Making Tax Digital for Income Tax: What Self-Employed Need to Know (2026)

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) represents the biggest change to how self-employed people report their income since Self Assessment was introduced in 1996. Here is what you need to know.

Who is affected and when

April 2026: MTD ITSA becomes mandatory for self-employed people and landlords with a total gross income exceeding £50,000 per year. This is the combined gross income from self-employment and property — not profit.

April 2027: The threshold drops to £30,000, bringing a much larger group of sole traders and landlords into scope.

A further extension to £20,000 has been discussed but not yet confirmed. Partnerships remain outside MTD ITSA for now.

What changes under MTD

Under the current system, you file one Self Assessment return once a year by the January 31 deadline. Under MTD ITSA, you will instead submit quarterly updates to HMRC — four times per year, within one month of the end of each quarter. These are not tax payments; they are digital submissions of your income and expenses for that quarter.

In addition to quarterly updates, you will submit an End of Period Statement to finalise your figures for each income source, and then a Final Declaration (the equivalent of your current SA return) to confirm your total income across all sources.

Compatible software

HMRC does not accept MTD submissions through the government gateway — you must use MTD-compatible software. The main options for small businesses and sole traders are:

• Xero — cloud-based, from £16/month, strong MTD support
• QuickBooks Self-Employed — designed for freelancers, from £10/month
• FreeAgent — popular with contractors and freelancers, from £14.50/month (free with most NatWest and Royal Bank of Scotland business accounts)
• Sage Accounting — comprehensive, from £15/month

Spreadsheets are allowed only if you use HMRC-approved bridging software to submit from them.

Penalties for non-compliance

HMRC operates a points-based penalty system for MTD failures. Each missed quarterly submission earns one point; reaching the threshold (four points) triggers a £200 fine. Additional points earn further fines. Interest applies to late tax payments as before.

Your action checklist

If your gross self-employment or rental income exceeds £50,000, act now:

1. Confirm whether you are in scope — check your 2024/25 Self Assessment figures.
2. Choose MTD-compatible software and sign up for a free trial before October 2025 to learn the software before it is mandatory.
3. Run a parallel test: submit your Q4 2025 figures through the software voluntarily to ensure it works correctly before April 2026.
4. Speak to your accountant — they may manage the submissions on your behalf through agent software, but you need to ensure they are ready.

The quarterly submission burden is real, but the software makes the mechanics straightforward once you are set up. The bigger risk is leaving it too late and facing a January 2026 rush to comply.