Making Tax Digital (MTD) is the UK government’s flagship initiative to modernise the tax system by requiring businesses and individuals to maintain digital records and submit tax information electronically using HMRC-approved software. Having already transformed VAT reporting for millions of businesses, MTD is now expanding into Income Tax Self Assessment (ITSA) — with significant milestones arriving in April 2026 and April 2027.
This document provides a comprehensive overview of what is changing, who is affected, the key deadlines, and the practical steps businesses must take to ensure full compliance.
Background: The MTD Journey So Far
MTD was first announced in 2015 as part of the government’s ambition to create one of the most digitally advanced tax administrations in the world. The rollout has been phased to allow businesses time to adapt:
- April 2019: MTD for VAT became mandatory for VAT-registered businesses with turnover above the £85,000 VAT threshold.
- April 2022: MTD for VAT was extended to all VAT-registered businesses, regardless of turnover.
- April 2026: MTD for ITSA goes live for self-employed individuals and landlords with qualifying income above £50,000.
- April 2027: MTD for ITSA extends to those with qualifying income above £30,000.
The journey represents a fundamental shift away from the traditional annual Self Assessment tax return towards a system of regular, real-time digital record-keeping and quarterly reporting.
What Is Changing in 2026?
MTD for Income Tax Self Assessment (ITSA)
From 6 April 2026, self-employed individuals and landlords whose combined gross income from self-employment and property exceeds £50,000 per year will be legally required to comply with MTD for ITSA. This means:
- Maintaining digital records of all income and expenditure throughout the tax year.
- Submitting quarterly updates to HMRC via MTD-compatible software (rather than a single annual return).
- Submitting an End of Period Statement (EOPS) at the close of each accounting period.
- Filing a Final Declaration (replacing the traditional Self Assessment return) to confirm overall tax liability.
Quarterly Reporting Deadlines
Under MTD for ITSA, businesses and individuals will need to submit four quarterly updates each year. The standard quarterly periods and submission deadlines are as follows:
- Quarter 1 (6 April – 5 July): Submission due by 7 August.
- Quarter 2 (6 July – 5 October): Submission due by 7 November.
- Quarter 3 (6 October – 5 January): Submission due by 7 February.
- Quarter 4 (6 January – 5 April): Submission due by 7 May.
It is important to note that the quarterly updates do not require calculation of the tax liability at each stage — they are primarily a summary of income and expenses. The final tax calculation is confirmed via the Final Declaration, which must be submitted by 31 January following the end of the tax year.
Who Is Affected?
Understanding who falls within scope is critical. The following table provides a clear overview of how different business types and income thresholds are affected by MTD requirements:
| Business Type / Threshold | MTD for VAT (Already Live) | MTD for ITSA (From April 2026) | MTD for ITSA (From April 2027) | Key Software Required |
| Self-employed / Landlords — Income > £50,000 | Required | Required | Required | HMRC-compatible MTD software |
| Self-employed / Landlords — Income > £30,000 | Required | Not yet required | Required | HMRC-compatible MTD software |
| VAT-registered businesses (all turnovers) | Required since 2022 | N/A — VAT only | N/A — VAT only | Bridging or full MTD VAT software |
| Partnerships | Required (if VAT registered) | TBC — under consultation | TBC — under consultation | Awaiting HMRC guidance |
| Limited Companies (Corporation Tax) | Required (if VAT registered) | Not in scope yet | Not in scope yet | Pilot phase expected 2026–2027 |
How Will These Changes Impact UK Businesses?
1. Administrative and Record-Keeping Requirements
Perhaps the most immediate impact is the increase in administrative workload — at least in the short term. Businesses will need to maintain up-to-date digital records throughout the year rather than compiling everything at year-end. This requires:
- Adopting HMRC-recognised MTD-compatible software (such as QuickBooks, Xero, Sage, or FreeAgent).
- Ensuring all invoices, receipts, and financial transactions are captured digitally on a regular basis.
- Reconciling bank accounts more frequently to ensure accuracy in quarterly submissions.
For businesses that currently rely on paper-based records or basic spreadsheets, this represents a significant operational change. However, many businesses that move to compliant software find that ongoing record-keeping becomes more straightforward once good habits are established.
2. Cash Flow and Financial Visibility
One of the stated benefits of MTD is that more regular engagement with financial data will give business owners a clearer, more up-to-date picture of their tax position. Rather than facing a potentially large and unexpected tax bill in January, businesses will have a better ongoing understanding of their likely tax liability — allowing for more effective cash flow planning and savings management.
3. Accountants and Tax Advisers
The relationship between businesses and their accountants is likely to evolve under MTD. Rather than one intensive annual engagement, the quarterly cycle encourages a more collaborative, ongoing advisory relationship. This may mean:
- More frequent contact between clients and their accountants.
- Potential changes to fee structures as the nature of work shifts.
- Greater use of shared cloud accounting platforms to facilitate real-time collaboration.
- Accounting practices that have not yet reviewed their service models in light of MTD should do so as a priority.
4. Software and Technology Costs
Businesses that do not already use MTD-compatible software will need to invest in appropriate tools. Whilst there are free or low-cost options available for sole traders with straightforward affairs, more complex businesses may require subscriptions to established platforms. Businesses should budget for both the software cost and any time spent on staff training.
HMRC maintains an updated list of compatible software on its website, and it is strongly advisable to verify that any chosen solution is fully approved before submitting live data.
5. Penalties for Non-Compliance
HMRC is introducing a new points-based penalty system for late submissions under MTD for ITSA. Under this system:
- Each late quarterly update attracts one penalty point.
- Once a threshold number of points is accumulated, a financial penalty of £200 is triggered.
- Points expire after a set period of good compliance behaviour.
There are also separate late payment penalties that apply based on the length of time a tax payment remains outstanding. The new system is designed to be fairer and more proportionate than previous arrangements, but businesses must still take compliance deadlines seriously.
How to Prepare: A Practical Checklist
Businesses that are in scope for MTD for ITSA from April 2026 should take the following steps as a matter of urgency:
- Confirm whether your gross qualifying income exceeds £50,000 per year across self-employment and property income.
- Speak to your accountant or tax adviser to understand your obligations and agree an action plan.
- Research and select HMRC-compatible MTD software that suits your business complexity and budget.
- Begin maintaining digital records immediately — do not wait until the April 2026 deadline.
- Consider enrolling in HMRC’s MTD for ITSA pilot scheme to familiarise yourself with the process before it becomes mandatory.
- Review your internal processes for capturing receipts, invoices, and expenses digitally.
- Ensure bank feeds or regular bank imports are set up within your software.
- Plan your cash flow to account for quarterly engagement with your adviser and any associated costs.
Exemptions and Special Circumstances
HMRC has confirmed that certain individuals may be exempt from MTD for ITSA requirements. Exemptions may apply in the following circumstances:
- Where it is not reasonably practicable to use digital tools due to age, disability, or other personal circumstances.
- Individuals practising a religion whose beliefs prevent the use of digital technology (subject to HMRC approval).
- Individuals who are not required to register for Self Assessment.
Exemptions are not automatic — they must be applied for through HMRC. Businesses that believe they may qualify for an exemption should seek advice from their accountant and apply well in advance of the mandatory start date.
Looking Ahead: What Comes After 2026?
The April 2026 implementation is not the end of the MTD journey. HMRC has signalled its intention to continue expanding the programme:
- April 2027: MTD for ITSA extended to self-employed individuals and landlords with qualifying income above £30,000.
- Partnerships: HMRC has indicated that general partnerships will be brought into MTD for ITSA at a future date, though a specific deadline has not yet been confirmed.
- Corporation Tax: HMRC has announced plans for MTD for Corporation Tax, with a voluntary pilot expected to run from 2026. Mandatory implementation is likely to follow in the late 2020s.
Given the trajectory of reform, businesses of all sizes and structures should be actively planning for a future in which real-time digital record-keeping and regular reporting is the norm — not the exception.
Conclusion
Making Tax Digital represents the most significant overhaul of the UK tax administration system in a generation. For businesses falling within scope from April 2026, the time to act is now. Early adopters who embrace compatible software, develop strong digital record-keeping habits, and engage proactively with their accountants will be best placed to navigate the transition smoothly — and may even find that the increased visibility into their finances brings genuine operational benefits.
Conversely, businesses that delay preparation risk last-minute compliance scrambles, unnecessary penalties, and disruption to their financial management. With less than twelve months until the first mandatory deadline, the window for comfortable preparation is narrowing.
If you are uncertain whether you are in scope, what software to use, or how to structure your compliance process, we strongly recommend speaking with a qualified accountant like Lexarox Accounts or tax adviser at the earliest opportunity.
Frequently Asked Questions
Who must comply with MTD for ITSA from April 2026?
Self-employed individuals and landlords whose combined gross income from self-employment and UK property exceeds £50,000 per year must comply from 6 April 2026. This threshold applies to gross income — before any allowable expenses are deducted. Those with income between £30,000 and £50,000 will be required to join from April 2027 instead.
Does MTD for ITSA apply to limited companies?
No — MTD for Income Tax Self Assessment applies only to self-employed individuals and landlords at this stage, not to limited companies. Corporation Tax is a separate matter. HMRC has announced plans for MTD for Corporation Tax in due course, with a voluntary pilot expected from 2026, though mandatory implementation is still several years away.
What does ‘qualifying income’ mean for the £50,000 threshold?
Qualifying income refers to the total gross income received from self-employment and UK property, combined, before deducting any allowable business expenses. It does not include employment income, dividends, savings interest, or pension income. If your gross self-employment and rental income together exceed £50,000, you fall within scope from April 2026 onwards.
What are the quarterly reporting deadlines under MTD for ITSA?
There are four quarterly submission deadlines each year. Quarter 1 (April–July) is due by 7 August; Quarter 2 (July–October) by 7 November; Quarter 3 (October–January) by 7 February; and Quarter 4 (January–April) by 7 May. These updates summarise income and expenses — they do not require you to calculate or pay your tax at each quarterly stage.
Will I still need to file a Self Assessment tax return?
Not in the traditional sense. Under MTD for ITSA, the annual Self Assessment return is replaced by a Final Declaration, which confirms your overall income, deductions, and reliefs for the tax year. This must be submitted by 31 January following the end of the tax year — the same deadline as the current Self Assessment return — and triggers your final tax liability.
