Making Tax Digital for Income Tax: Are You Ready for Your Mandatory Date?

Making Tax Digital for Income Tax (MTD ITSA) is no longer a future reform — it's already live for the highest earners, and its next expansion is coming faster than many sole traders realise.

The rollout timeline

From 6 April 2026, MTD for Income Tax became mandatory for sole traders and landlords with qualifying income over £50,000 for the 2024/25 tax year, according to Starling Bank's breakdown. From April 2027, that threshold drops to £30,000, and from April 2028 it falls again to £20,000, per GoCardless's guide for sole traders and landlords. If your income sits anywhere near these bands, you should assume you'll be brought in within the next two tax years.

What actually changes under MTD

Once mandated, you must keep digital records of your business income and expenses using HMRC-approved software, rather than a spreadsheet or paper records alone. You'll submit quarterly updates to HMRC summarising income and expenses, followed by a "final declaration" at year-end that replaces the old Self Assessment return, according to FreeAgent's step-by-step guide. Those brought in from April 2026 will file their first fully digital annual return by January 2028, covering the 2026/27 tax year.

The grace period — and why it won't last

HMRC has confirmed that traders and landlords mandated from April 2026 won't face penalties for late submission of their first four quarterly updates, according to the Federation of Small Businesses. That soft-landing period is designed to let people adjust to the new quarterly rhythm, but penalties for late submissions will apply once it ends — so it's worth building good habits from day one rather than treating the grace period as indefinite.

Why some businesses are incorporating instead

Because limited companies currently sit outside MTD ITSA, some sole traders approaching the £50,000 or £30,000 thresholds are weighing incorporation partly to sidestep quarterly digital reporting for now, according to 1Office's analysis — though this shouldn't be the only factor in that decision, since running a limited company brings its own compliance costs.

Checklist: getting ready for MTD ITSA

• Check your qualifying income for the relevant tax year against the £50,000 (2026), £30,000 (2027) and £20,000 (2028) thresholds using gov.uk's tool.
• Choose HMRC-recognised MTD software now rather than waiting for your mandatory start date.
• Start keeping digital records for all business income and expenses, even before you're mandated, to build the habit early.
• Understand the quarterly update cycle and calendar the submission dates for your first year.
• Don't rely on the first-year penalty easement lasting indefinitely — treat every quarterly deadline as real.
• If considering incorporation to avoid MTD, get advice on the full tax and compliance picture, not just the reporting burden.

Key Numbers

• £50,000 — qualifying income threshold that made MTD ITSA mandatory from April 2026
• £30,000 — threshold from which MTD ITSA becomes mandatory in April 2027
• £20,000 — threshold from which MTD ITSA becomes mandatory in April 2028
• 4 — number of quarterly updates covered by HMRC's first-year penalty easement

Sources

• gov.uk: Find out if and when you need to use MTD for Income Tax
• Starling Bank: Making Tax Digital for Income Tax rules and deadlines
• GoCardless: MTD ITSA guide for sole traders and landlords
• FreeAgent: Year one of MTD for Income Tax
• FSB: Making Tax Digital 2026 deadlines and rules
• 1Office: Why self-employed people are switching to a limited company

Educational content only — not financial advice.