Making Tax Digital for Income Tax Self-Assessment (MTD ITSA): What Sole Traders Need to Know
Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) requires sole traders and landlords above income thresholds to keep digital records and submit quarterly updates to HMRC. After several deferrals, MTD ITSA starts from April 2026 for those with income over £50,000, and April 2027 for £30,000-£50,000. This guide explains the obligations, the software requirements, and how to prepare.
Key points
- Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) starts on 6 April 2026 for sole traders and landlords with combined business and property income above £50,000.
- From 6 April 2027 the threshold drops to £30,000. Income below £30,000 will be addressed in further regulations (still under consultation).
- MTD ITSA requires four quarterly updates per year and an end-of-period statement (EOPS) plus a final declaration — replacing the annual Self-Assessment return for those in scope.
- Records must be kept digitally using MTD-compatible software. Spreadsheets with bridging software are permitted.
- Quarterly updates are submitted by the 7th of the second month after each quarter end (e.g. Q1 ends 5 July, update due 7 August).
- The EOPS is due by 31 January after the end of the tax year. The final declaration replaces the SA return.
- Penalties for missed submissions move to a points-based system. Penalties for late payment use a percentage scheme that increases with delay.
When MTD ITSA applies to you
MTD ITSA applies to individuals who have:
- Self-employed business income (sole trader); AND/OR
- Income from property (rental income).
...with combined gross income above the threshold:
- From 6 April 2026: threshold £50,000.
- From 6 April 2027: threshold drops to £30,000.
- Below £30,000: a further consultation is in progress; no firm commencement date.
Joint property income is split for threshold purposes. Partnerships are NOT yet in scope (originally planned for 2026, deferred to a later date).
Some categories are excluded for now or have specific treatment:
- Foster carers receiving Qualifying Care Relief.
- Income from foreign businesses (separate treatment).
- Trustees and personal representatives.
- Non-resident landlords (specific MTD rules in development).
The four quarterly updates
Each quarter you must submit a digital update to HMRC containing summary totals of income and expenses for the period. The standard quarters and deadlines:
- Q1: 6 April – 5 July. Update due 7 August.
- Q2: 6 July – 5 October. Update due 7 November.
- Q3: 6 October – 5 January. Update due 7 February.
- Q4: 6 January – 5 April. Update due 7 May.
Calendar quarters (1 April – 30 June etc.) are also permitted if you elect — the deadlines are 7th of the second month after period end.
The quarterly update is summary only — total income and total expenses by category. It does not include adjustments, allowances, or capital expenditure (which are addressed in the end-of-period statement). It does not produce a tax bill.
End-of-period statement and final declaration
At the end of the tax year (after the final quarterly update):
- End-of-Period Statement (EOPS): confirms the accuracy of the quarterly figures and includes adjustments — capital allowances, accruals, private use adjustments, balancing charges. Due by 31 January after the end of the tax year.
- Final Declaration: replaces the Self-Assessment return for the in-scope individuals. Confirms all income sources, claims for reliefs, and the tax position. Due by 31 January.
The Final Declaration captures: other income (employment, dividends, savings interest, foreign income); pension contributions; gift aid; capital gains; other reliefs. It is the final picture of your tax position for the year.
The tax payment dates are unchanged — first payment on account 31 January, second 31 July, balancing payment 31 January following the tax year-end.
Software and digital record-keeping
MTD requires digital records and compatible software. The categories:
- Records that must be digital: income (sales, fees, rent), expenses (business costs, allowable expenses), date, amount, category. VAT (if registered) is already in MTD.
- MTD-compatible software: must connect to HMRC via API. The full list is at gov.uk/mtd-software. Major providers include QuickBooks, Xero, Sage, FreeAgent, KashFlow, and many free options for smaller businesses.
- Spreadsheets + bridging software: spreadsheets are allowed for record-keeping if combined with bridging software that submits to HMRC. This is the simplest approach for many small sole traders. The bridging software submits the API call; the spreadsheet holds the data.
- Direct HMRC tools: HMRC does not provide free MTD ITSA software. The free MTD ITSA service for the very smallest businesses (the "Income Recorder" approach) is in development; no commitment as at May 2026.
Free or low-cost options for small businesses: FreeAgent (free with NatWest/RBS business accounts), Pandle (free tier), Easy MTD (low-cost bridging tool).
Penalties and how to prepare
The MTD penalties regime:
- Late submission penalty: a points-based system. Each missed quarterly update earns 1 point. 4 points within a year (for quarterly updates) triggers a £200 penalty. Further missed updates incur further £200 penalties.
- Late payment penalty: a percentage of the unpaid tax. 0% if paid within 15 days of due date; 2% if paid 16-30 days late; 4% plus 4% daily after 30 days.
- Interest on late tax: continues to accrue at the HMRC rate (currently 7.75% in 2024).
How to prepare:
- Choose your MTD software now and start keeping digital records.
- If you use spreadsheets, get bridging software ready.
- Familiarise yourself with category coding — income and expense types must be coded consistently for the quarterly summaries to be meaningful.
- Plan for the quarterly admin time. Many sole traders find the quarterly rhythm easier than the annual scramble.
- Consider an accountant — most will handle the quarterly submissions for an annual fee around £400-£1,000 for a simple sole trader.
Frequently asked questions
Will MTD ITSA reduce my tax bill?
What if I am below £50,000 in 2026 but above in 2027?
Can I opt out?
Will my accountant manage MTD for me?
Do I still need to file an SA return?
What to do next
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Official bodies and resources
HM Revenue & Customs
GovernmentResponsible for collecting taxes, paying some forms of state support, and administering national insurance.
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