Making Tax Digital (MTD) and Income Tax Self Assessment (ITSA)

You may have seen in news coverage or heard people talking about MTD and ITSA. You might also be wondering if and how this might affect you. So what is it all about?

MTD for ITSA – a reporting process which will replace the requirement to file an annual self-assessment tax return for some people

If you’re eligible, Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) will replace the current requirement to file an annual Self Assessment tax return. Instead, you’ll use MTD-compatible software, such as QuickBooks or Xero, to keep digital records and then file updates to HMRC at least every quarter using your chosen software package.

MTD for Income Tax is set to roll out from April 2026 for Sole Traders and Landlords making over £50,000 and from 2027 for those making over £30,000. The Government plans to expand MTD for Income tax to Sole Traders with income over £20,000 from April 2028. If your income is below these thresholds, you can continue using the existing Self Assessment reporting system either through an accountant or through your Government gateway account yourself.

The government aims to increase the accuracy of the returns by using this new system; making it easier to get taxes right and to save time and money – for both HMRC and you.

Under MTD, you’ll need to:

  • Keep digital records and use MTD-compatible software to submit quarterly information to HMRC, or use bridging software to connect spreadsheets to HMRC
  • Report your financial data to HMRC at least every quarter
  • Finalise your taxes at the end of the tax year and submit a final declaration.

Speak to us to find out more about MTD for ITSA.

When and how do I sign up?

If you’re eligible for MTD for ITSA, it’s best to get yourself signed up with HMRC before the scheme becomes mandated on 6 April 2026. In many cases, we may be able to sign you up.

If we or your bookkeeper signs you up, we will need to use the following details about you, including:

  • Your business name and date you started trading (or the date you started collecting property income)
  • Your email address
  • Your accounting period and accounting type (eg. cash or standard accounting)
  • Your National Insurance number
  • The Government Gateway user ID and password that you use to file Self Assessment tax returns

Speak to us about the steps and information needed to get you signed up. We may already hold much of the information required.

Who does it affect?

You’ll need to get signed up for MTD for ITSA if:

  • You’re a sole trade business or a landlord (or both).
  • Your total gross income is more than £50,000 (required to sign up from April 2026) and £30,000 (required to sign up from April 2027) from your sole trade and/or rental properties.

For example, if you owned and operated a sole trade business with income of £30,000 and your rental property generated income of £25,000 in the 2024/25 tax year, your ‘qualifying’ income will be £55,000 and you will need to report under MTD for ITSA from 6 April 2026

Income from the following sources is not currently included as qualifying income for MTD for Income Tax:

  • Employment (PAYE)
  • General partnership
  • Limited partnership (LP)
  • Limited Liability Partnership (LLP)
  • Limited company
  • Trusts
  • Deceased person’s estate

HMRC aims to roll out Making Tax Digital to eventually cover all areas of the tax system. There are provisions for being considered digitally exempt, but these only apply in very limited circumstances. You will need to apply for exemption to HMRC, which is only granted in certain cases. Each application is reviewed on an individual basis. We will be able to provide more information about exemptions.

What’s the MTD ITSA threshold?

Not everyone who currently uses Self-Assessment will be required to sign up for MTD for Income tax from April 2026. This will only affect those with sole trade and/or rental property income which exceeds £50,000.

To assess your qualifying income for a tax year, HMRC will look at previous Self-Assessment tax returns. If your total gross income (from sole trades or rental property) is over:

  • £50,000 for the 2024/25 tax year, you are affected from 6 April 2026
  • £30,000 for the 2025/26 tax year, you are affected from 6 April 2027
  • £20,000 for the 2026/27 tax year, the government’s current plans suggest you will be affected from 6 April 2028.

Note: the thresholds refer to your gross income from all sole trades and/or rental properties. You will still be required to sign up for MTD for Income tax if your total qualifying income exceeds the threshold, even if the individual elements do not.

Quarterly reports

Over the course of the tax year, you must submit summary reports to HMRC at least every quarter.

Under the current Self Assessment system, you only have to complete a single return after the end of the tax year. Income and expenses are manually added to a self-assessment tax return which is then filed with HMRC

Under MTD for ITSA, this process will change significantly. The manual reporting process will be replaced and, instead, businesses must use, software like QuickBooks or Xero, to submit their financial information, or convert their records into a digital format, which will then be regularly sent to HMRC.

This software will also be able to keep digital records, which is a requirement of MTD for ITSA. Over the course of the tax year, you must submit summary reports to HMRC at least every quarter. These reports don’t need to include accounting or tax adjustments, although you’re free to include these if you wish to. This means the quarterly submission does not have to be 100% up-to-date.

Each quarterly report is due within one month and seven days after the quarter ends. The reasoning behind this change is to make it easier to spot and rectify errors in as close to real time as possible, rather than waiting for issues to show up at the end of the tax year.

Note: You must record and submit quarterly reports for each separate trade and/or property business you manage. In April 2026 for Sole Traders and landlords making over £50,000 and April 2027 for those making over £30,000.

What is the final declaration?

The final reporting requirement under MTD for ITSA is, fittingly, known as the final declaration. This is when you report any additional income and expenses that you would previously have included in your Self Assessment return.

The final declaration is used to finalise your position for the end of the year and calculate your overall tax liability. This basically replaces your annual Self Assessment return.

While you must submit quarterly reports for each of your businesses, the final declaration is a summary of your overall personal position.

So what is the difference between Self Assessment and MTD for ITSA?

The core differences between the two systems concern record-keeping and reporting requirements.

To summarise, MTD requires you to:

  • Keep records in digital form
  • Submit quarterly reports
  • Submit a final declaration at the end of the year

As noted under What is the final declaration? the final declaration is functionally very similar to the current Self Assessment return.

Will MTD for ITSA replace Self Assessment?

Self Assessment is not being scrapped entirely. If your income is below £20,000 you will not yet be covered by MTD for ITSA.

The government’s stated aim with Making Tax Digital is to roll the scheme out to cover nearly all of the UK tax system. Essentially, MTD for ITSA will replace Self Assessment for most who currently use the Self Assessment scheme, but not those with income below £20,000 just yet.

You should also note that if you’re registered for Self Assessment before making the switch to MTD, you will still need to complete a Self Assessment return for the tax year before you sign up for MTD.

How long do I need to keep old accounting records?

You must keep your MTD for ITSA accounting records for at least five years.

Cloud accounting software is especially useful in this respect, as it can use cloud storage to ensure subscribers’ data won’t be wiped out if their hardware is corrupted, lost or stolen.

Note: There are different requirements for very late returns. If you send your records more than four years after the deadline, you must keep them for another 15 months after you send off your return.

Using MTD-compatible software for MTD for ITSA

To comply with MTD, businesses have to keep digital records. This must be done using what HMRC calls ‘functional compatible software’.

‘Functional compatible software’ is HMRC’s term for software that is compatible with Making Tax Digital. In other words, it must be able to connect directly to HMRC and send your details to them using digital links.

Using functional compatible software like QuickBooks or Xero is the easier and safer way to comply with MTD regulations. It also means you get to keep your income and expenses in HMRC-approved digital form.

Speak to us to find out more about MTD ITSA, and using compatible software like QuickBooks or Xero for your business