One of the most significant changes to UK tax in decades is approaching: Making Tax Digital for Income Tax Self Assessment (MTD for ITSA). Originally scheduled for April 2024, then delayed to April 2026, this digital transformation will fundamentally change how millions of sole traders, landlords, and partners report their income and pay tax.
If you currently file a Self Assessment tax return for business income or property income, these changes will affect you. Understanding what’s coming, when it applies to you, and how to prepare now will help you avoid last-minute panic, potential penalties, and the stress of forced digital transition.
This comprehensive guide explains everything you need to know about MTD for Income Tax, who it affects, when it starts, what you will need to do differently, and most importantly, how to prepare your business for this new digital reality.
What is Making Tax Digital for Income Tax?
Making Tax Digital (MTD) is HMRC’s initiative to modernise the tax system by requiring digital record-keeping and quarterly reporting through compatible software.
MTD for VAT vs. MTD for Income Tax
MTD for VAT has been mandatory since April 2022 for all VAT-registered businesses, so many business owners are already familiar with the concept. MTD for Income Tax extends similar requirements to Self Assessment taxpayers.
Key differences:
- MTD for VAT: Quarterly VAT returns submitted digitally
- MTD for Income Tax: Quarterly income and expense updates PLUS an annual End of Period Statement and final declaration
The Core Requirements
Under MTD for Income Tax, eligible taxpayers must:
- Keep digital records of income and expenses using MTD-compatible software
- Submit quarterly updates to HMRC showing income and expenses (not a tax calculation)
- Submit an End of Period Statement after the tax year confirming figures are complete and correct
- Make a final declaration (replacing the traditional Self Assessment tax return)
- Use digital links if multiple software programs are involved
Gone will be the days of spreadsheets, paper records, or leaving everything until January. MTD requires near-real-time digital record-keeping throughout the year.
Who Does MTD for Income Tax Affect?
Not everyone will be caught by the new rules immediately. HMRC is phasing in the requirements based on income levels.
Phase 1: April 2026 (Tax Year 2026/27)
Mandatory for:
- Self-employed individuals (sole traders) with business income over £50,000
- Landlords with property income over £50,000
- Partnerships where the business income exceeds £50,000
The £50,000 threshold is based on total gross income (total income before expenses), not profit.
If you earn less than £50,000 for each of the sources above, but the total gross exceeds £50,000, then you are still eligible.
Not affected (yet):
- Self-employed earning under £50,000
- Landlords with rental income under £50,000
- Employees with no self-employment or property income
- Those filing Self Assessment for other reasons (high income, capital gains, etc.)
Phase 2: April 2027 (Tax Year 2027/28)
Mandatory for:
- Self-employed individuals with business income over £30,000
- Landlords with property income over £30,000
- Partnerships where business income exceeds £30,000
The threshold drops from £50,000 to £30,000, bringing significantly more taxpayers into scope.
Future Phases
HMRC has indicated they eventually want to extend MTD to all Self Assessment taxpayers, regardless of income level, though no timeline has been confirmed for those under £30,000.
Who is Exempt?
Even if you meet the income thresholds, you’re exempt if:
- You’re unable to use digital tools due to age, disability, or remote location
- Your religious beliefs prevent you from using electronic communications
- You’re subject to an insolvency procedure
Exemptions require application and evidence.
The New MTD Process
The shift from annual Self Assessment to quarterly digital updates represents a fundamental change in how you interact with HMRC.
Current System (Until MTD)
Now, you:
- Keep records throughout the year (format not specified)
- Complete and submit one Self Assessment tax return by 31 January
- Pay any tax due by 31 January (and payment on account by 31 July)
That’s it. One annual interaction with HMRC.
New System Under MTD (From 2026/27)
You will:
Quarterly (four times per year):
- Record all income and expenses digitally in MTD-compatible software
- Submit a quarterly update to HMRC showing income and expenses for that quarter
- Deadlines: Approximately one month after each quarter-end
Quarterly updates due:
- Quarter 1 (April-June): By end of July
- Quarter 2 (July-September): By end of October
- Quarter 3 (October-December): By end of January
- Quarter 4 (January-March): By end of April
Annually:
Submit an End of Period Statement (by 31 January following the tax year)
Make a final declaration (by 31 January following the tax year)
Pay any tax due (by 31 January, as now)
What Gets Submitted Quarterly
It’s crucial to understand that quarterly updates are not tax calculations or payments. They’re simply reports of your income and expenses for that quarter.
Each quarterly update includes:
- Total income for the quarter (by category)
- Total allowable expenses for the quarter (by category)
- No tax calculation at this stage
HMRC uses these updates to monitor your business activity throughout the year, but you don’t calculate or pay tax until the final declaration.
The End of Period Statement
After the tax year ends (5 April), you must submit an End of Period Statement confirming:
- All quarterly updates are complete and accurate
- Any accounting adjustments (like stock valuation, capital allowances)
- Confirmation that you’ve included all income and expenses
This reconciles your quarterly submissions into your final position for the year.
The Final Declaration
This replaces your traditional Self Assessment tax return. It includes:
- Your confirmed income and expenses from the End of Period Statement
- Other income not covered by quarterly updates (employment, investments, etc.)
- Tax calculation and any tax due
- Personal details and claims for reliefs
Once submitted, HMRC will calculate your tax bill, including payment on account for the following year.
Conclusion
Making Tax Digital for Income Tax represents the biggest change to tax compliance in decades. For sole traders, landlords, and partners above the income thresholds, there is no avoiding it. MTD is coming.
The businesses that thrive under MTD will be those that prepare early, implement robust digital systems, and establish good habits now. Those that wait until 2026 will face rushed implementations, potential errors, penalties, and unnecessary stress.
Common Questions and Concerns
I’m barely over the £50,000 threshold. Can I reduce my income to avoid MTD?
Technically, it is possible, but it is often not sensible. Growing your business should be the priority, not artificially limiting income just to avoid compliance requirements. MTD becomes much easier when you have good systems in place. Limiting your success to avoid it usually causes more harm than good in the long run.T
What if my income fluctuates above and below £50,000?
The threshold is based on the previous tax year’s income. If you exceed it one year, you’re in MTD for the following year, even if your income then drops below the threshold.
Can I continue using spreadsheets?
Only if your spreadsheet software has bridging capabilities to submit to HMRC digitally. Standard Excel won’t suffice unless connected via approved bridging software. Most people will need dedicated accounting software.
I’m 70 and not confident with technology. What should I do?
You may qualify for exemption based on age and digital exclusion. Alternatively, an accountant can handle all the digital requirements while you provide paper records. Discuss options with HMRC or a professional.
What happens if I miss a quarterly deadline?
Initially, HMRC has indicated a “soft landing” approach with warnings before penalties. However, persistent non-compliance will result in points-based penalties and potential financial penalties.
Can my accountant submit quarterly updates on my behalf?
Yes. Most accountants will handle all MTD submissions for clients as part of ongoing service. You’ll still need to provide information regularly, but they’ll manage the technical compliance.
