Making Tax Digital for Income Tax: What Sole Traders and Landlords Need to Know Right Now
- Yoni Finke
- Apr 5
- 3 min read
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is no longer something on the horizon — it officially launched on 6 April 2026. If you're a sole trader or landlord with qualifying income above £50,000, you are now required to comply. Here's exactly what that means and what you need to do.
Who Is Affected?
MTD for ITSA applies to sole traders and landlords based on qualifying income — your gross self-employment income plus gross UK property income combined. This is turnover, not profit after expenses.
Phase 1 — from 6 April 2026: qualifying income above £50,000
Phase 2 — from April 2027: qualifying income above £30,000
Phase 3 — from April 2028: qualifying income above £20,000
HMRC assesses qualifying income based on your most recent Self Assessment return. Importantly, employment income, dividends, savings interest, and pension income do not count toward the threshold — only self-employment and property income does. So if your 2024/25 gross income from these sources was above £50,000, Phase 1 applies to you now.
What Do You Need to Do?
Under MTD for ITSA there are three core obligations:
Digital record-keeping: Keep digital records of all income and expenses throughout the year using HMRC-compatible software
Quarterly updates: Submit a summary of income and expenses to HMRC four times a year. Deadlines are the 7th of the following month — 7 July, 7 October, 7 January, and 7 April
Final Declaration: After the tax year ends, submit a Final Declaration by 31 January to confirm your total income, claim reliefs and allowances, and finalise your tax liability. This replaces the traditional Self Assessment return
What Software Do You Need?
You must use HMRC-compatible software. Popular options include Xero, QuickBooks, and FreeAgent. If you already manage your records on spreadsheets and don't want to switch, bridging software is available — it links your existing spreadsheets to HMRC's systems. A low-cost option for smaller businesses is 123 Sheets.
HMRC publishes a full list of compatible software on GOV.UK. It's worth testing your chosen software before the first quarterly deadline of 7 July 2026.
Penalties
MTD for ITSA uses a points-based penalty system. You receive one penalty point for each late quarterly update. Accumulate four points within a two-year period and a £200 financial penalty applies.
However, HMRC has confirmed there will be no penalty points issued for late quarterly updates during the first year of mandation — 2026/27 is effectively a grace period for quarterly submissions. This relaxation does not apply to your Final Declaration: the 2026/27 return is still due by 31 January 2028, and the normal late filing rules apply.
Exemptions
You can apply for an exemption if digital compliance is not reasonably practical for you — for example, due to age, disability, or lack of internet access. Exemptions are also available for those operating under a Power of Attorney or Court of Protection deputyship. Certain groups, such as recipients of trust and estate income, may also qualify for a one-year deferral. Apply directly by contacting HMRC by phone or in writing.
Your MTD Checklist for Right Now
Check your 2024/25 qualifying income (gross self-employment + gross property income) against the £50,000 threshold
Sign up with HMRC through your Government Gateway account
Select and set up HMRC-compatible software
Start keeping digital records from 6 April 2026 — your first quarterly update covers 6 April to 5 July 2026, due by 7 July 2026
If you think you may qualify for an exemption or deferral, contact HMRC now
Not sure where to start? YF Accounting can help you work out whether MTD for ITSA applies to you, choose the right software, and make sure your quarterly updates and Final Declaration are submitted correctly. Get in touch today — we offer a free initial Zoom call.
