Will MTD for ITSA replace Self Assessment entirely?

For those mandated to use MTD for ITSA, it will replace the traditional annual Self Assessment tax return with digital record-keeping, quarterly updates, and a Final Declaration. If your income is below the thresholds, you will continue to use the existing Self Assessment system.

What if I have more than one business or property?

If you have multiple self-employments or properties, you must keep separate digital records for each business. You will then submit quarterly updates for each business using the same MTD-compatible software. Your overall income is combined to determine if you meet the MTD threshold.

Do I need to pay tax with each quarterly update?

No, quarterly updates are summaries of your income and expenses, not tax payments. Your payment obligations remain broadly aligned with the existing Self Assessment timeline, with your tax liability finalised in your annual Final Declaration.

What records do I need to keep digitally?

You need to keep digital records of all your self-employment and property income and expenses. This includes sales, fees, rent received, and various business or property expenses like stock costs, travel, office costs, and repairs. HMRC does not receive details of individual receipts or invoices, only the summarised totals.

What if my income drops below the threshold after I've signed up?

If your qualifying income falls below the MTD for ITSA threshold for three consecutive tax years, you may be able to apply to leave the MTD regime. Until then, you remain in the system.

Can I still use an accountant for my tax affairs?

Yes, you can absolutely still use an accountant. Your accountant can use MTD-compatible software to manage your digital records, submit your quarterly updates, and file your Final Declaration on your behalf, ensuring you remain compliant.

Making Tax Digital for Income Tax (MTD for ITSA): what's changing and when

What is Making Tax Digital for Income Tax (MTD for ITSA)?

Making Tax Digital (MTD) is a government initiative to modernise the UK tax system, making it easier for businesses and individuals to manage their tax affairs digitally. MTD for Income Tax Self Assessment (ITSA) is the next phase, following the introduction of MTD for VAT in 2019.

Instead of filing one annual Self Assessment tax return, MTD for ITSA requires eligible sole traders and landlords to keep digital records of their income and expenses using compatible software. They will then send regular updates to HMRC throughout the tax year.

Who needs to follow MTD for ITSA?

MTD for ITSA is being introduced in phases, based on your qualifying income from self-employment and/or property. Your "qualifying income" is your total gross income before expenses are deducted.

The rollout schedule is as follows:

From 6 April 2026: Mandatory for sole traders and landlords with a combined gross income from self-employment and/or property over £50,000 in the 2024/25 tax year.
From 6 April 2027: Mandatory for sole traders and landlords with a combined gross income from self-employment and/or property over £30,000 in the 2025/26 tax year.
From 6 April 2028: Planned for sole traders and landlords with a combined gross income from self-employment and/or property over £20,000 in the 2026/27 tax year.

If your income is below these thresholds, you will continue to use the existing Self Assessment system. Partnerships are not currently included in these initial phases.

What's changing and what you need to do

The shift to MTD for ITSA involves several key changes to your tax reporting process:

Digital Record Keeping: You must keep digital records of all your business and/or property income and expenses using MTD-compatible software. This means moving away from paper ledgers or manual spreadsheets as your primary record-keeping method.

For each transaction, you need to record the date, amount, and category (e.g., turnover, rent, travel expenses).
If you have multiple self-employments, you must keep separate digital records for each business. UK rental income can be combined into one property business, and overseas rental income into another.

Quarterly Updates: You will need to send a summary of your income and expenses to HMRC every three months using your MTD-compatible software. These are not full tax returns but provide HMRC with an up-to-date picture of your finances.

The standard quarterly deadlines are 5 August, 5 November, 5 February, and 5 May. Your software will guide you on these dates.
HMRC will not apply penalty points for late quarterly updates during the 2026/27 tax year, but penalties will apply for late Final Declarations.

End of Period Statement (EOPS) (No longer required): Initially, an EOPS was part of the MTD for ITSA process. However, recent simplifications mean this separate statement is no longer required.
Final Declaration: At the end of the tax year, you will use your MTD-compatible software to make a "Final Declaration". This replaces your traditional annual Self Assessment tax return, allowing you to finalise your income and expenses, claim any allowances, and calculate your overall tax liability. The deadline for this remains 31 January following the end of the tax year.

How to prepare for MTD for ITSA

Getting ready for MTD for ITSA involves a few practical steps:

Check your income: Review your gross income from self-employment and property for the 2024/25 tax year to determine if you fall into the April 2026 mandation.
Choose compatible software: You must use software that is recognised by HMRC for MTD for ITSA. This software will allow you to keep digital records and submit your quarterly updates and Final Declaration directly to HMRC.

If you currently use spreadsheets, you may be able to use "bridging software" to connect your spreadsheets to HMRC's system.

Start keeping digital records: Even if you're not mandated yet, begin recording your income and expenses digitally now. This will help you get accustomed to the new system.
Consider professional help: Your accountant can help you choose suitable software, set up your digital records, and manage your quarterly submissions and Final Declaration.

Common mistakes

Ignoring the deadlines: MTD for ITSA introduces multiple quarterly deadlines, not just one annual one.
Using non-compatible software: Relying on basic spreadsheets without bridging software, or non-approved accounting software, will not meet MTD requirements.
Not keeping detailed digital records: Simply summarising figures at the end of a quarter is not sufficient; individual transactions need to be recorded digitally.
Confusing gross income with profit: The thresholds for MTD for ITSA are based on your gross income, not your profit after expenses.
Delaying preparation: The transition requires time to choose software, set up systems, and get used to the new reporting rhythm.

Frequently asked questions

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