MTD for ITSA: who has to follow the rules now

1. What MTD for ITSA changes

Making Tax Digital for Income Tax Self Assessment is the biggest structural change to UK sole trader and landlord reporting since Self Assessment itself was introduced in 1996. It changes the once-a-year SA100 routine into digital record keeping, quarterly updates and a tax return submitted through compatible software.

The practical change is simple enough to describe, but harder to run day to day. If MTD applies to you, you need digital records in compatible software, quarterly summary updates to HMRC, and a tax return that reconciles the figures.

2. Who has to use MTD and when

HMRC looks at gross income, the top line from self-employment and property combined, before expenses. That distinction matters: a landlord with £60,000 rent and £45,000 of mortgage interest may still have to use MTD, even if the taxable profit is much lower.

• 6 April 2026: gross combined self-employment and property income over £50,000.
• 6 April 2027: gross combined self-employment and property income over £30,000.
• 6 April 2028: gross combined self-employment and property income over £20,000.

The look-back test is based on the Self Assessment return named in HMRC's timetable. If your 2024/25 return shows qualifying income over £50,000, MTD applies from 6 April 2026. The 2025/26 return is used for the £30,000 phase from 6 April 2027, and the 2026/27 return is used for the £20,000 phase from 6 April 2028. Partnerships and limited companies do not have to follow these rules for now.

3. The four quarterly updates

Each quarterly update is a cumulative year-to-date summary for each trade and each rental business, transmitted through compatible software. Standard update periods run from 6 April to 5 July, 6 April to 5 October, 6 April to 5 January and 6 April to 5 April. Taxpayers can choose calendar update periods, such as 1 April to 30 June and 1 April to 30 September, before the first update is sent.

Submission deadlines are 7 August, 7 November, 7 February, and 7 May. Each update is a running total from the start of the tax year to the end of the update period, not a quarter-only snapshot.

4. The tax return

After the four quarterly updates, you submit your tax return through MTD-compatible software by 31 January following the tax year end. The familiar Self Assessment deadline remains unchanged. The return consolidates the quarterly updates and adds the year-end adjustments that quarterly submissions do not capture: capital allowances, private-use disallowances, stock valuations, accruals, and prepayments.

Other income sources, employment, dividends, savings, pensions, capital gains and foreign income are added to the tax return as they are under Self Assessment now. It is the tax return, not the quarterly updates, that confirms the balancing payment and the first Payment on Account for the following year.

5. Digital Links and Record Rules

Digital records must capture each transaction's date, amount, and category. Scanning a bank statement monthly and typing totals into a spreadsheet does not comply, the rules require transaction-level detail captured and preserved digitally.

The "digital link" rule prohibits manual re-entry between systems. Once data is in your accounting package, moving it to your submission software must be automatic, through APIs, linked cells in spreadsheets, or bridging software. Copying, pasting, or re-keying breaks the chain and triggers compliance failure regardless of whether the numbers are correct.

Records must be retained for at least five years after the 31 January submission deadline, six years for landlords under company ownership. HMRC's compliance powers extend to requesting digital audit trails showing exactly how a quarterly figure was built from underlying transactions.

6. Choosing Compliant Software

HMRC maintains a list of software products that have passed MTD for ITSA conformance testing. As of 2026, mainstream options include FreeAgent (free for NatWest/RBS/Mettle business banking customers), Xero, QuickBooks, Sage Accounting, and a growing pool of landlord-specific tools such as Hammock and Landlord Studio.

If you already use a spreadsheet workflow you want to keep, bridging software (such as 123 Sheets, Absolute MTD, or BTC Software) can link Excel to HMRC's API. This is a valid long-term path, but it requires discipline: every change to the spreadsheet structure risks breaking the digital link.

The software you choose needs to cover the part of the process you expect it to handle. Check HMRC's current software list before committing, because some products support quarterly updates, tax return submission, or agent workflows differently.

7. The New Points-Based Penalty System

MTD for ITSA is supported by a points-based penalty regime already familiar to MTD for VAT filers. In the first tax year of MTD, HMRC says it will not apply penalty points for late quarterly updates. The tax return still matters, and after the first-year easement each late quarterly update can earn one point. Hitting four points triggers a £200 fixed penalty, with a further £200 for every subsequent late submission while you remain at the threshold.

Late payment interest begins accruing from day one at the Bank of England base rate plus 4%. Late payment penalties are separate from quarterly-update points, so missing a payment deadline can still cost money even in the first MTD year.

8. What to do now

The first MTD for ITSA phase is already running. If your 2024/25 return puts you over the £50,000 threshold and you have not set up the records yet, treat it as a current compliance job, not a year-end tidy-up.

1. Check whether HMRC expects you to use MTD

• Take your most recently filed Self Assessment return, that is the return HMRC uses for the look-back.
• Add gross self-employment turnover to gross property income, before any expenses, mortgage interest, or allowances.
• Note the joint-property rule: each owner is tested on their share of gross rent, not the total. Two joint owners of a £60,000 rental are each at £30,000.
• Multiple self-employed trades are pooled for the threshold test but each trade files a separate quarterly update.

2. Get records digital from 6 April 2026

• Open or ring-fence a dedicated business bank account and request six months of historic CSV statements for software onboarding.
• Move receipt capture digital via Dext, Hubdoc or Auto Entry, manual typing from a paper total into software breaks the digital-link chain.
• If you keep spreadsheets, bridge them with HMRC-approved bridging software. Copy-paste between spreadsheet and filing tool is not a digital link.
• Build a chart of accounts that maps cleanly to HMRC's quarterly categories once, not quarter by quarter. For landlords, distinguish mortgage interest (restricted relief) from capital repayments (no relief) from the first transaction.

3. Pick software and authorise your agent

• Shortlist only from the HMRC approved list. Filter for bank feed support, receipt capture, bridging ability and property-specific templates if you are a landlord.
• If you are already in the 2026 phase, reconstruct records from 6 April 2026 before the first update is due.
• If you join in 2027 or 2028, use the lead time to clean up bank feeds, categories, property splits and receipt capture before your start date.
• Appoint an agent through the new MTD for ITSA agent services account, a separate authorisation from your existing Self Assessment 64-8.

Current timeline

9. Common mistakes to avoid

• Testing against taxable profit, not gross income. The most common error among landlords. The threshold is gross.
• Leaving onboarding until the first deadline. Bank feed approval can take a fortnight; opening balances take another week to categorise.
• Using software not on the HMRC approved list. No matter how slick the interface, it cannot file quarterly updates if it is not certified.
• Breaking the digital link. Typing totals from software into a separate HMRC-facing tool is a compliance break even if the numbers match.
• Treating quarterly updates as final filings. They are running totals, not returns. The tax return in the following January is where adjustments and reliefs land.
• Assuming the 31 January deadline goes away. It does not. People who have to use MTD file quarterly updates and submit their tax return by the following 31 January.

For implementation support, see our sole trader accounting service or our digital bookkeeping setup.