000
2. 6 April 2027 for those earning over £30,000
Is MTD ITSA replacing Self Assessment?
Not yet. It changes how you report income but doesn’t eliminate Self Assessment. You’ll still need to finalise your tax with an End of Period Statement and final declaration.
Can I still use spreadsheets?
Yes – but only if they’re linked to bridging software that can send data to HMRC.
What if I have multiple businesses or properties?
MTD software must be able to separate and track each income stream. You must submit EOPS for each individual business or property portfolio.
Is there help for digitally excluded individuals?
Yes. You can apply for an exemption through HMRC if it’s not practical for you to use digital tools due to age, disability, or lack of internet access.
How Bloom Financials Can Help
At Bloom Financials, we don’t just tick compliance boxes — we make tax work smarter for you.
We offer:
- Tailored setup of MTD-compatible software
- Ongoing quarterly support to manage submissions
- Advisory services to help optimise your business or property income
- Peace of mind knowing your records are HMRC-compliant
We specialise in supporting sole traders, landlords, and small business owners just like you. Let us handle the tax side so you can focus on growing your income.
Contact Bloom Financials today to discuss your readiness for MTD ITSA.
