Making Tax Digital for Income Tax

What Is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is HMRC's flagship digital reporting initiative, requiring self-employed individuals and landlords to maintain digital records and submit quarterly updates to HMRC — in addition to an annual end-of-period statement and final declaration.

MTD ITSA will fundamentally change how income tax is reported and paid for millions of taxpayers in the UK. Having already been delayed several times, the current timetable sets a mandatory start date of April 2026 for those with qualifying income above £50,000, with further expansion in subsequent years.

Who Is Affected and When?

Mandation is being phased in by income level. The current timetable is as follows:

• April 2026: Sole traders and landlords with total qualifying income above £50,000

• April 2027: Those with total qualifying income above £30,000

• April 2028: Those with total qualifying income above £20,000 (subject to further government confirmation)

  
  

'Qualifying income' means gross self-employment income and/or gross property income (before deducting expenses). It is not profit — so a landlord with rental receipts of £55,000 and mortgage interest of £30,000 still falls within scope from April 2026.

Important: The income threshold is assessed against the previous tax year's qualifying income, not the current year. Taxpayers near the threshold should be monitoring their position now.

What Will the New Process Look Like?

Quarterly Updates

Rather than a single annual Self Assessment return, MTD ITSA requires four quarterly updates per year, submitted within one month of the end of each quarter. These updates are cumulative summaries of income and expenses — they do not need to be individually verified and carry no penalties for inaccuracy at the quarterly stage.

The quarters align with the tax year (6 April to 5 July; 6 July to 5 October; 6 October to 5 January; 6 January to 5 April) or, where the business uses calendar quarters, with a calendar-year option.

End-of-Period Statement

At the close of each tax year, a taxpayer (or their agent) submits an End-of-Period Statement (EOPS) per income source. This is where allowances and adjustments are claimed — for example, overlap relief, capital allowances, and property income deductions.

Final Declaration

The Final Declaration (replacing the current Self Assessment return) consolidates all income sources and applies personal reliefs. The deadline is 31 January following the tax year, in line with the current Self Assessment timetable.

Digital Record Keeping Requirements

MTD ITSA requires that records be kept in a digital format. This means using software that is compatible with HMRC's MTD APIs. Paper records and manual spreadsheets (without bridging software) will not satisfy the requirement.

Compatible software includes dedicated accounting packages (such as Xero, QuickBooks, and FreeAgent) and HMRC-recognised bridging tools that connect spreadsheets to the MTD API.

• Income and expenses must be categorised in line with HMRC's prescribed categories

• Where a landlord has multiple properties, records must be maintained per property or per business as appropriate

• Records must be retained for at least five years from the 31 January submission deadline

  
  

What Are the Penalties?

MTD ITSA introduces a new points-based penalty system for late quarterly submissions. Points accumulate for each missed submission, and a financial penalty is triggered once a threshold is reached. The penalty regime is designed to be more forgiving for occasional lapses whilst penalising persistent non-compliance.

Importantly, the existing penalty regime for inaccuracies in tax returns (under FA 2007 Schedule 24) continues to apply to the Final Declaration. Errors in the Final Declaration that cause an understatement of tax can attract penalties of 0% to 100% of the potential lost revenue, depending on whether the behaviour is careless, deliberate, or deliberate and concealed.

Note for agents: HMRC has confirmed that tax agents can submit MTD ITSA updates on behalf of clients using agent-authorised software. Client authorisation must be in place before any submissions can be made.

What You Should Be Doing Now

The April 2026 start date will arrive quickly, and preparation should begin well in advance. We recommend the following steps for affected clients:

• Confirm whether your qualifying income for 2024/25 is likely to exceed £50,000 — if so, mandatory start date is April 2026

• Review your current record-keeping arrangements and identify whether they are MTD-compatible

• Evaluate whether your current accounting software supports MTD ITSA — if not, consider migrating

• Speak to your accountant about your quarterly reporting cycle and whether you wish to adopt the tax year or calendar quarter approach

• Consider enrolling in HMRC's voluntary MTD ITSA pilot to gain familiarity before mandation

  
  

How Fortis Accounting Can Help

We are assisting clients through the transition to MTD ITSA by reviewing existing systems, recommending compatible software, and where appropriate, taking on the preparation and submission of quarterly updates on a managed basis.

If you are uncertain whether you will be in scope from April 2026 or would like to discuss what changes to your record-keeping are required, please contact us at your earliest convenience.