The UK tax system is undergoing a significant transformation through a government initiative known as Making Tax Digital. This programme is designed to modernise how tax is recorded, processed, and submitted to HMRC. Initially applied to VAT-registered businesses, the next phase, Making Tax Digital for Income Tax Self Assessment, is now being prepared for a wider rollout. Commonly referred to as MTD for ITSA, this change affects self-employed individuals and private landlords earning more than £50,000 per year.
With implementation set for April 2026, those who fall under the new rules must begin preparing to meet new digital obligations. This includes maintaining digital records, submitting quarterly updates, and completing year-end summaries. The goal is to improve accuracy, reduce manual errors, and give taxpayers greater visibility of their liabilities throughout the year.
Why Making Tax Digital Is Being Introduced
One of the key drivers behind the Making Tax Digital initiative is the high volume of errors in Self Assessment submissions. Each year, billions of pounds in tax revenue are lost due to mistakes and omissions. The government believes that digitalising the reporting process will help reduce this loss, while also making it easier for individuals and businesses to keep on top of their tax responsibilities.
Digital record keeping, supported by compliant software, will ensure data is accurate and current. With quarterly updates and real-time access to estimated liabilities, taxpayers will be better positioned to manage their finances. For HMRC, this means more timely data and better oversight of compliance.
Who Will Be Affected by MTD for ITSA
From 6 April 2026, MTD for ITSA will become mandatory for individuals who meet specific income and reporting thresholds. The rules will apply to people who:
- Are registered for Self Assessment
- Are UK residents
- Have a total gross income from self-employment or property exceeding £50,000 per year
- Use an accounting period aligned with the standard UK tax year (6 April to 5 April)
- Earn income from only one sole trade or from letting UK property
Those meeting these criteria will need to begin keeping digital records and submit regular updates using software compatible with MTD requirements.
Currently, MTD for ITSA does not apply to individuals with multiple sources of income, such as those with more than one business or a mix of business and property income. However, the scope of MTD may expand in future phases, bringing more people into the system over time.
The MTD Timeline and Implementation
Although MTD for ITSA goes live in April 2026, early adopters can sign up in advance. Early participation is voluntary but encouraged for those who want to familiarise themselves with the process ahead of time. Signing up early can provide a useful transition period, allowing taxpayers to identify and resolve any issues before compliance becomes mandatory.
It is important for those affected to use the next year to prepare. This includes selecting suitable software, organising records, understanding quarterly deadlines, and learning how the new system works.
Exemptions from MTD for ITSA
While the government is encouraging widespread adoption of digital tax processes, it recognises that not everyone may be able to comply. As such, there are exemptions available for those who cannot reasonably use digital tools due to personal or technical barriers.
You may apply for an exemption if you:
- Have a disability that prevents you from using digital tools
- Are of an age where using technology is not practical
- Live in an area with poor internet access or lack of digital infrastructure
- Have other valid reasons that make compliance impossible
Exemptions are not automatic. You must apply to HMRC and explain your situation. If approved, alternative arrangements for meeting your tax obligations will be made.
What Changes with MTD for ITSA
The move to Making Tax Digital for income tax will introduce a number of key changes in how individuals track and report their income. The system will create more structure and involve regular interactions with HMRC throughout the year.
Maintaining Digital Records
Instead of collecting receipts and entering data at the end of the tax year, affected individuals will need to record all income and expenses in digital format on an ongoing basis. The data must be recorded in software that meets MTD standards, and it should be kept current throughout the year.
This digital approach reduces the risk of losing records and helps ensure that updates are accurate when it comes time to report them to HMRC.
Quarterly Summary Updates
Every three months, you will need to submit a summary of your income and allowable expenses through your MTD-compliant software. These updates replace the need for a single annual return and offer HMRC a rolling view of your business or rental activity.
You must submit your quarterly summary within one month after the end of each quarter. This means, for example, that if a quarter ends on 5 July, your summary must be submitted by 5 August.
Quarterly updates will not be used to calculate your final tax bill. However, they will generate an estimate of what you may owe, which can help you set aside funds in advance.
Receiving Tax Estimates
Following each quarterly submission, HMRC will provide an estimated tax liability based on the data submitted. This forecast is not final but gives a helpful indication of your position as the year progresses.
The ability to receive real-time tax estimates is one of the key advantages of Making Tax Digital. It encourages better financial planning and reduces the likelihood of being surprised by a large tax bill in January.
Year-End Reconciliation
At the end of the tax year, you will still need to confirm and finalise your accounts. This is done through two specific submissions: the End of Period Statement and the Final Declaration.
End of Period Statement (EOPS)
The EOPS is a year-end submission that confirms your total income and expenses for the year. It is used to apply any necessary accounting adjustments such as tax reliefs, capital allowances, and business deductions.
If you have more than one qualifying income source—for example, both a self-employed business and a rental property—you must submit a separate EOPS for each.
EOPS can only be submitted once your accounting period has ended and your records are fully up to date. Your MTD software will usually guide you through this process.
Final Declaration
Once your EOPS is complete, you must submit a final declaration to confirm the accuracy of all the data you’ve provided throughout the year. This is similar to signing off your Self Assessment tax return under the current system.
The final declaration will include all other taxable income not reported in your quarterly updates, such as earnings from employment, pension income, savings interest, and other miscellaneous sources.
You cannot submit your final declaration until all End of Period Statements are complete. This step marks the official end of your tax year reporting under MTD.
Payment Deadlines
Although the process for recording and submitting your income data changes, your payment deadlines remain the same. You must pay your final tax bill by 31 January following the end of the tax year.
For example, for the 2026/27 tax year (which ends on 5 April 2027), your tax bill will be due on or before 31 January 2028.
This deadline includes any payments on account that may apply, as well as any balancing payments from previous years. Staying on top of your estimated liabilities through the year can make it easier to meet these obligations.
Risk of Penalties
Under the new system, HMRC will enforce penalties for missing deadlines. This includes failing to submit quarterly updates, End of Period Statements, or the final declaration on time.
The penalty regime will work on a points-based system. Each missed deadline will accumulate points, and once a threshold is reached, a fixed penalty will be applied. Continued non-compliance may result in escalating penalties.
To avoid penalties, taxpayers must ensure they submit all required information on time and in the correct format. Using suitable software and setting regular reminders will be crucial for staying compliant.
Key MTD for ITSA Terminology
As you prepare for MTD for ITSA, it’s important to become familiar with the new language and definitions that form part of the digital reporting process.
Annual Summary
This term refers to the full collection of data that reflects your total business or rental activity for a specific tax year, including all categorised income, expenses, and adjustments.
End of Period Statement (EOPS)
The EOPS is submitted at the end of the tax year to finalise your records. It includes necessary accounting adjustments and must be completed for each qualifying income stream.
Final Declaration
This is the final submission under MTD for ITSA and replaces the traditional Self Assessment return. It confirms the completeness and accuracy of your records and includes additional sources of taxable income.
Obligations
These are the fixed reporting periods—usually quarterly—during which you must submit summary data. Each obligation has a start and end date that defines the reporting window.
Update Period
The timeframe in which summary income and expense data can be submitted for an obligation. You can submit one summary for the full period or break it into smaller updates.
MTD-Compatible Software
This software connects with HMRC’s systems and allows for submission of all required updates and declarations. Some users may opt for bridging software, which works alongside existing accounting tools.
A New Reporting System for Income Tax
The introduction of Making Tax Digital for Income Tax Self Assessment marks a fundamental change in the way self-employed individuals and landlords will interact with the UK tax system. No longer reliant on an annual tax return, the new system brings quarterly reporting into the routine of tax compliance. Combined with the requirement for digital record keeping, this shift aims to improve tax accuracy, promote better financial management, and reduce the administrative burden in the long term.
While the change may seem substantial, many of the new obligations can be efficiently managed with the right processes and tools. We explored how to keep digital records, what to include in your quarterly updates, and how to streamline these practices in your daily operations.
Role of Digital Record Keeping
Digital record keeping is the foundation of compliance under MTD for ITSA. The requirement to maintain up-to-date, categorised digital records is not just about convenience—it is central to producing accurate quarterly summaries and year-end reports.
To meet these requirements, individuals must ensure that all income and expenses related to their self-employment or property rental activities are logged in digital form. This data must be recorded using software that is compatible with HMRC’s MTD system.
What Counts as Digital Records
Digital records are electronic versions of your financial data, maintained in a format that allows you to track your earnings and expenses in real time. These records can include:
- Business or rental income
- Sales invoices or receipts
- Purchase invoices and business expenses
- Mileage and travel costs
- Bank transactions
- Property-related expenses such as maintenance, insurance, or letting agent fees
For each transaction, the following details should be recorded:
- Date of the transaction
- Description or reference (such as invoice number)
- Amount received or paid
- Category of income or expense (e.g., advertising, utilities, travel)
Recording these details accurately and promptly will ensure that quarterly summaries are both correct and easy to generate.
Choosing a Suitable Digital Solution
Under MTD rules, software plays a central role in record keeping and tax submissions. Your chosen platform must be able to:
- Record all relevant income and expense categories
- Generate quarterly summaries
- Submit data directly to HMRC
- Prepare year-end submissions, including End of Period Statements and the Final Declaration
For those who previously relied on paper-based systems or basic spreadsheets, this will require a move to more advanced digital solutions. Some software providers offer features that make the transition smoother, such as bank integration, receipt scanning, or expense categorisation.
The most efficient digital tools will also help reduce manual entry errors by pulling data directly from linked sources. This real-time integration means you can always view your current financial position and be ready for quarterly submissions.
When to Record Transactions
MTD for ITSA encourages the habit of logging transactions as they occur. This practice reduces the likelihood of errors and ensures that your data is accurate when it comes time to report. While it’s not mandatory to record transactions daily, regular updates—such as weekly or monthly entries—are recommended.
Waiting until the end of a quarter to log three months of transactions increases the chance of mistakes and can create unnecessary time pressure. Instead, integrating record keeping into your workflow ensures compliance and simplifies your quarterly obligations.
Structuring Quarterly Reporting Periods
Once your digital records are in place, the next step is understanding the schedule for quarterly updates. MTD for ITSA introduces structured reporting periods, each spanning three months, followed by a deadline for submission.
Each tax year consists of four quarterly periods:
- Quarter 1: 6 April – 5 July
- Quarter 2: 6 July – 5 October
- Quarter 3: 6 October – 5 January
- Quarter 4: 6 January – 5 April
Following the end of each quarter, you have one month to submit your summary to HMRC. This means:
- Quarter 1 submissions are due by 5 August
- Quarter 2 submissions are due by 5 November
- Quarter 3 submissions are due by 5 February
- Quarter 4 submissions are due by 5 May
Timely submission of these updates is crucial. Missing a deadline may result in a penalty, so it’s important to schedule regular reviews and set reminders for each submission.
What to Include in Quarterly Updates
The content of a quarterly update is a summarised version of your income and expenses for the three-month period. It does not need to include every individual transaction, but it should reflect total values within each category.
Your software will typically compile this information automatically based on the data you have recorded. The update should include:
- Total income earned
- Total expenses claimed
- Categorised breakdowns (e.g., office costs, travel, insurance)
At this stage, you do not need to include detailed justifications or supporting documentation. However, it is still essential to retain copies of receipts and invoices, as these may be requested by HMRC in the event of a review or audit.
Corrections and Amendments
Occasionally, you may discover that a figure reported in a quarterly update is incorrect. MTD for ITSA allows for this by letting you make corrections in future updates or during the year-end reconciliation process.
If you realise a mistake shortly after submitting a quarterly update, some software platforms may allow you to re-submit the corrected figures within the open update window. Otherwise, adjustments can be reflected in the End of Period Statement. Keeping records up to date and checking reports carefully before submission will reduce the likelihood of needing to make changes later on.
Estimating Tax Liability
Once a quarterly update is submitted, HMRC will provide an estimated tax calculation based on the figures provided. This estimate helps you plan ahead by giving an early indication of your tax liability.
While not final, the estimate gives you a useful reference for how much you should consider setting aside for your annual payment. If you make voluntary tax payments throughout the year, this can help manage your cash flow and avoid large one-off payments in January.
It is important to remember that quarterly estimates do not include other income sources or deductions that may affect your final liability. These are addressed at the end of the tax year during the completion of the End of Period Statement and Final Declaration.
Practical Tips for Effective Quarterly Reporting
For many individuals, adapting to MTD for ITSA will mean rethinking how they manage their financial records. Here are a few practical tips for staying on top of your reporting responsibilities:
Establish a Routine
Choose a specific day each week or month to update your records. Setting aside time regularly will prevent data from piling up and make quarterly summaries easier to produce.
Use Bank Feeds
Linking your business bank account to your accounting software allows transactions to be imported automatically. This reduces manual entry and helps ensure completeness.
Categorise as You Go
Rather than waiting until the end of the quarter to categorise transactions, assign them to the correct categories as they come in. This streamlines the process and reduces the risk of misclassification.
Retain Supporting Documents
Although you do not submit receipts with your quarterly updates, you must keep them for reference. Some software allows you to store digital copies alongside transactions.
Set Submission Reminders
Create calendar alerts or software notifications ahead of quarterly deadlines to avoid late submissions. Missing a deadline can result in penalty points that lead to fines.
How MTD for ITSA Supports Better Business Decisions
Beyond compliance, digital record keeping and regular tax updates offer significant operational advantages. Having clear, real-time insight into your income and expenses can support smarter decision-making.
For example, tracking profitability throughout the year allows you to identify seasonal trends, cost-saving opportunities, or areas where you can invest in growth. Budgeting becomes easier when you have an accurate understanding of your tax obligations ahead of time.
The shift to quarterly updates means you are effectively reviewing your business performance four times a year. This frequency can highlight issues early, giving you more time to respond than if you were reviewing finances annually.
Integrating Personal and Business Records
MTD for ITSA applies to income from self-employment and property. If you also earn money from employment, investments, or pensions, those sources will still need to be reported at the end of the tax year through the final declaration.
It is important to keep business and personal records clearly separated. Mixing these can lead to confusion, incorrect reporting, or missed deductions. Your software should allow you to label transactions and assign them to the appropriate income stream.
If you maintain separate accounts for personal and business finances, linking only your business account to your tax software can make the process more efficient and compliant.
Avoiding Common Mistakes
With the transition to digital submissions, there are some pitfalls to watch for. Being aware of them can help you stay on track and avoid unnecessary issues.
- Submitting after the deadline: Late submissions can lead to penalties under the new points-based system
- Incomplete record keeping: Missing income or expense data can distort tax calculations
- Incorrect categorisation: Mislabeling expenses may result in under-claiming or disputes during audits
- Overlooking adjustments: Year-end claims such as capital allowances or reliefs must be accounted for in your final reports
Regularly reviewing your records and using the features of your software will help you avoid these common errors.
Preparing for Year-End Submissions
The work you do throughout the year—logging transactions, categorising expenses, submitting updates—lays the groundwork for your year-end submissions. When the time comes to submit your End of Period Statement and Final Declaration, your software will use the data already provided to generate these documents.
Completing the MTD for ITSA Reporting Cycle
The journey through Making Tax Digital for Income Tax Self Assessment involves more than just submitting quarterly updates. The process also requires a formal end-of-year review to reconcile your records and confirm the total tax due. This stage includes the End of Period Statement (EOPS) and the Final Declaration, both of which are necessary to complete the annual tax cycle.
By the time you reach this point, you will have submitted four quarterly updates containing summaries of your income and expenses. However, the end-of-year submissions ensure that any adjustments, allowances, and additional income not previously reported are properly accounted for before your tax liability is finalised.
We explain each step of the year-end reporting process, the key responsibilities you have under the MTD framework, and how to remain compliant to avoid penalties.
Understanding the End of Period Statement (EOPS)
The End of Period Statement is an essential component of MTD for ITSA. It allows you to finalise your income and expenses for the tax year by applying any necessary accounting adjustments that were not included in the quarterly updates.
You must submit an EOPS for each qualifying source of income. For example:
- If you operate one self-employed business, you need to file one EOPS
- If you earn rental income from UK property, you must file an EOPS for that property income
- If you operate both a business and own rental property, you need to submit two separate EOPS
Each statement confirms that the quarterly updates have been reviewed and amended where needed, and that they reflect a complete picture of your taxable activity for the year.
When to Submit the EOPS
The EOPS can only be submitted once the tax year has ended. This gives you time to ensure that all data is accurate, and that allowable reliefs and deductions are applied before the submission is made.
The EOPS must be submitted using MTD-compatible software. It will use the information already sent during the quarterly updates, along with any final adjustments you apply. The deadline for submitting the EOPS is 31 January following the end of the tax year, which aligns with the final tax payment deadline. For example, for the tax year ending 5 April 2027, the EOPS must be submitted by 31 January 2028.
What Adjustments Can Be Made in the EOPS
The EOPS is your opportunity to apply adjustments that could not be accounted for during the quarterly reporting. These may include:
- Capital allowances for business-related assets
- Business use of home or vehicle expenses
- Carry-forward losses from previous years
- Adjustments for private use of business assets
- Additional reliefs or claims not available at the time of quarterly submissions
By applying these adjustments, your taxable profit may be reduced, which can lead to a lower final tax bill. It’s important to ensure these adjustments are accurate and well documented in case HMRC requires supporting information.
Completing the Final Declaration
Once your EOPS submissions are complete, the next and final step in the process is submitting the Final Declaration. This is the digital equivalent of the current Self Assessment tax return. It confirms that all required information for the tax year has been provided and that it is correct to the best of your knowledge.
In addition to summarising self-employment or property income, the Final Declaration must also include any other sources of taxable income not already reported through MTD. This could include:
- Employment income
- Pension income
- Dividends and savings interest
- Overseas income
- Capital gains
- Benefits in kind
The Final Declaration is necessary for calculating your total tax liability. Even if all business or property income has been submitted through quarterly updates and the EOPS, your tax position cannot be finalised without this declaration.
When to Submit the Final Declaration
Just like the EOPS, the Final Declaration must be submitted by 31 January following the end of the tax year. However, you cannot submit the Final Declaration until all EOPS for that year have been completed.
For example, for the 2026/27 tax year, which ends on 5 April 2027, the deadline to submit the Final Declaration is 31 January 2028. Submitting it earlier is possible once all EOPS submissions are in place.
Paying Your Tax Bill Under MTD for ITSA
The way you pay your tax bill under MTD for ITSA remains largely unchanged. The final payment is still due by 31 January following the tax year-end. However, what changes is your visibility into how much you owe throughout the year, thanks to the quarterly tax estimates.
If your tax liability is more than £1,000 and less than 80 percent of it has already been paid through PAYE or other deductions, you may also be required to make payments on account. These are advance payments toward your next year’s tax bill, due in two instalments:
- First payment on 31 January (same as the main tax bill)
- Second payment on 31 July
Your MTD-compatible software or HMRC’s own calculations will help determine whether payments on account apply to you.
Methods for Paying Your Tax Bill
You can pay your tax bill using various methods, including:
- Online bank transfer
- Direct Debit
- Debit or corporate credit card
- Online payment through your HMRC account
- Bank payment via CHAPS or BACS
It is important to allow sufficient time for payments to clear, especially when paying near the deadline. HMRC treats a payment as received on the day it reaches their account, not the day it is initiated.
Late Submissions and the MTD Penalty System
With the introduction of MTD for ITSA, HMRC is also implementing a points-based penalty system for late submissions. This system is designed to be fairer and more flexible, particularly for occasional late filers, but it also introduces a structured path to penalties for repeated non-compliance.
Each missed submission—whether a quarterly update, EOPS, or Final Declaration—results in a penalty point. When a certain number of points is accumulated, a financial penalty is charged.
The threshold for receiving a financial penalty is based on the submission frequency:
- Annual submissions: 2 points
- Quarterly submissions: 4 points
- Monthly submissions: 5 points
Once the threshold is reached, a £200 penalty is issued. Additional penalties may apply if the issue persists. Points have a shelf life and can expire after a period of compliance. For quarterly submissions, this is 24 months, provided no further deadlines are missed during that period.
Avoiding MTD Penalties
Staying compliant under MTD for ITSA involves adopting habits that prioritise timely and accurate submissions. Here are steps you can take to avoid penalties:
Maintain Accurate Digital Records
Keeping your records up to date ensures your quarterly summaries and year-end submissions are accurate. Regular reviews and reconciliations can help catch errors early and prevent problems at submission time.
Submit On Time
Know your deadlines. Use calendars, alarms, or software reminders to stay ahead of due dates for quarterly updates, the EOPS, and the Final Declaration.
Use Reliable Software
Choose software that alerts you to missing data, inconsistencies, or upcoming deadlines. Many systems offer dashboards that make it easy to monitor your tax position and upcoming obligations.
Communicate with HMRC
If you encounter genuine difficulties in submitting on time—such as illness, technical failures, or other reasonable excuses—it is best to contact HMRC as soon as possible. They may be able to offer assistance or delay enforcement action under exceptional circumstances.
Special Considerations for Landlords and Sole Traders
While the core obligations of MTD for ITSA are the same, different types of income may require slightly different approaches.
For Landlords
If you receive income from letting out UK residential or commercial property, you’ll need to track rental income and allowable expenses such as:
- Mortgage interest (subject to restrictions)
- Repairs and maintenance
- Insurance and management fees
- Utility bills if covered by the landlord
Each rental property does not require a separate update or EOPS, but all income from UK property must be aggregated and reported under a single income stream.
For Sole Traders
If you run a business as a sole trader, keep a detailed account of sales, purchases, operating costs, and capital expenditures. Digital records should reflect:
- Invoices issued and received
- Goods sold or services rendered
- Mileage logs
- Staff or contractor payments
- Software subscriptions, marketing costs, and bank charges
A complete and clean digital ledger will make quarterly updates straightforward and will minimise the work needed at the year’s end.
Keeping Supporting Documentation
Although MTD for ITSA focuses on summarised submissions, you are still required to keep detailed records of each transaction in case of HMRC enquiry. This includes:
- Copies of invoices and receipts
- Bank statements and reconciliations
- Details of expense categories and justification
- Records of allowances and claims applied
Records must be kept for at least five years after the submission deadline for each tax year. Some digital software allows you to upload and store scanned or photographed receipts alongside the relevant transactions for future reference.
As the MTD programme evolves, more taxpayers will likely be brought into the system. Businesses with lower income levels or more complex tax situations may eventually need to comply with digital reporting.
Understanding and implementing the requirements now places you ahead of the curve and ensures a smoother transition if additional changes are introduced. Familiarity with digital tools, timely submissions, and accurate records not only keep you compliant but also improve the way you understand and manage your finances.
Conclusion
The introduction of Making Tax Digital for Income Tax Self Assessment represents a fundamental shift in how individuals manage their tax responsibilities in the UK. With its phased rollout beginning in April 2026, this initiative is not just about compliance, it’s about helping taxpayers adopt more efficient, accurate, and transparent methods for reporting income and calculating tax.
Over the course of this series, we’ve explored the essential elements of MTD for ITSA, from understanding the new rules and who they apply to, to managing digital records, submitting quarterly updates, and completing year-end declarations. These changes may seem overwhelming at first, but with the right preparation and tools, transitioning to the new system can be a manageable and even beneficial process.
By keeping digital records up to date and integrating quarterly reviews into your financial routine, you not only stay compliant but also gain valuable insights into your income, expenses, and overall tax position. Year-end reconciliation becomes less daunting when supported by accurate, real-time data. Moreover, early visibility of tax estimates throughout the year allows for better budgeting and financial planning.
As HMRC continues to develop the Making Tax Digital programme, now is the ideal time to evaluate your current approach to tax management. Whether you’re a landlord, sole trader, or both, adopting a digital-first mindset will make it easier to meet obligations and avoid penalties.
Ultimately, MTD for ITSA is about more than new rules, it’s about transforming how you engage with the tax system. By acting early, choosing suitable software, and building good reporting habits, you can take control of your tax affairs and approach this next chapter in digital compliance with confidence and clarity.