Making Tax Digital for Income Tax: What Sole Traders and Landlords Need to Know Before April 2026

What MTD for ITSA Actually Means

Self Assessment as most people know it – one annual return, one January deadline – is being replaced with a system of quarterly digital updates, supported by year-round digital record-keeping. HMRC's aim is to reduce the errors that arise from annual, memory-based filing and give both taxpayers and the Revenue a more current picture of tax positions throughout the year.

MTD for ITSA is separate from MTD for VAT, which has already been rolled out. It applies specifically to individuals with income from self-employment and/or property – not to limited companies or, for now, partnerships.

Who Is In Scope

The scheme applies to sole traders and landlords whose qualifying income meets or exceeds the relevant threshold. Qualifying income is the gross (before expenses) total from all your sole-trader businesses and rental properties combined. It is not your profit, and it is not your total personal income.

What counts and what doesn't:

For jointly owned property, only your individual share of the gross receipts is included – not the full rental figure.

Mandation Dates

HMRC is rolling out the requirements in two waves based on qualifying income levels. The income figure used to determine whether you fall into each wave is drawn from a reference year – generally two tax years before the mandation year.

Important: If your qualifying income in 2024/25 was £50,000 or more, you will be mandated from April 2026 – even if your income has since fallen. Check your figures now rather than assuming the deadline doesn't apply to you.

If your income later drops below the income tax thresholds, you may be able to withdraw from MTD for ITSA, but you'll need to apply to HMRC and confirm your circumstances. The process for this is still being refined, so keep an eye on HMRC guidance as your mandation date approaches.

What You'll Actually Need to Do

MTD for ITSA has three core obligations.

1. Keep Digital Records

You must keep digital records for every business and property source – recording the date, amount, and category of each transaction. Records need to be maintained throughout the year, not reconstructed come January. If you use a spreadsheet alongside accounting software, you must maintain a digital link between them – meaning no copy-and-paste or manual re-entry between systems. Data must flow digitally, whether through a direct import, an API connection, or a formula-based transfer.

2. Send Quarterly Updates

For each business or property source, you send four updates per year showing totals of income and expenses by category. These are not tax returns and they don't finalise your liability – think of them as regular progress reports. The default quarters run with the tax year (April to March), with each update due one month after the quarter end.

Quarterly updates don't include capital allowances, private-use adjustments, or other year-end reliefs. Those come later.

3. Complete Year-End Steps

At the end of the tax year, there are two further steps:

• End of Period Statement (EOPS): Filed per business/property source, this finalises the income and expenses for that source after year-end adjustments such as capital allowances and private use. It effectively replaces the SA103 and SA105 schedules.
• Final Declaration: A single filing that consolidates everything – replacing the role of the SA100 submission. This is due by 31 January after the tax year, in line with the existing Self Assessment deadline. Payment on account and balancing payment timelines remain unchanged.

Software: What You Need and How to Choose

You cannot meet MTD for ITSA obligations with pen-and-paper records or a standard spreadsheet alone. You need HMRC-recognised functional compatible software – and not all accounting tools have been updated for MTD for ITSA yet.

Check the HMRC software list before committing to a product. Recognition for MTD for VAT does not automatically mean a product is ready for MTD for ITSA. Confirm the software supports quarterly updates, EOPS, and Final Declaration – not just digital record-keeping.

There are broadly two routes:

Full bookkeeping software (e.g., QuickBooks, Xero, FreeAgent, Sage) handles records, bank feeds, categorisation, and direct submission to HMRC in one place. Better suited to businesses with regular transactions or multiple income sources.

Bridging software sits between your spreadsheet and HMRC's API. It's a lower-cost option if you're comfortable maintaining your own records in Excel or Google Sheets and just need the submission piece. The digital link requirement still applies – your spreadsheet formulas must pull data through without manual re-entry at any point.

When evaluating software, consider: support for multiple trades or properties; agent access if you use an accountant; bank feed integration; and what happens to your data if you cancel the subscription.

Exemptions

If age, disability, location, or religious beliefs make digital record-keeping genuinely impractical, you can apply to HMRC for a digital exclusion exemption. You'll need to provide supporting evidence, and HMRC will review your circumstances. Exemptions are individual decisions – having a broadly digital business does not preclude a specific person from qualifying if they personally cannot engage with the technology.

Others permanently outside MTD for ITSA include certain trustees, personal representatives, and anyone whose income falls below the mandated threshold.

Penalties

MTD for ITSA uses a points-based system for late submissions rather than automatic fines. Each missed obligation earns a point; once you reach a threshold (four points for quarterly filers), a £200 financial penalty applies. Points can be reset by filing on time consistently and making a formal request to HMRC after a sustained compliance period.

Late payment penalties and interest continue to apply in the usual way, with interest accruing from the due date. Time to Pay arrangements remain available for those who need them.

Getting Ready: A Practical Checklist

The sooner you act, the smoother the transition. Broadly, the preparation splits into three areas:

Confirm your position. Pull your 2024/25 gross income figures from self-employment and property. If the combined total is £50,000 or more, you're likely mandated from April 2026. If it's between £30,000 and £50,000, April 2027 is your target.

Choose and set up your software. Don't leave this until March 2026. Many software providers are still rolling out MTD for ITSA functionality, so test your chosen product well in advance – ideally starting quarterly updates on a voluntary basis before your mandation date.

Talk to your accountant early. Agents operating under MTD for ITSA need an Agent Services Account and client authorisation linked through the software. If your accountant handles your Self Assessment, check that they're ready for the new cycle and that your engagement covers quarterly filings, not just year-end work.

Agents and Accountants

If you use an accountant or bookkeeper, the quarterly rhythm of MTD for ITSA changes the working relationship significantly. What was once an annual burst of activity becomes four smaller deadlines plus year-end. Many firms are restructuring their pricing to reflect this – if you haven't already, it's worth having that conversation before mandation rather than after.

Special Situations

Multiple trades: Each sole-trader business is a separate income source with its own digital records and quarterly updates. The qualifying income test, however, looks at total gross income across all of them combined.

Multiple properties: UK and overseas property can be combined as a single property business in some cases, but the rules are nuanced, particularly where furnished holiday lettings are involved. Check how your software handles this.

VAT-registered businesses: If you're already under MTD for VAT, you're used to digital record-keeping – but the MTD for ITSA record categories and submission schedules are different. Some software handles both in a single environment; others keep them separate. Make sure you understand which set of records satisfies which obligation.

Foreign income: Overseas self-employment and rental income counts toward qualifying income and must be reported under MTD for ITSA. Transactions in foreign currency should be converted at an appropriate exchange rate – HMRC accepts monthly average rates or spot rates, but consistency matters.

FAQ

Can I correct a quarterly update after I've sent it? Yes. Quarterly updates can be amended before the End of Period Statement is submitted. Most software makes this straightforward – you resubmit the corrected period and HMRC's records are updated accordingly.

What if I stop trading or sell my rental property mid-year? Your MTD for ITSA obligations effectively end when the income source ceases. You'll still need to complete the EOPS and Final Declaration for the period you were active, but you won't be required to continue filing quarterly updates for a business or property that no longer exists.

Are partnerships likely to join MTD for ITSA later? HMRC has indicated that partnerships will eventually be brought into scope, but no mandation date has been confirmed. Partner income does not currently count toward an individual's qualifying income threshold, though this may change when partnerships are mandated.

What happens if HMRC's systems are unavailable on a deadline day? HMRC has provisions for technical failures on their end. If their systems prevent submission on the due date, reasonable excuse rules apply and you should not receive penalty points. Keep records of any error messages or outage notifications as evidence.

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