Making Tax Digital for Income Tax 2026 — What Self-Employed People and Landlords Must Do Now
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is mandatory from April 2026 for self-employed individuals and landlords with income over £50,000. If that's you, you need to act now — the changes to how you report income to HMRC are significant.
What Is Making Tax Digital for Income Tax?
Making Tax Digital (MTD) is HMRC's long-running programme to digitalise the UK tax system. The first phase — MTD for VAT — has already been implemented. MTD for Income Tax Self Assessment (MTD ITSA) extends the same principle to individuals who pay Income Tax through Self Assessment, starting with those with the highest incomes.
Under MTD ITSA, instead of completing one annual Self Assessment tax return, you will need to: keep digital records of your income and expenses; submit quarterly summary updates to HMRC using compatible software; make an annual end-of-period statement finalising your figures; and submit a final declaration (replacing the tax return) to confirm all your income sources.
Who Must Comply and When?
- From April 2026: Self-employed individuals and landlords with total gross income above £50,000 per year
- From April 2027: Those with total gross income above £30,000 per year
- From April 2028 (planned): Those with total gross income above £20,000 per year (subject to confirmation)
The income threshold refers to total gross income from self-employment and/or property — not profit. If your turnover from any combination of these sources exceeds the relevant threshold, you must comply from the relevant date.
The Four Steps Under MTD ITSA
Step 1 — Digital Record Keeping
You must keep your business and/or property records digitally using HMRC-compatible software. This means moving away from spreadsheets or paper records (unless your spreadsheet is linked to MTD-compatible bridging software). HMRC publishes a list of approved software providers on its website.
Step 2 — Quarterly Updates
You must submit a quarterly summary of your income and expenses to HMRC — four times per year, within one month of each quarter end. The quarterly periods are fixed: April–June, July–September, October–December, and January–March. You do not need to calculate your tax liability at this stage — it is simply a summary of figures.
Step 3 — End of Period Statement
After the end of the tax year, you submit an End of Period Statement (EOPS) for each source of income (each business and each property). This is where you make any final adjustments, claim allowances, and confirm the figures for that source.
Step 4 — Final Declaration
The Final Declaration replaces the Self Assessment tax return. It brings together all your income sources (including employment income, dividends, interest, etc.) and confirms your total income and tax liability for the year. The deadline is 31 January following the tax year — the same as the current Self Assessment deadline.
Choosing Compatible Software
HMRC does not provide its own free MTD ITSA software (unlike for MTD VAT). You will need to use third-party software. Options range from full accounting packages (such as QuickBooks, Xero, FreeAgent, and Sage) to simpler apps designed specifically for sole traders and landlords. Some products are free for basic use. The key requirements are that the software can submit quarterly updates to HMRC's APIs and keep digital records in the required format.
Penalties for Non-Compliance
HMRC has introduced a new points-based penalty system for MTD ITSA. Each missed quarterly submission earns one penalty point. Reaching a points threshold — four points for quarterly filers — results in a £200 penalty. Additional daily penalties may apply for very late submissions. The annual final declaration carries separate late filing and late payment penalties. HMRC has indicated a "soft landing" period for genuine errors in the early months of implementation, but deliberate non-compliance will be penalised.
What Should You Do Now?
- Check whether your income will exceed the threshold in 2025/26 — remember it's gross income, not profit
- Start keeping digital records now, even before it is mandatory — it will make the transition easier
- Research and choose compatible software well before April 2026
- Consider speaking to an accountant if your affairs are complex
- Register for HMRC's testing programme if you want to trial the system before the mandatory date