Key Deadline
April 2026: MTD for ITSA becomes mandatory for sole traders and landlords with annual income over £50,000. From April 2027, the threshold drops to £30,000. If your self-employment or property income exceeds these thresholds, you must comply.
What is Making Tax Digital for ITSA?
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is HMRC's programme requiring sole traders and landlords to keep digital records and report income and expenses quarterly using compatible software.
Instead of filing one annual Self Assessment tax return, you'll send four quarterly updates to HMRC throughout the tax year, followed by a final declaration to confirm your overall tax position.
Who Must Comply and When
April 2026 — Income Over £50,000
Sole traders and landlords with gross annual income from self-employment or property exceeding £50,000 must begin keeping digital records and submitting quarterly updates.
April 2027 — Income Over £30,000
The threshold drops to £30,000. If your gross income exceeds this amount, you must comply with the same quarterly reporting requirements.
Under £30,000 — Not Yet Required
If your income is below £30,000, MTD for ITSA is not currently mandatory. However, HMRC has indicated the threshold may be lowered further in the future. You can voluntarily sign up at any time.
Quarterly Reporting Requirements
Under MTD, the tax year is divided into four quarters. After each quarter, you submit a summary of your income and expenses to HMRC:
After the fourth quarter, you submit a final declaration by 31 January of the following year (the same deadline as the current Self Assessment tax return).
What Records Must Be Digital
HMRC requires the following to be kept digitally using compatible software:
- Business income: All sales, invoices, and other income — including date, amount, and category
- Business expenses: All allowable expenses with date, amount, and category
- VAT information (if VAT-registered): VAT on sales and purchases
- Capital allowances: Records of asset purchases and disposals
You don't need to digitise every receipt, but your record of income and expenses must be maintained in compatible software — not paper ledgers.
Software Requirements
You must use software that is recognised by HMRC as MTD-compatible. This software must be able to:
- Create and maintain digital records of your income and expenses
- Submit quarterly updates directly to HMRC via their API
- Submit your final declaration at the end of the tax year
- Receive information from HMRC (such as tax calculations)
Spreadsheets and Bridging Software
You can continue using spreadsheets to record transactions, but you'll need bridging software to submit quarterly updates to HMRC. The software must be able to read your spreadsheet data and transmit it digitally. A spreadsheet alone does not meet MTD requirements.
Penalties for Non-Compliance
HMRC has introduced a new points-based penalty system for MTD for ITSA:
Late Submission Penalties
- You receive 1 penalty point for each late quarterly update or final declaration
- Once you reach the threshold of 4 points (for quarterly obligations), you incur a £200 penalty
- Every subsequent late submission triggers another £200 penalty
- Points expire after 24 months of compliance (all submissions on time)
Late Payment Penalties
- 15 days late: 2% of tax owed
- 30 days late: Additional 2% (4% total)
- After 30 days: 4% per annum on outstanding balance
Late Payment Interest
HMRC charges interest on late payments at the Bank of England base rate plus 2.5%. This runs from the payment due date until the tax is paid in full.
How to Prepare for MTD
5 Steps to MTD Readiness
1. Check If You're Affected
Review your gross self-employment or property income. If it's over £50,000, you must comply from April 2026. Over £30,000, from April 2027.
2. Choose Compatible Software
Select HMRC-recognised software that suits your business. Consider whether you need full accounting software or just bridging software alongside your existing tools.
3. Digitise Your Records
Move your income and expense records into your chosen software. Start recording transactions digitally from the beginning of your first MTD tax year.
4. Sign Up with HMRC
You'll need to sign up for MTD for ITSA through your Government Gateway account. HMRC will write to you when it's time, but you can sign up voluntarily beforehand.
5. Practice Quarterly Reporting
Consider voluntarily submitting quarterly updates before it's mandatory. This lets you get comfortable with the process without penalty risk.
How Good Invoicing Supports MTD
While invoicing software isn't the same as MTD submission software, it plays a crucial role in compliance:
- Accurate income records: Every invoice you create is a digital record of income
- Date and amount tracking: Invoicing software automatically records the details HMRC requires
- Categorisation: Professional invoicing helps you classify income correctly
- Export-ready data: Your invoice data can be exported to MTD-compatible accounting software
Keep Your Income Records MTD-Ready
Experi creates professional digital invoices with all the details MTD requires — dates, amounts, client information, and payment tracking. Your invoice records feed directly into your quarterly reporting.
Start Free — No Credit Card RequiredFrequently Asked Questions
When does Making Tax Digital for ITSA start?
MTD for ITSA begins in April 2026 for sole traders and landlords with income over £50,000. Those with income over £30,000 must comply from April 2027.
What do I need to report quarterly under MTD?
You must submit quarterly updates to HMRC summarising your business income and expenses for each quarter. These are due by the 7th of the month following the quarter end (e.g., 7 August for the April–June quarter).
Do I need special software for MTD?
Yes. You must use HMRC-recognised MTD-compatible software to keep digital records and submit quarterly updates. Spreadsheets alone are not sufficient — you need bridging software or a fully compatible accounting package.
What are the penalties for not complying with MTD?
HMRC uses a points-based penalty system. You receive a point for each late submission. Once you reach the threshold (4 points for quarterly obligations), you receive a £200 penalty. Late payment penalties start at 2% of tax owed after 15 days, rising to 4% after 30 days.
Does MTD replace the Self Assessment tax return?
Not entirely. You still need to submit a final declaration (similar to a tax return) by 31 January after the tax year ends. However, quarterly updates replace much of the data gathering you would normally do at year end.