Making Tax Digital is a government-led reform aimed at revolutionising the UK’s tax system by introducing digital record-keeping and real-time tax reporting. Its phased rollout began in 2019, targeting VAT-registered businesses first, and it is now expanding to include income tax for self-employed individuals and landlords.
This initiative is designed to simplify the tax process, increase accuracy, and reduce the burden of compliance for taxpayers. It is also a response to the significant amount of tax revenue lost annually due to avoidable errors. For individuals who currently report their income through the Self Assessment tax return system, these changes represent a major shift in how taxes will be managed.
Background of Making Tax Digital
The idea behind Making Tax Digital originated from the need to modernise the tax administration system. Historically, many businesses and individuals kept manual records or used spreadsheets. While these methods can work, they are more prone to errors and make it difficult for HMRC to monitor compliance efficiently.
In April 2019, the first phase of Making Tax Digital was introduced for VAT. Initially, it applied only to VAT-registered businesses with a taxable turnover above the £85,000 threshold. These businesses were required to keep digital records and use MTD-compatible software to submit their VAT returns.
By April 2022, this requirement was extended to all VAT-registered businesses, even those with a turnover below the threshold. This extension marked the full implementation of MTD for VAT and set the stage for the next phase: Making Tax Digital for Income Tax Self Assessment.
What Is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax, also known as MTD for ITSA, is the next step in the digital transformation of tax reporting. It focuses on individuals who report income through Self Assessment, particularly sole traders and landlords.
Rather than submitting a single Self Assessment return each year, individuals within the scope of MTD for ITSA will be required to keep digital records and submit quarterly updates to HMRC using compatible software. These updates will summarise income and expenses for each quarter and form the basis for annual tax calculations.
This process is intended to make tax reporting more efficient, reduce mistakes, and give individuals a clearer picture of their tax obligations throughout the year.
When Does MTD for Income Tax Begin?
The original plan was for MTD for ITSA to begin in April 2023. However, in response to challenges related to the COVID-19 pandemic and feedback from industry stakeholders, the government announced a delay. The new start date is 6 April 2026.
This delay provides individuals and businesses with more time to prepare. It also gives software providers an extended period to ensure that their products are fully compatible and user-friendly. HMRC has used the time to expand its pilot programme and improve guidance for those who will be affected.
From April 2026, individuals with annual taxable income above £50,000 from self-employment or property rental will need to follow the MTD for ITSA rules. From April 2027, the requirement will extend to those earning over £30,000.
Who Needs to Comply with MTD for ITSA?
MTD for ITSA will apply to individuals who are registered for Self Assessment and earn more than £50,000 in combined income from self-employment and property. This includes:
- Sole traders who operate as individuals and not through limited companies
- Landlords who receive rental income from residential or commercial properties
Those earning between £30,000 and £50,000 will be brought into the scheme in April 2027. A decision has not yet been made regarding those earning below £30,000, as the government intends to review how MTD affects smaller income groups before expanding further.
Partnerships and other income types will be included in the scheme at a later stage, although no official timeline has been confirmed.
Exemptions from MTD Requirements
Not everyone will be able to comply with the digital requirements of MTD, and HMRC recognises this. If it is not reasonably practical for someone to use digital tools due to age, disability, location, or other reasons, they may apply for an exemption.
Exemptions may also be granted on religious grounds. For example, if a person’s religious beliefs prevent them from using computers or digital devices, HMRC may agree to an alternative reporting method.
To apply for an exemption, individuals must contact HMRC and provide a clear explanation of their circumstances. HMRC will then assess the situation and respond with guidance or a confirmed exemption.
How Will the Reporting Process Change?
The introduction of MTD for ITSA means that affected taxpayers will need to change how they record and report their income. Under the current system, individuals complete one Self Assessment tax return each year. Under MTD, the process becomes more continuous and structured.
There are several key differences between the current method and the new requirements:
- Digital record-keeping is mandatory. All business and property income, along with expenses, must be recorded using MTD-compatible software.
- Quarterly updates are required. These updates summarise income and expenses for each quarter and must be submitted electronically to HMRC.
- An End of Period Statement must be filed at the end of the tax year. This confirms the accuracy of the quarterly reports and includes any necessary adjustments.
- A Final Declaration is submitted after the End of Period Statement, confirming all sources of income, including employment, savings, or investments. HMRC will then calculate the total tax owed.
Digital Tools and Software Requirements
To comply with MTD, individuals will need to use software that is recognised by HMRC. This software must be capable of:
- Recording all relevant income and expenditure
- Keeping digital records in the required format
- Communicating with HMRC’s systems to submit quarterly updates and final declarations
For those who currently use spreadsheets, bridging software may be an option. This type of software connects spreadsheets to HMRC’s digital system, allowing individuals to remain compliant without fully switching platforms. However, bridging software may be a temporary solution, as long-term use may be less efficient than dedicated accounting tools.
MTD-compliant software options range from basic tools suitable for small businesses to more advanced systems that offer automation and reporting features. Choosing the right tool depends on the size and complexity of a person’s financial affairs.
How Will Deadlines Work?
MTD for Income Tax introduces a new schedule of deadlines. Instead of focusing on a single date each year, individuals will be required to meet several deadlines throughout the tax year. These include:
- Quarterly update deadlines: Updates must be submitted within one month of the end of each quarter
- End of Period Statement deadline: This must be completed after the final quarterly update, usually by the end of January following the tax year
- Final Declaration deadline: This also falls on 31 January, confirming any remaining income not previously reported
These deadlines ensure that HMRC receives timely and accurate data, reducing the risk of underpayment or overpayment of tax.
Benefits of Quarterly Reporting
Although the idea of submitting information every quarter might seem burdensome at first, there are several advantages. Regular reporting encourages better record-keeping and financial awareness.
Quarterly updates allow individuals to monitor their tax liabilities throughout the year. Rather than waiting until the end of the year to find out how much tax is due, individuals will have a clearer picture of their obligations as they go. This helps with budgeting and avoiding unexpected tax bills.
Digital tools also offer features like automatic categorisation of expenses, bank feed integration, and instant reporting, all of which can make managing finances more efficient and less stressful.
HMRC Pilot Scheme
For those who want to get a head start, HMRC operates a voluntary pilot scheme. This programme allows eligible taxpayers to begin using MTD for ITSA processes before the mandatory start date.
Joining the pilot helps individuals become familiar with quarterly reporting, software tools, and submission methods. It can also identify potential issues or learning curves well before the formal requirement kicks in.
The pilot is particularly useful for sole traders and landlords who want to test the system in a low-pressure environment. HMRC uses feedback from pilot participants to improve the system and address common challenges.
Encouraging a Smooth Transition
Although the official start date for MTD for ITSA is in 2026, waiting until the last minute to prepare is not advisable. Transitioning to a new system takes time, especially for those who are not already using digital tools.
Adopting compatible software early allows time to learn how the system works. It also gives individuals a chance to organise their records and identify any gaps in their financial data. As the quarterly update process becomes second nature, compliance will feel less like a burden and more like part of a regular routine.
Adapting Your Record-Keeping for MTD Compliance
One of the core shifts brought about by Making Tax Digital for Income Tax Self Assessment is the requirement for digital record-keeping. This affects how sole traders, landlords, and business owners document their income and expenses. Gone are the days of paper spreadsheets or shoeboxes full of receipts. Instead, MTD demands that records are kept in digital format using compatible software.
For some, this will involve learning new tools or transitioning from manual systems to digital solutions. You might already use spreadsheets, which can still be viable with bridging software that communicates with HMRC’s systems. However, MTD-compliant accounting software is generally preferred for ease of use, integration, and reduced risk of errors.
Each income and expense transaction must be recorded digitally. That means logging the date, amount, and nature of every business-related financial movement. The more accurate and timely your entries, the easier your quarterly updates and final declarations will be.
Understanding Quarterly Updates
Under MTD for ITSA, you will no longer file a single annual tax return. Instead, you must submit quarterly updates to HMRC. These updates summarise your income and allowable expenses for each three-month period during the tax year.
Each update must be submitted within one month after the quarter ends. The quarters typically follow the tax year cycle—starting in April, July, October, and January. For example, the update for the first quarter (6 April to 5 July) would be due by 5 August.
While these quarterly updates don’t result in an immediate tax bill, they provide HMRC with ongoing visibility of your earnings. They also allow you to monitor your financial position, offering a clearer picture of your tax liability throughout the year.
This move toward real-time reporting aims to improve accuracy and reduce the need for corrections or surprises at year-end. It’s important to ensure that each submission reflects your records accurately to avoid future issues.
Completing the End of Period Statement (EOPS)
The End of Period Statement marks the final reporting milestone of the tax year for those under MTD for ITSA. Once your quarterly updates are completed, the EOPS gives you the opportunity to make final adjustments, such as accounting for depreciation or including late entries.
This statement consolidates your quarterly figures and allows you to apply any relevant tax reliefs or claims. It’s a chance to confirm that all your records have been correctly entered and reflect your actual trading position for the year.
After submitting the EOPS, you will be expected to make a final declaration. This step resembles the current Self Assessment return in that you must disclose any additional sources of income. Whether it’s dividends, interest from savings, or employment income, this information helps HMRC calculate your complete tax position.
Choosing the Right Digital Tools
Choosing the right MTD-compliant software is a significant step in preparing for this digital shift. Many cloud-based platforms are already certified by HMRC, each offering various features from invoicing to expense tracking and tax forecasting.
Look for software that fits the size and nature of your business. If you have relatively straightforward income and expenses, basic tools with MTD bridging capability may suffice. However, businesses with multiple income streams or employees might benefit from more comprehensive software.
Some tools also offer mobile apps, giving you the flexibility to manage your records on the go. Features such as receipt scanning and bank feed integration can streamline data entry and reduce time spent on admin. Before committing, trial different options to find what suits your needs. Many providers offer free trials or demos to help you get acquainted with their systems.
Training and Support for the Transition
If the idea of switching to digital tax management feels overwhelming, know that you’re not alone. Many sole traders and landlords are in the same boat. That’s why it’s important to seek support during the transition.
Start by familiarising yourself with HMRC’s guidance on Making Tax Digital. It outlines expectations, offers examples, and highlights key deadlines. If you’re working with an accountant or bookkeeper, check that they understand MTD requirements and are prepared to help you comply.
Webinars, tutorials, and software training sessions can also aid your learning curve. Many accounting platforms offer built-in help centres or customer support channels to guide new users. Investing some time in training now can save countless hours later.
For businesses with complex structures or multiple income streams, consider speaking to a tax adviser. They can help ensure you’re capturing your income correctly and optimising your tax position within the MTD framework.
Avoiding Penalties and Late Submissions
A critical part of MTD for ITSA is ensuring compliance with new deadlines. Failure to submit updates or statements on time can result in penalties. HMRC plans to use a points-based penalty system, meaning that repeat offenders accumulate penalty points, eventually leading to a financial fine.
For example, missing a quarterly update earns you a penalty point. Accumulate four points within a 12-month period, and you may face a fixed fine. Points reset over time if you meet your filing obligations, but frequent delays will be costly.
To avoid issues, set up reminders for each quarterly update. Most MTD-compliant software will notify you of upcoming deadlines and even help automate submissions. Staying organised with your record-keeping will also reduce the risk of errors or missed filings.
It’s also important to keep an eye on payment deadlines. While the quarterly updates don’t require immediate payments, your final bill still must be paid by 31 January following the tax year. Planning for this payment gradually can prevent cash flow problems.
How MTD Impacts Different Types of Taxpayers
Not everyone under Self Assessment will be impacted by MTD in the same way. The nature of your income determines how you report.
For sole traders, MTD applies to trading income. You’ll need to digitally track business sales, allowable expenses, and capital purchases. If you also receive rental income, that will require separate reporting.
Landlords must document rental income and related expenses, such as repairs, insurance, and letting agent fees. If you rent multiple properties, you can consolidate income by property type, for example, furnished versus unfurnished.
Those with both types of income will need to submit separate End of Period Statements for each business activity. Your final declaration then brings everything together, alongside any additional income sources.
For partnerships, MTD rules are more complex and have a separate timeline. Only general partnerships with individuals as partners will join MTD for ITSA from April 2027, giving them more time to prepare.
Managing Multiple Income Sources Under MTD
If you receive income from different sources, managing your MTD obligations will require careful organisation. Each type of income must be recorded and reported separately. For instance, if you’re a self-employed graphic designer who also lets out a flat, your quarterly updates must reflect each stream individually.
This segmentation also applies to property portfolios. If you own a property jointly with someone else, your share of the income and expenses must be reported separately. In such cases, digital tools become even more vital for keeping things clear and accurate.
Integrated software platforms are especially helpful here. They allow you to tag and sort income sources, making it easier to submit correct data. Keeping digital folders or categories by income type ensures that when quarterly deadlines arrive, you know exactly what needs to be reported.
Keeping Personal and Business Finances Separate
One of the recommended practices under MTD is separating your business and personal finances. This isn’t a legal requirement, but it makes compliance far easier.
Using a dedicated business bank account allows you to track income and expenses without having to sort through personal purchases. It also makes it easier for accounting software to import data automatically, saving time and reducing errors.
Some MTD-compatible tools can link directly to your bank account, allowing you to categorise and reconcile transactions quickly. This also makes it easier to spot missing entries, duplicates, or unusual activity that might trigger questions from HMRC. If you’ve been using a single bank account for everything, consider making the switch well before April 2026. The earlier you start, the smoother your transition will be.
Planning Ahead for 2026 and Beyond
Although 2026 might seem far off, there’s good reason to begin preparing now. The sooner you adapt your processes, the less disruptive the changes will be when MTD for ITSA becomes mandatory.
Start by assessing your current system. If you’re still using paper records, consider transitioning to digital tools as soon as possible. This gives you time to explore software options, test what works, and develop new habits.
Even if you already use accounting software, check that it’s compatible with HMRC’s MTD requirements. Some older systems may not support the new update protocols or might require a paid upgrade to activate MTD features.
Planning also involves setting aside time each month to maintain your records. Waiting until the end of each quarter to do everything at once increases the risk of mistakes and missed deadlines. Creating a monthly admin routine—even 30 minutes a week—can make a huge difference. Over time, it becomes second nature and ensures that when reporting deadlines come, you’re always ready.
Practical Steps for a Smooth Transition
As the 6 April 2026 deadline approaches for Making Tax Digital for Income Tax Self Assessment (MTD for ITSA), self-employed individuals, landlords, and others who fall within the scope need to start thinking practically about what changes lie ahead. The new system is more than just a change in how information is submitted; it represents a significant shift in how financial data is maintained and reported. We explore the tools, actions, and mindset adjustments needed to prepare for MTD for ITSA effectively.
Understanding What the Transition Involves
Transitioning to MTD for ITSA will require more than simply installing software. It involves adapting to a new reporting timeline, learning how to keep up-to-date digital records, and engaging with your finances on a more regular basis. It is about creating a workflow that supports consistent record-keeping throughout the year and avoiding the last-minute scramble at tax time.
You’ll need to think of tax as an ongoing activity, not something that only arises once a year. The new process includes quarterly updates, an annual End of Period Statement, and a final declaration. To manage this, businesses and individuals alike will have to become more disciplined in their bookkeeping habits and possibly change the way they work with accountants or bookkeepers.
Selecting MTD-Compliant Software
Choosing the right digital tool is one of the first and most essential decisions you will need to make. MTD-compliant software must be able to keep digital records, create and send quarterly summaries, and compile the End of Period Statement and final declaration. The software should integrate with HMRC’s system using your Government Gateway credentials.
When evaluating software options, consider:
- Compatibility with your existing processes
- Usability and support resources
- Integration with invoicing and bank feeds
- Cost, including subscription fees or upgrade costs
- Whether the software accommodates both property and self-employment income if applicable
Cloud-based options tend to be popular due to their flexibility and real-time access, but desktop-based solutions also remain available. Spreadsheets can still be used, but only when accompanied by bridging software that links the data to HMRC’s systems.
Setting Up Your Digital Records
Once you’ve selected your software, the next step is to build the structure of your digital records. You’ll need to ensure that all income and expenses are recorded in a timely and accurate manner.
For self-employed individuals, this may mean setting up categories for different income streams and business expenses such as travel, materials, or advertising. For landlords, digital records might include rental income, mortgage interest, repairs, letting agent fees, and council tax payments on properties.
Keeping receipts and invoices digitally is highly encouraged. Many software platforms include mobile apps that allow you to photograph paper receipts and store them in the cloud, helping you maintain organised, HMRC-compliant records.
Establishing a New Workflow
Transitioning to MTD requires creating a reliable workflow that allows you to stay on top of income and expense tracking without falling behind. Waiting until the end of the quarter to log all your figures will make the process more stressful and prone to error.
A good practice is to schedule time weekly or bi-weekly to enter financial data, reconcile bank transactions, and check for missing documents. Automating as much of this as possible—such as linking your software to your bank feed—can reduce the time commitment and increase accuracy.
Also consider how your accountant or tax adviser will fit into the new workflow. They may need access to your records more frequently and may wish to check your quarterly figures before you submit them. Open communication and shared access to the same digital platform will be important.
Creating a Quarterly Filing Schedule
The MTD for ITSA quarterly updates follow the tax year but are divided into four reporting periods:
- 6 April to 5 July (due by 5 August)
- 6 July to 5 October (due by 5 November)
- 6 October to 5 January (due by 5 February)
- 6 January to 5 April (due by 5 May)
Some software providers allow you to align your quarterly periods with calendar months (e.g. 1 April to 30 June), but any non-standard period must be approved and correctly mapped to the tax year.
You should set reminders well ahead of these deadlines to give yourself time to review and submit your updates. Unlike the annual Self Assessment return, these submissions don’t calculate your full tax liability, but they do keep HMRC informed of your ongoing income.
Preparing for the End of Period Statement
At the end of the tax year, an End of Period Statement (EOPS) must be submitted for each source of income. This is where you apply accounting adjustments like capital allowances, bad debt write-offs, or accruals and prepayments.
While quarterly submissions are mainly for reporting raw income and expense data, the EOPS is where the accuracy and completeness of your figures are confirmed. You may need to work closely with your accountant here to ensure that all relevant tax adjustments are made before the EOPS is filed.
Landlords with multiple properties and self-employed people with multiple businesses will need to file an EOPS for each income stream separately.
Completing the Final Declaration
The last step in the process is making a final declaration, which replaces the current Self Assessment tax return. It involves confirming the total taxable income from all sources, not just those covered under MTD. This includes:
- Employment income
- Bank interest
- Dividends
- Pensions
- Foreign income
- Any other taxable income
You’ll complete this final declaration after your End of Period Statement is filed. Once this is submitted, HMRC will issue your final tax calculation, showing how much you owe and the due date—still 31 January as before. You can then make payment or arrange a Time to Pay agreement if needed.
Reviewing Your Record-Keeping Skills
Many taxpayers rely on their accountant to pull everything together once a year, often from a box of receipts or bank statements. MTD removes that option by requiring more timely updates, meaning record-keeping becomes the responsibility of the individual throughout the year.
If you’ve never used accounting software before, you may need to take some time to learn basic bookkeeping practices, such as categorising expenses, reconciling bank transactions, and checking for data entry errors.
Online training resources, videos, and user guides provided by software companies can be a helpful starting point. Some offer onboarding assistance to make sure your setup is accurate from the beginning.
Budgeting for Ongoing Tax Liabilities
One benefit of MTD is that you can track your likely tax bill throughout the year. This helps with cash flow planning and reduces the chance of being caught out by a large payment at year-end.
Some software tools provide a running estimate of how much tax is likely to be due based on the data you’ve entered. By saving a percentage of your income regularly or setting aside money in a separate bank account, you can spread the burden of tax payments more evenly across the year.
You should also continue to plan for payments on account if they apply to your situation. These advance payments, due in January and July, remain part of the Self Assessment system under MTD.
Communicating With HMRC
Digital interaction with HMRC will increase under MTD. Most communication will happen through your digital account or software platform, and the emphasis will be on electronic submissions rather than paper correspondence.
Ensure your contact details are up to date in your Government Gateway account and that you understand how to navigate your HMRC online services. You should also be familiar with how to authorise software to communicate with HMRC on your behalf.
If you need to request an exemption from MTD on the basis of age, disability, or remoteness of location, you must make this request directly to HMRC with supporting evidence. Exemptions are not automatically granted and will be reviewed case by case.
Supporting Multiple Income Sources
For those with income from different sources—such as being both a sole trader and a landlord—MTD brings complexity. Each income stream requires its own quarterly updates, End of Period Statement, and contribution to the final declaration.
If you operate as a partnership or have incorporated your business, you should be aware that different MTD rules and start dates may apply. Partnerships with income above £50,000 are due to join MTD in 2027, with other types of business following after that.
It’s essential to understand your obligations and prepare in line with your individual circumstances rather than assuming one-size-fits-all guidance.
Managing the Human Side of the Change
Adapting to a new way of managing tax can bring stress, especially for those unfamiliar with technology or under pressure from other business commitments. It’s important to acknowledge that change can be challenging and that support is available.
Start early to allow time for mistakes and adjustments. Seek advice from financial professionals when needed. Communicate openly with anyone involved in your finances, such as employees, family members, or business partners. If you work with an accountant, discuss your MTD plans with them and decide how responsibilities will be divided. A proactive, learning-oriented mindset can make the transition smoother and more empowering.
Conclusion
Making Tax Digital for Income Tax Self Assessment represents a fundamental shift in how taxpayers interact with HMRC. As the UK government pushes forward with digital transformation, the move from annual paper or online tax returns to real-time digital updates will soon become the standard for many self-employed individuals and landlords. This transition promises benefits, including improved accuracy, more timely financial insights, and better preparedness for tax liabilities, but it also comes with new responsibilities and learning curves.
From understanding the basics of the MTD initiative and recognising whether you fall within its scope, to adopting compatible software and reshaping how you maintain your financial records, there are many steps to prepare for. The pilot scheme currently in place offers an excellent opportunity for early adopters to familiarise themselves with the new system and avoid last-minute pressure. Meanwhile, awareness of the required quarterly submissions, End of Period Statement, and Final Declaration helps to build a clearer picture of the future tax reporting landscape.
For those feeling apprehensive, taking gradual steps now like exploring digital tools, organising your income and expense records, and understanding the structure of quarterly updates can significantly ease the transition. Whether you’re a landlord with multiple rental properties, a sole trader balancing various income streams, or a combination of both, MTD for ITSA will demand a new level of record-keeping discipline.
With the 6 April 2026 deadline approaching, the best preparation is early engagement. Taking time to understand your obligations and streamline your processes now will leave you better positioned to comply, avoid penalties, and benefit from the increased clarity that digital tax reporting can bring.