If you’re a self-employed individual, a landlord, or someone who currently reports more than £50,000 in annual income through the UK Self Assessment system, you’re on the path to significant changes in how you manage and report your taxes. These changes come under the government’s wide-reaching initiative known as Making Tax Digital for Income Tax Self Assessment. We focus on understanding the purpose behind these changes and what you need to do to get started.
What is Making Tax Digital?
The UK government launched Making Tax Digital with a clear objective: modernise the tax system by replacing paper-based processes with digital ones. The transformation began with VAT-registered businesses and will soon include millions of income tax payers. The underlying goal is to improve accuracy, reduce errors, and help people stay on top of their tax obligations more efficiently.
Making Tax Digital aims to simplify tax management by introducing a consistent digital process. This new system is intended to reduce the administrative burden on taxpayers while increasing transparency and reliability for HMRC. By digitising the tax process, the government hopes to address billions of pounds in lost revenue due to common reporting mistakes and miscalculations.
Who Will Be Affected?
From the start of the 2026/27 tax year, those earning over £50,000 annually and currently submitting an annual Self Assessment return will need to use digital systems to comply with the new reporting requirements. This includes maintaining digital records of income and expenses and submitting them on a quarterly basis using compatible software.
Eventually, the threshold will decrease, and more individuals will be brought into the digital tax system. But initially, only those above the £50,000 threshold need to comply. If you fall within this category, it’s important to start understanding how the system works and how it will change your reporting obligations.
Why Is MTD for ITSA Being Introduced?
The government estimates that errors in tax submissions cost the UK billions of pounds each year. Making Tax Digital is designed to reduce those errors by ensuring that tax information is updated and reported more frequently. In place of the traditional once-a-year Self Assessment return, digital tax reporting will allow for quarterly submissions, providing both HMRC and taxpayers with a clearer picture of income throughout the year.
This change is not just about enforcement; it is also about support. With more frequent reporting, taxpayers can better manage cash flow, understand their tax liability in real time, and avoid large surprises when the tax bill arrives. HMRC, in turn, benefits from a more accurate and timely understanding of tax revenue.
What Will You Need to Do Differently?
The most significant change is the shift from annual to quarterly reporting. If you currently rely on paper records or simple spreadsheets, you will need to upgrade to digital record-keeping software that is compliant with HMRC’s requirements. Approved software will allow you to record income and expenses, generate reports, and submit quarterly updates directly to HMRC.
Digital record-keeping must be maintained throughout the year. Each transaction must be recorded in a structured format that your software can interpret and submit. The quarterly updates are not as detailed as a full Self Assessment return, but they must accurately reflect your business’s financial activity during each period.
How Will Quarterly Reporting Work?
Each submission will provide HMRC with a summary of your income and expenses. Based on these updates, you’ll receive an estimate of how much tax you owe for the year. These estimates are intended to help with budgeting and financial planning, giving you an early indication of your likely tax bill.
At the end of the tax year, you will be required to complete two further steps. First, the End of Period Statement must be submitted. This is a confirmation of all data submitted during the year and includes any adjustments for tax reliefs, allowances, or corrections. Second, you will submit the Final Declaration, which confirms your complete income and final tax liability for the year. This declaration replaces the traditional tax return.
Software Requirements and Compatibility
Not all accounting or bookkeeping software will be suitable for Making Tax Digital. You will need to ensure that the software you choose is recognised by HMRC as MTD-compliant. This means it can connect with HMRC systems and allow for the accurate transmission of data.
It’s worth spending time reviewing different software options to find one that suits your business needs. Consider features such as ease of use, reporting capabilities, and integration with your existing systems. Many providers offer support and guidance to help you transition to digital record-keeping.
Although the official launch of MTD for ITSA is not until April 2026, starting preparations now will help ensure a smooth transition. Begin by examining how you currently record financial information. If you’re using paper records, now is the time to move to a digital system. If you’re already using accounting software, check whether it meets HMRC’s requirements or if you’ll need to upgrade.
Early adoption can also provide the opportunity to test the system and identify any challenges before the full rollout. Some taxpayers may be eligible to join the pilot scheme, which allows early participation in MTD for ITSA. This can be a useful way to get hands-on experience with the new system.
Who Can Apply for Exemption?
There are cases where using digital tools may not be practical. If you are unable to comply with MTD for ITSA requirements due to age, a disability, poor internet connectivity, or religious beliefs, you can apply for an exemption. HMRC will review your application and, if approved, provide an alternative method for managing your tax obligations.
Applying for an exemption requires supporting evidence. For example, if you live in a remote area with unreliable internet access, you may need to provide documentation or evidence of service limitations. If granted, this exemption allows you to continue using paper records or submit your information through a non-digital process.
What Happens If You Don’t Comply?
Non-compliance with MTD requirements may result in penalties. HMRC has outlined a new points-based penalty system that applies to late submissions and late payments. Each missed quarterly update or end-of-year submission can lead to a penalty point, and once you reach a certain threshold, a financial penalty will be applied.
Understanding the requirements and acting early will help you avoid unnecessary penalties. Ensure that your record-keeping is accurate, your software is compliant, and that you are submitting data on time. Planning ahead and staying organised are key elements of successfully managing the transition.
Impact on Day-to-Day Business Operations
Implementing MTD for ITSA will require changes to your routine financial processes. You’ll need to enter income and expense data regularly, reconcile accounts, and ensure that your records are always current. The shift to quarterly reporting means you can’t leave accounting until the end of the year.
This increased frequency of reporting may initially seem like a burden, but it can also bring advantages. Regular review of your financial data can improve your business decision-making, cash flow forecasting, and profitability analysis. The system encourages greater visibility into your financial health throughout the year.
Supporting Tools and Resources
Many software providers and tax professionals are offering guidance and tools to help taxpayers transition to MTD for ITSA. These resources can include training sessions, online help centres, and one-on-one support. If you’re unsure how to get started, reaching out to a professional can provide valuable clarity.
Mastering Quarterly Reporting and Deadlines
As Making Tax Digital for Income Tax Self Assessment becomes a reality for millions of taxpayers in the UK, understanding the practical aspects of quarterly reporting is critical. We focus on how quarterly reporting works, the deadlines you must adhere to, and best practices to ensure timely and accurate submissions. From choosing suitable software to knowing what each update should include, mastering this new reporting schedule will help you stay compliant and avoid penalties.
Overview of Quarterly Reporting
Quarterly reporting is one of the cornerstones of Making Tax Digital for ITSA. Instead of submitting a single Self Assessment return at the end of the tax year, taxpayers will now be required to report their income and expenses four times annually. These reports, known as quarterly updates, offer a running summary of financial activity.
The purpose of these quarterly updates is to provide both the taxpayer and HMRC with more current information about income and potential tax liability. These updates will not include tax calculations or detailed personal allowances, but they must reflect accurate income and expense records for the relevant quarter.
Who Needs to Submit Quarterly Updates
Quarterly updates will be required from sole traders and landlords with annual business or property income above £50,000 from April 2026. This includes individuals who meet the criteria for MTD for ITSA and are not exempt from digital reporting.
If you have multiple sources of income, such as rental income from more than one property or income from separate business ventures, each source must be reported separately. Your software should support multi-income source reporting to ensure accuracy and compliance.
Quarterly Periods and Deadlines
The tax year under Making Tax Digital still runs from 6 April to 5 April of the following year. This is broken down into four quarterly periods, each with its own reporting deadline. These are:
- 6 April to 5 July: Submit by 5 August
- 6 July to 5 October: Submit by 5 November
- 6 October to 5 January: Submit by 5 February
- 6 January to 5 April: Submit by 5 May
Taxpayers will have one month after the end of each quarter to submit the relevant update. It is essential to meet these deadlines to avoid accumulating penalty points under the new compliance regime.
Calendar Quarter Option
Although the default quarters are based on the tax year, HMRC has indicated that a calendar quarter option will become available later. This would allow reporting by standard calendar months (e.g., April to June, July to September), though the submission deadlines will remain the same.
Choosing to report using calendar quarters may be more convenient for some businesses, particularly those already using software that aligns with standard monthly accounting. However, this option will only be introduced after the initial rollout and will not change the requirement for quarterly updates.
What Information Needs to Be Included
Each quarterly update should contain a summary of business income and allowable business expenses for the relevant period. These figures do not need to be final or adjusted for year-end accounting entries, but they must be based on accurate, up-to-date records.
Examples of income include:
- Sales revenue
- Rental income
- Commissions or freelance payments
Examples of allowable expenses include:
- Office supplies
- Travel costs
- Professional services
- Property maintenance costs
It’s important to categorize these transactions correctly in your software to ensure accurate reporting. HMRC will use this information to generate an estimate of your tax liability, which will be updated with each quarterly submission.
How to Submit Your Quarterly Updates
To comply with MTD for ITSA, you must use software that is compatible with HMRC’s systems. Your chosen solution will allow you to record transactions throughout the quarter and generate the required summary reports.
Most MTD-compatible software includes features that make submitting quarterly updates straightforward. Once you’ve reviewed and confirmed the figures for the quarter, you can submit them electronically through your digital tax account.
Your software should provide confirmation that the update has been successfully received by HMRC. You should keep a record of this confirmation for your own documentation and peace of mind.
Best Practices for Managing Submissions
Timely and accurate submissions depend on how well you maintain your digital records. Here are some tips for staying on top of your quarterly updates:
- Record income and expenses as they occur rather than waiting until the end of the quarter.
- Reconcile your records with bank statements regularly.
- Use cloud-based software to access your accounts from anywhere.
- Set calendar reminders to avoid missing submission deadlines.
- Conduct a brief monthly review to identify errors or omissions before submitting.
Developing a consistent routine will not only help you meet your obligations but also give you a clearer understanding of your business performance throughout the year.
Year-End Reporting: The Next Step
After submitting the four quarterly updates, two additional steps must be completed at the end of the tax year:
- The End of Period Statement confirms all quarterly submissions for each source of income. It includes adjustments for things like capital allowances or corrections.
- The Final Declaration replaces the Self Assessment tax return. This confirms your total taxable income from all sources and determines your final tax liability.
These final steps are due after the end of the tax year but must be submitted before the usual Self Assessment deadline of 31 January. They offer the opportunity to make final adjustments and ensure that your reported figures are complete and accurate.
What Happens If You Miss a Deadline?
HMRC has introduced a points-based penalty system for MTD for ITSA. Each late submission or failure to meet a reporting obligation will result in a penalty point. When you accumulate a certain number of points, a monetary penalty will be applied.
The points threshold depends on the frequency of your reporting. For example, if you report quarterly, you could receive a financial penalty after reaching four points. Points will expire after a period of compliance, but repeat offences can lead to ongoing penalties. To avoid this, ensure your software is set up to remind you of upcoming deadlines. Building in regular checks will help you stay compliant and avoid unnecessary costs.
Managing Multiple Income Streams
If you have more than one business or property income stream, you will need to submit separate quarterly updates for each. This means maintaining clear records for each source of income and ensuring that your software supports multiple reporting entities.
It is important not to combine income or expenses from different sources in one submission. HMRC requires a clear view of each income stream, so your records must be structured accordingly. Your software should allow you to manage these separately without confusion.
Preparing for the Transition
The transition to quarterly reporting may seem like a major change, especially for those accustomed to the once-a-year Self Assessment cycle. However, with the right tools and practices in place, it can actually improve your financial visibility and reduce the year-end pressure.
Here are some things you can do to prepare:
- Choose MTD-compatible software early and become familiar with its features.
- Create a schedule for reviewing and updating your records regularly.
- Consult a tax adviser to ensure you understand the new obligations.
- If you manage multiple income streams, establish a process for tracking each one individually.
Early preparation allows you to adapt at your own pace and address issues before MTD becomes mandatory in April 2026.
Common Challenges and How to Overcome Them
Several common issues can arise during the quarterly reporting process. Here’s how to handle them:
- Incomplete records: Make it a habit to log every transaction promptly. Missing data can delay submissions and affect your estimated tax liability.
- Misclassified expenses: Categorise each expense accurately. Incorrect classifications may lead to misstatements and complications at year-end.
- Software confusion: Take time to explore your software’s features. Most providers offer tutorials or support to help you get started.
- Forgetting deadlines: Set automated reminders and integrate them into your calendar or task management tools.
Being proactive about these challenges can significantly reduce stress and ensure smoother compliance.
Completing the End of Period Statement and Final Declaration
With quarterly updates forming the foundation of Making Tax Digital for Income Tax Self Assessment, the final responsibilities of taxpayers come at the end of the tax year. We focus on the year-end processes introduced by MTD for ITSA, including completing the End of Period Statement (EOPS) and submitting the Final Declaration. These steps bring everything together and ensure that HMRC receives a complete and accurate picture of your taxable income.
Understanding how these two submissions work, what adjustments you can make, and how to prepare for them will be essential to maintaining full compliance and avoiding any unnecessary issues with your tax affairs.
Year-End Responsibilities Under MTD for ITSA
After submitting four quarterly updates throughout the tax year, you will be required to take two additional steps:
- Complete an End of Period Statement (EOPS) for each business or property income source.
- Submit a Final Declaration summarising all income and confirming your total tax liability for the year.
These steps replace the traditional Self Assessment return. They allow taxpayers to confirm and finalise their financial records using digital tools that connect directly with HMRC.
What is the End of Period Statement?
The End of Period Statement is a summary document that confirms the figures submitted in your quarterly updates. It includes any necessary accounting adjustments and allows you to finalise the income and expense figures for the year.
If you have multiple income streams—such as more than one self-employed business or rental property—you will need to complete an EOPS for each one. This ensures that HMRC receives detailed, source-specific financial information.
Adjustments made in the EOPS may include:
- Capital allowances
- Accounting depreciation reversals
- Use of home as office adjustments
- Private use adjustments
- Loss relief claims
- Other allowable business adjustments
When is the EOPS Due?
The End of Period Statement must be completed after the end of the tax year and before the final deadline for tax submissions. In most cases, this means you have until 31 January following the end of the tax year to submit the EOPS.
For example, for the 2026/27 tax year, the deadline for submitting the EOPS is 31 January 2028. However, you do not need to wait until that date. Submitting your statement early gives you more time to budget for your final tax payment.
Submitting the Final Declaration
The Final Declaration is the last step in the MTD for ITSA process. It replaces the Self Assessment return and confirms your total taxable income for the year across all sources—not just business or property income.
This declaration pulls together:
- Income from self-employment
- Rental income
- Employment income (where not taxed at source)
- Bank interest
- Dividends
- Capital gains
- Pension income
- Any other relevant income
Your Final Declaration also applies any available reliefs, allowances, and deductions that affect your overall tax liability.
When is the Final Declaration Due?
As with the EOPS, the Final Declaration must be submitted by 31 January following the end of the relevant tax year. This is also the deadline for paying any tax owed.
If you are required to make payments on account, your first payment will be due by the same deadline. The second payment on account is typically due on 31 July.
How to Complete the EOPS and Final Declaration
Your software will guide you through the completion of both the EOPS and Final Declaration. These tools will take the data already entered through your quarterly updates and allow you to make final adjustments and submit the necessary statements.
Steps include:
- Reviewing quarterly update summaries for each income source.
- Entering any year-end adjustments.
- Finalising the EOPS for each business or property.
- Compiling other forms of income outside of MTD reporting.
- Applying tax allowances and reliefs.
- Submitting the Final Declaration to HMRC.
This process should be carried out with careful attention to detail. Mistakes can result in penalties or miscalculations that affect your final tax bill.
Common Adjustments to Consider
Several types of accounting adjustments should be made before completing your EOPS. These adjustments are vital for presenting an accurate picture of your profits and taxable income:
- Capital allowances: Instead of deducting full costs of capital items like machinery or equipment, you claim a portion under the capital allowances system.
- Use of home as office: If part of your home is used for business, you can allocate a portion of household costs such as utilities, mortgage interest, or rent.
- Private use adjustments: If any business assets or expenses are used personally (e.g. vehicles), you must account for the private usage portion.
- Bad debt relief: If you have unpaid invoices that are unlikely to be recovered, adjustments may be made to remove them from income.
- Loss relief: Losses from previous years or other sources may be carried forward or applied to reduce your current year’s tax liability.
These entries may require advice from an accountant or tax adviser, especially if you have complex financial arrangements or high-value claims.
Avoiding Errors and Omissions
Accuracy is critical when submitting the EOPS and Final Declaration. Here are steps you can take to avoid common issues:
- Reconcile all records with bank statements and receipts before submission.
- Review previous quarterly submissions for inconsistencies.
- Ensure all year-end adjustments are well-documented.
- Include all sources of income—even those outside of your business activities.
- Cross-reference allowances and reliefs with HMRC guidance.
Taking extra time to verify your data can help you avoid corrections, penalties, and extra administrative work.
Working with a Tax Adviser
Many self-employed individuals and landlords will benefit from professional support, especially during the transition to the MTD for ITSA system. Tax professionals can help ensure that your EOPS and Final Declaration are prepared accurately and in line with HMRC expectations.
A qualified adviser can:
- Identify allowable adjustments and reliefs
- Assist in categorising expenses correctly
- Ensure compliance with submission deadlines
- Provide guidance on reducing your tax liability
Their insights are especially valuable when managing complex tax scenarios, such as multiple income sources or large capital expenditure.
Payment of Tax
The requirement to pay tax remains unchanged in terms of deadlines. After submitting your Final Declaration, any outstanding tax for the year must be paid by 31 January. For the 2026/27 tax year, this means that tax must be paid by 31 January 2028. Payments on account may also be required, depending on your prior year’s tax liability.
Payments on account are advance payments towards your next year’s tax bill. Each payment is typically 50% of your previous year’s bill, with deadlines on 31 January and 31 July. If your income has changed significantly, you may request to reduce your payments on account, though this must be justified with supporting data.
Budgeting for Your Tax Bill
With more frequent updates under MTD, you will receive periodic estimates from HMRC about your tax liability. While these estimates are not final, they can serve as a useful tool for budgeting.
To stay ahead:
- Use estimated figures to set aside funds monthly.
- Track fluctuations in income to adjust your tax savings.
- Review each estimate for accuracy and trends.
Even with digital advances, managing cash flow and preparing for large tax payments remains an essential skill for all business owners.
What if You Miss a Submission?
Failure to submit your EOPS or Final Declaration on time will result in penalties. As with quarterly updates, HMRC uses a points-based system:
- Each missed submission earns a penalty point.
- Once you reach a threshold (usually four points), a fixed penalty will apply.
- Points expire after a period of compliance.
If you continue to miss deadlines, additional penalties and interest charges may accrue. It is always advisable to submit early to avoid last-minute technical issues or delays.
Digital Tools to Support You
Choosing the right digital software is essential for navigating EOPS and Final Declaration submissions. The right tool will:
- Offer intuitive dashboards and reporting features
- Integrate with your bank and accounting records
- Automatically calculate adjustments and generate statements
- Provide clear timelines for submission deadlines
Not all software is the same, so compare features to ensure it fits your needs. Look for tools that are regularly updated and provide customer support for MTD transitions.
Preparing for the Next Tax Year
Once your year-end tasks are complete, begin preparing for the next tax year. MTD is a continuous cycle, and staying organised year-round will make each submission easier.
Start by:
- Archiving your records from the completed year
- Setting up your software for the new year
- Reviewing what worked well and what needs improvement
- Updating budgets and financial goals
The habits you develop now will pay off long-term as digital tax compliance becomes a permanent part of business management.
The End of Period Statement and Final Declaration are the final components of the MTD for the ITSA process. While they may feel similar to elements of the traditional Self Assessment system, the use of digital tools and regular updates significantly changes how taxpayers interact with their tax responsibilities.
Conclusion
The transition to Making Tax Digital for Income Tax Self Assessment represents a fundamental shift in how millions of self-employed individuals, landlords, and other taxpayers manage their tax affairs. Across this series, we’ve explored what MTD for ITSA means, how it changes existing reporting responsibilities, and what steps are required to remain compliant.
Beginning in April 2026, eligible taxpayers earning over £50,000 annually will move away from annual tax returns and toward a more structured system of quarterly digital updates, followed by a year-end End of Period Statement and a Final Declaration. This new system aims to reduce avoidable tax errors, improve record-keeping standards, and offer greater transparency between taxpayers and HMRC.
The move to digital record-keeping brings both challenges and opportunities. On one hand, it will require adapting to new software and altering long-standing habits around bookkeeping and tax preparation. On the other, it provides a valuable chance to improve financial visibility, streamline processes, and manage cash flow more proactively throughout the year.
Success under MTD for ITSA depends on planning and preparation. Understanding the deadlines, choosing the right tools, keeping consistent records, and staying informed about changes will be critical. Where needed, professional support from accountants or tax advisers can ease the transition and ensure you’re claiming all entitled allowances and reliefs correctly.
It’s also important to adopt a forward-looking mindset. Tax compliance under MTD is no longer an annual event, but a continuous process that will require regular attention. This shift can ultimately lead to more accurate forecasting, better budgeting, and fewer surprises when it comes to tax payments.
While adapting to a new system may feel daunting at first, the structure and regularity of Making Tax Digital can make it easier to stay on top of your tax responsibilities. By embracing the change, familiarising yourself with the requirements, and making use of modern digital tools, you’ll be well-positioned to thrive under the new regime.
As the deadline approaches, taking early steps to understand your obligations and adjust your processes will ensure you’re ready well ahead of time. Making Tax Digital is not just about compliance, it’s an opportunity to take more control of your financial future.