What You Need to Know About MTD for Income Tax

Changes are coming to the way individuals report income via Self Assessment in the UK. The government’s Making Tax Digital (MTD) programme, already in effect for VAT-registered businesses, is being extended to income tax. From April 2026, many self-employed people and landlords will have to comply with new digital reporting requirements. Understanding the changes early will help you prepare—and avoid surprises.

In this blog, we’ll cover:

• What is MTD for Income Tax (MTD-ITSA)

• Who it affects and when

• What changes in practice (reporting, software, deadlines)

• Benefits, challenges, and how to get ready

What Is MTD for Income Tax

MTD for Income Tax Self Assessment is a new system which will gradually replace the existing annual Self Assessment filing.

Important: This just applies to those who are sole traders and/or have income from property

• You will need to keep digital records using software that is HMRC-approved

• Instead of just one annual return, you’ll submit periodic (quarterly) updates to HMRC.

• At the end of the tax year, you make a final declaration (sometimes called an “end-of-year statement”) to summarise your total income, expenses, and adjustments.

MTD doesn’t change the fundamental tax rules: allowable expenses, reliefs, rates, and deadlines for paying tax remain in place. What changes is how and when you report.

Who Is Affected & When

MTD will be phased in, they key factor is your “qualifying income”, based on gross income, not profit (i.e. before subtracting expenses).

• April 6 2026: All self employed with qualifying income of £50,000 or more

• April 6 2027: All self employed with qualifying income of £30,000 or more

• April 6 2027: All self employed with qualifying income of £20,000 or more

What Actually Changes in Practice

Here’s what your workflows and obligations will look like under MTD-ITSA, compared to the current Self Assessment regime.

1. Digital record keeping (not paper or manual only)

• You will need to keep all your business and property income, expenses, and adjustments in digital form, using software that can generate the required submissions

• Using spreadsheets is allowed if you use bridging software that can compile them and submit properly

• All records must be kept (and retrievable) for the legally required time (7 years)

2. Quarterly updates

• You will submit income and expense summaries every three months (quarterly). These are cumulative year-to-date figures (i.e. first quarter covers April–June, second covers April–October, etc.)

• The software will submit these to HMRC; you (or your accountant) will review and click to file.

• You do not make tax payments at each quarterly update (unless due under ‘payments on account’); these updates are informational.

3. Final declaration / end-of-year statement

• At the end of the tax year, you make a final declaration (sometimes called an “end-of-year statement” or “final declaration”) within your software. This collates all your income, adjustments, reliefs, allowances, and other sources of income (e.g. dividends, interest) that were not part of MTD-ITSA.

• The system will calculate your tax due (or refund) as normal.

• You’ll then pay any balance and (if applicable) make payments on account by the usual deadlines.

4. Deadlines and submission windows

• The first quarterly update after the April 2026 start is expected in early August 2026, covering the period April–June.

• Subsequent updates follow:

  • Q2 (April–Sept) – due in November

  • Q3 (April–Dec) – due February

  • Q4 (April–Mar) – due May (of the next year)

• The final declaration will align with the usual Self Assessment end-of-year deadline of 31 January, though all submissions (quarterly updates plus final) occur via software.

5. Penalties & compliance

• Late or missed submissions may attract penalties under HMRC’s MTD penalty regimes (which are stricter than the old Self Assessment late filing penalties).

• In the 2025 Spring statement, the government announced increases in late payment penalties for those under MTD: e.g. raising from 2% to 3%, with further penalties for delay.

• Because you have more frequent reporting, errors or omissions may need to be corrected in later updates; but repeated failure to comply could trigger HMRC scrutiny.

Benefits & Challenges

Benefits

• Better ongoing visibility of your tax position, helping you avoid year-end surprises

• Reduced last-minute stress: most data is already captured through the year

• Fewer errors: automation (in software) reduces manual mistakes

• Improved cash flow planning: quarterly snapshots help you set aside tax in time

• Digital transformation push: helps modernise bookkeeping and financial habits

Challenges

• Learning curve: getting used to new software and workflows

• Cost: paying for accounting software or software upgrades

• More frequent deadlines: quarterly submission schedule needs discipline

• Risk of penalties: missing a quarter or entering incorrect data may carry consequences

• Edge cases / complexity: multiple income streams, property, adjustments etc may complicate reporting

How to Prepare Now

Below is a checklist to help you get ready ahead of the switch to MTD-ITSA:

1. Estimate your qualifying income
   Assess whether your self-employment + property gross income will likely exceed the thresholds (£50,000 in 2026, then £30,000, then £20,000). If you anticipate crossing a threshold, you’ll need to prepare.

2. Choose MTD-compatible software
   Look for a software package that is recognised by HMRC (functional compatible). Many cloud accounting tools already support MTD for VAT and are extending to MTD-ITSA.

3. Convert your record-keeping to digital
   Move away from manual ledgers or paper receipts. Begin inputting your income and expenses into digital form now to get used to the process.

4. Make a plan for quarterly updates
   Decide on internal processes (or engage your accountant) to capture, review, and submit updates on time.

5. Track additional income types
   Some income (e.g. dividends, interest) may not fall into MTD-ITSA but still need reporting in your final declaration — plan how you’ll gather and integrate these.

6. Ask about exemptions
   If you believe you qualify for an exemption (e.g. due to disability, remote location, or inability to use digital services), talk to HMRC/your adviser about applying.

7. Run a “pilot year”
   If your software allows, start practising quarterly updates in advance (you can subscribe to HMRCs Beta programme), so by 2026 the system is familiar.

8. Stay updated
   Keep an eye on HMRC guidance and changes in rules, as some details (especially around exclusions or implementation) may evolve.

Conclusion

The shift from the traditional Self Assessment to a digital, quarterly reporting regime is a major change, but one that has been long announced and is now inevitable. For many self-employed individuals and landlords, the move to MTD-ITSA means adopting new systems, being more consistent with record-keeping, and adapting to more regular reporting. It may be worth engaging an accountant to help you with this transition or submit Self Assessment Tax Returns going forward