Making Tax Digital for ITSA — What Changes in April 2026
If you’re self-employed or earn rental income above £50,000, the way you report tax to HMRC is about to change fundamentally. From April 2026, Making Tax Digital for Income Tax Self Assessment replaces the familiar annual tax return with quarterly digital reporting — and it’s the start of a phased rollout that will eventually cover anyone earning above £20,000 from self-employment or property.
This isn’t a minor administrative tweak. It changes how often you report, what software you need, and how HMRC monitors your tax position throughout the year. For around 780,000 people in the first wave alone, the annual rhythm of “do the tax return in January” is over. This is one of several regulatory changes hitting UK businesses in 2026 — and for sole traders and landlords, it’s the one that changes your day-to-day operations most directly.
What’s Changing
Currently, self-employed individuals and landlords file a single Self Assessment tax return each year, covering the previous tax year’s income and expenses. You can keep your records however you like — spreadsheets, shoeboxes, handwritten ledgers — and submit once a year.
Making Tax Digital changes both of those things.
Digital record-keeping becomes mandatory. You’ll need to use MTD-compatible software to keep your business records. HMRC won’t accept manual records or standalone spreadsheets (though “bridging software” that connects spreadsheets to HMRC’s systems is an option). The records need to be maintained digitally throughout the year, not assembled at year-end.
Quarterly updates replace the annual return. Instead of one submission per year, you’ll send HMRC quarterly updates summarising your income and expenditure. These aren’t full tax returns — they’re summaries that give HMRC a running picture of your tax position. At the end of the year, you’ll submit a final declaration confirming the full picture and any adjustments.
The quarterly schedule follows the tax year: updates due for the periods ending 5 July, 5 October, 5 January, and 5 April. Each update must be submitted by the deadline — though HMRC has confirmed it won’t apply penalty points for late quarterly updates during the first year (2026–27) for those mandated from April 2026.
Who’s Affected — and When
The rollout is phased by income threshold:
April 2026 (first wave): Sole traders and landlords with qualifying income over £50,000. This catches around 780,000 people. “Qualifying income” means gross income from self-employment or property — it’s the turnover figure, not profit. If your business turns over £55,000 but your profit after expenses is £30,000, you’re still in the first wave.
April 2027 (second wave): The threshold drops to £30,000. An additional 970,000 people join. If you’re a landlord with a couple of buy-to-let properties generating £35,000 in combined rental income, this is your deadline.
April 2028 (third wave): The threshold drops again to £20,000. This catches the long tail of smaller-scale self-employment and property income.
Below £20,000: No confirmed mandate date yet. HMRC has indicated it intends to extend MTD for ITSA further, but the timeline for incomes below £20,000 is not set.
Partnerships: General partnerships were originally included but are currently excluded from the initial rollout. HMRC has said partnerships will be brought in at a later date — no confirmed timeline.
Companies: MTD for ITSA doesn’t apply to limited companies. Corporation Tax has its own (separate) MTD timeline.
What You’ll Need
MTD-compatible software. This is the non-negotiable requirement. Your software needs to connect to HMRC’s systems and submit quarterly updates digitally. HMRC maintains a list of compatible software, including free options. If you already use accounting software like Xero, QuickBooks, or FreeAgent, check whether your current plan includes MTD for ITSA — many do, but some require an upgrade.
If you use spreadsheets: You can continue using spreadsheets for your day-to-day record-keeping, but you’ll need “bridging software” that takes your spreadsheet data and submits it to HMRC in the required format. This adds a step, but it means you don’t have to abandon your existing workflow entirely.
If you use an accountant: Talk to them now. Your accountant will likely need to adjust their workflow — and possibly their fees — to accommodate quarterly submissions rather than a single annual engagement. Some accountants are already set up for MTD; others will need to adapt.
What Happens If You’re Late
HMRC is introducing a new penalty regime alongside MTD for ITSA, replacing the current late filing and late payment penalties.
Late submission: A points-based system. You accumulate a penalty point each time you submit a quarterly update or final declaration late. Once you reach the penalty threshold (currently set at four points for quarterly obligations), you receive a £200 penalty — and another £200 for each subsequent late submission until you bring your compliance up to date.
First-year leniency: HMRC has confirmed it won’t apply penalty points for late quarterly updates during the first tax year (2026–27) for the first mandated group. You’ll still need to submit, but late quarterly updates in year one won’t generate penalty points. Late final declarations and late payments are not included in this leniency — those penalties apply from day one.
Late payment: A graduated penalty based on how late the payment is. Broadly: no penalty if paid within 15 days of the due date, then increasing penalties the longer the payment remains outstanding.
What This Means in Practice
For many sole traders and landlords, the biggest change isn’t the technology — it’s the rhythm. Instead of one annual sprint to gather receipts and calculate figures, you’re maintaining records continuously and submitting four times a year. In practice, this means:
Your bookkeeping needs to be current, not retrospective. If your current approach is to collect receipts in a folder and sort them out in January, that stops working. Records need to be up to date at least quarterly — ideally monthly or weekly.
Your tax position becomes visible earlier. Quarterly updates give you (and HMRC) a running estimate of your tax liability. This is actually useful — it means fewer surprises in January and better cash flow planning. But it also means HMRC can see discrepancies earlier.
The cost of compliance may increase. Software subscriptions, potential accountancy fee increases for quarterly engagement, and the time cost of more frequent record-keeping all add up. For a sole trader earning £55,000, the additional annual cost is likely £100–£500 depending on current setup and software choices.
If you have multiple income sources, each type of self-employment or property income needs separate quarterly reporting. A landlord who also does freelance consulting sends separate updates for each income stream.
How This Connects to the Wider Regulatory Picture
MTD for ITSA is a tax change, not a compliance regulation in the traditional sense — but it arrives in the same crowded regulatory window as everything else hitting UK businesses in 2026. A sole trader or small landlord who’s also an employer faces the Employment Rights Act changes in the same month. A business owner with a website faces GDPR, accessibility, and cookie compliance obligations that are tightening simultaneously.
The pattern is the same across all domains: regulation is becoming more frequent, more digital, and more proactive. The Fair Work Agency investigates employers without waiting for complaints. The ICO is increasing enforcement of data protection. And now HMRC wants quarterly visibility of your tax position instead of annual. For anyone running a business, the message is clear: informal approaches to compliance are becoming increasingly risky.
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What to Do Now
If you’re in the first wave (income over £50,000): You have weeks, not months. If you haven’t already chosen MTD-compatible software, do it now. If you’re working with an accountant, confirm they’re ready for quarterly submissions. Start keeping digital records immediately — even before April — so the first quarterly period isn’t a scramble.
If you’re in the second wave (income £30,000–£50,000): You have a year. Use it. Watch how the first wave goes, learn from their experience, and get your software and processes in place well before April 2027.
If you’re in the third wave (income £20,000–£30,000): You have until April 2028, but the same preparation applies. The longer your lead time, the smoother the transition.
Everyone: Keep an eye on HMRC’s MTD for ITSA guidance as it evolves. The first-year leniency period is helpful, but it’s a grace period — not a permanent exemption. The quarterly rhythm is coming for good, and the sooner you adapt, the less it costs.