Making Tax Digital for Income Tax: What Self-Employed People Must Do From April 2026

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) came into force from 6 April 2026 for the first wave of self-employed individuals and landlords. If you earn more than £50,000 per year from self-employment or property, you are now legally required to use MTD-compatible software to keep digital records and submit quarterly updates to HMRC. This is the most significant change to how self-employed people report their taxes in a generation — and penalties for non-compliance are already being issued.

Who Is Affected Right Now?

From April 2026, MTD for ITSA applies to self-employed individuals and landlords with gross income over £50,000.

From April 2027, the threshold drops to £30,000 — bringing in a significantly larger portion of the self-employed population.

From April 2028, the government intends to extend the requirement to those earning over £20,000, though the final threshold is still under consultation.

HMRC's 2026 Tax Update on 23 June 2026 also launched a consultation on requiring even more timely payment for Self Assessment taxpayers, suggesting quarterly tax payments (not just reporting) may follow in future years.

What MTD for ITSA Requires

Instead of filing a single annual Self Assessment return, you must now:

1. Keep digital records throughout the year using MTD-compatible accounting software
2. Submit four quarterly updates to HMRC (covering April–June, July–September, October–December, January–March)
3. Submit an End of Period Statement (EOPS) confirming your business figures after the year ends
4. Submit a Final Declaration to finalise your tax position (replacing the traditional Self Assessment return)

The quarterly submissions don't trigger a tax payment — they are progress reports that help HMRC and you keep track of your income and expenses through the year.

How to Choose MTD-Compatible Software

HMRC maintains a list of approved MTD for ITSA software providers. Popular options for sole traders include:

• FreeAgent (free for NatWest, RBS, and Ulster Bank business customers)
• QuickBooks Self-Employed
• Xero
• Sage
• TaxCalc and Coconut (simpler, sole-trader-focused tools)

Costs range from free to around £30/month. Some providers offer a free trial period — sign up and test before committing. Whatever software you choose, it must be able to submit directly to HMRC's API, not just produce a spreadsheet.

Checklist: Getting MTD-Ready

• Check whether your gross income from self-employment or property is over £50,000
• If yes, you are already required to comply from April 2026
• Choose and sign up to MTD-compatible software (see HMRC's approved list)
• Move your bookkeeping into the software — record all income and expenses digitally going forward
• Register for MTD for ITSA with HMRC via your Personal Tax Account or through your software provider
• Submit your first quarterly update by the relevant deadline (deadlines fall in August, November, February, and May)
• Check whether your accountant already uses MTD-compatible software and can assist with submissions
• If earning between £30,000 and £50,000, prepare now for the April 2027 extension

Penalties for Non-Compliance

HMRC's points-based penalty system (already in use for VAT) will apply to MTD for ITSA. Each late quarterly submission earns a penalty point; once a threshold is reached (4 points for quarterly filers), a £200 fine is imposed, with further £200 fines for each subsequent late submission.

What Other Countries Are Doing

The UK's approach mirrors global trends toward real-time tax reporting. The Australian Tax Office's Single Touch Payroll requires employers to report payroll data in real time. In the US, the IRS is investing heavily in digital filing infrastructure but has not yet mandated quarterly digital self-employment reporting. The EU is developing a VAT in the Digital Age (ViDA) framework with similar goals.

Key Numbers

• £50,000 gross income: current MTD ITSA threshold (from April 2026)
• £30,000 threshold: April 2027
• 4 quarterly submissions per year required
• £200 penalty per late submission once threshold exceeded

Sources

• FSB – Making Tax Digital 2026: Deadlines and Rules
• ICAEW – Significant Changes at Tax Update 2026
• GOV.UK – MTD-Compatible Software
• GOV.UK – MTD Penalties

Educational content only — not financial advice.