# Making Tax Digital for Income Tax Self Assessment (MTD ITSA)

Last updated: 9 October 2026

With the new tax year starting 6 April 2026, 118,000 landlords and 3,000 sole traders in real estate must adopt MTD for Income Tax, submitting first quarterly updates by 7 August 2026. Preparation involves checking qualifying income and signing up via gov.uk if registered for Self Assessment.

- **Mandation Start Date:** 6 April 2026
- **Income Threshold:** £50,000+
- **First Filing Due:** 7 August 2026

You can [sign up via Gov.uk](https://www.gov.uk/guidance/sign-up-for-making-tax-digital-for-income-tax) or [start MTD preparation](/mtd-itsa-signup).

## Introduction to MTD for Income Tax Self Assessment (ITSA)

Making Tax Digital for Income Tax Self Assessment MTD ITSA represents a significant shift in how individuals report their income and pay tax to HMRC. From April 2026, many landlords and sole traders will be required to keep digital records and submit quarterly updates of their income and expenses to HMRC using MTD compatible software. This initiative aims to make tax administration more efficient, reduce errors, and provide taxpayers with a clearer, more real-time view of their tax position.

The deadline for compliance is rapidly approaching, with the new tax year commencing on 6 April 2026. This means that affected individuals have a limited window to ensure their businesses are MTD-ready. This comprehensive guide will walk you through the essential steps to prepare your small business for MTD ITSA, focusing on what you need to do in the coming days and weeks to ensure a smooth transition and avoid potential penalties.

Understanding the requirements, identifying if you are affected, and choosing the right software are critical first steps. AccountsOS is designed to simplify this process, providing an intuitive platform for digital record keeping, automated quarterly submissions, and real-time tax insights. By following the advice in this guide, you can confidently navigate the MTD changes and ensure your business remains compliant.

The rollout of MTD ITSA is staggered, starting with those earning over £50,000, followed by those earning over £30,000 in April 2027, and then those earning over £20,000 in April 2028. This phased approach allows for a more managed transition, but for those in the first wave, immediate action is paramount. This guide focuses primarily on the immediate requirements for the April 2026 cohort, offering a detailed action plan to prepare within the next 14 days.

## Who is Affected by MTD for Income Tax Self Assessment?

MTD ITSA primarily affects self-employed individuals and landlords who are currently required to submit Self Assessment tax returns. The mandation threshold, which dictates who must comply, is based on an individual's total qualifying income. It is crucial to understand whether your income falls within the thresholds that trigger MTD compliance.

### What is Qualifying Income?

Qualifying income for MTD ITSA includes:

- Income from self-employment.
- Income from UK property.
- In some cases, income from foreign property.

It is important to note that other sources of income, such as employment income, pension income, or investment income, are not included in the qualifying income calculation for MTD ITSA purposes. However, if you have multiple sources of self-employment or property income, these are combined to determine if you meet the threshold.

### Mandation Thresholds and Dates

The rollout of MTD ITSA is staggered over several tax years:

| Date | Event |
| --- | --- |
| 6 April 2026 | MTD ITSA starts for those with income > £50,000 |
| 7 August 2026 | First quarterly update due (for April-June 2026) |
| 6 April 2027 | MTD ITSA starts for those with income > £30,000 |
| 6 April 2028 | MTD ITSA starts for those with income > £20,000 |

For the tax year commencing 6 April 2026, individuals with a total qualifying income exceeding £50,000 will be mandated to follow MTD ITSA rules. This includes approximately 118,000 landlords and 3,000 sole traders in the real estate sector alone, as highlighted by recent reports. If your combined gross income from self-employment and property exceeds this figure for the previous tax year, you will likely need to comply.

The income threshold is based on your gross income, not your net profit. This is a critical distinction, as many businesses with lower net profits may still exceed the gross income threshold. For example, a landlord with £60,000 in rental income but significant expenses leading to a £10,000 profit would still be mandated for MTD ITSA.

### Example Scenarios

#### Scenario 1: Sole Trader

Sarah runs a graphic design business. Her gross income for the tax year 2025/26 was £55,000. Her expenses were £20,000, leaving a net profit of £35,000.

**Outcome:** Sarah's qualifying income of £55,000 exceeds the £50,000 threshold. She must comply with MTD ITSA from 6 April 2026.

#### Scenario 2: Landlord

John owns two rental properties. His total rental income for 2025/26 was £40,000.

**Outcome:** John's qualifying income of £40,000 is below the £50,000 threshold. He is not currently mandated for MTD ITSA, but will need to prepare for April 2027 if his income remains above £30,000.

#### Scenario 3: Sole Trader and Landlord

Emily is a freelance consultant with gross income of £30,000 and also a landlord with rental income of £25,000 for 2025/26.

**Outcome:** Emily's total qualifying income is £30,000 + £25,000 = £55,000. This exceeds the £50,000 threshold. She must comply with MTD ITSA from 6 April 2026.

**How to Check Your Income:** You should review your total gross income from self-employment and UK property for the tax year 2025/26. This is the most recent full tax year that will determine your MTD ITSA obligation for 2026/27. If you are unsure, consult your accountant or refer to your previous Self Assessment tax returns. AccountsOS can help you track your income throughout the year to easily determine your eligibility.

## What is Making Tax Digital for Income Tax Self Assessment (ITSA)?

MTD ITSA fundamentally changes the way self-employed individuals and landlords interact with HMRC. Instead of submitting a single annual Self Assessment tax return, you will be required to maintain digital records and send regular updates throughout the tax year. This system is built on four key components: digital record keeping, quarterly updates, an End of Period Statement, and a Final Declaration.

### 1. Digital Record Keeping

The cornerstone of MTD ITSA is the requirement to keep digital records of all your business income and expenses. This means moving away from paper ledgers or manual spreadsheets to MTD-compatible software. The software must be able to record details such as:

- Date of transaction.
- Amount of income or expense.
- Category of income or expense.
- Nature of the transaction (e.g., sale, purchase).

Digital record keeping ensures accuracy, reduces manual errors, and makes it easier to track your financial performance in real-time. AccountsOS provides a robust platform for this, allowing you to connect bank accounts, upload receipts, and categorize transactions automatically.

### 2. Quarterly Updates

Instead of an annual summary, you will need to submit a summary of your business income and expenses to HMRC every three months. These are known as 'quarterly updates' and must be submitted using MTD-compatible software. Each update will cover a specific tax quarter, and the deadlines are fixed, regardless of your business year-end.

These updates will provide HMRC with a more frequent snapshot of your earnings and outgoings, allowing for a more dynamic assessment of your tax position. While these are submissions to HMRC, they are not payment deadlines. You do not pay tax at the point of submitting a quarterly update.

### 3. End of Period Statement (EOPS)

After your final quarterly update for the tax year, you will need to submit an End of Period Statement EOPS. This is a crucial step where you finalize your business income and expenses for the entire tax year. The EOPS allows for any accounting adjustments that were not included in the quarterly updates, such as:

- Capital allowances.
- Accruals and prepayments.
- Stock adjustments.
- Private use adjustments.

The EOPS must be submitted by 31 January following the end of the tax year. For example, for the tax year 2026/27, the EOPS must be submitted by 31 January 2028.

### 4. Final Declaration

The final step in the MTD ITSA process is the Final Declaration. This combines all your income sources, including those not covered by MTD ITSA like employment income or pension income, and calculates your total tax liability for the year. This replaces the traditional Self Assessment tax return.

The Final Declaration also includes any claims for reliefs and allowances, and it is where your final tax bill is calculated. The deadline for the Final Declaration is also 31 January following the end of the tax year. This is also the payment deadline for any tax due.

**Benefits of MTD ITSA:** While it requires an adjustment, MTD ITSA is designed to offer benefits such as reduced errors, a clearer view of your tax position throughout the year, and faster processing of tax returns. For businesses, it can lead to better financial management and planning. AccountsOS automates much of this process, turning a compliance burden into a business advantage.

## Key Dates and Deadlines for MTD ITSA

Understanding and adhering to the MTD ITSA deadlines is critical for compliance and to avoid penalties. The new system introduces several new reporting obligations throughout the tax year, rather than just a single annual deadline. For those mandated from 6 April 2026, the first set of deadlines will arrive swiftly.

### Quarterly Update Deadlines

There are four quarterly updates required for each tax year. Each update covers a three-month period, and the submission deadline is one month and seven days after the end of the quarter.

| Reporting Period | Submission Deadline |
| --- | --- |
| 6 April to 5 July | 5 August |
| 6 July to 5 October | 5 November |
| 6 October to 5 January | 5 February |
| 6 January to 5 April | 5 May |

For the tax year 2026/27, the first quarter runs from 6 April 2026 to 5 July 2026. This means your first quarterly update will be due by 7 August 2026. This is a critical date for all newly mandated businesses, as it sets the precedent for ongoing compliance. Missing this deadline, even with the initial grace period for penalties, is not advisable.

### End of Period Statement (EOPS) Deadline

The EOPS must be submitted after the end of the tax year, by 31 January following the end of that tax year.

- For the tax year 2026/27 (ending 5 April 2027), the EOPS is due by 31 January 2028.
- For the tax year 2027/28 (ending 5 April 2028), the EOPS is due by 31 January 2029.

This deadline aligns with the traditional Self Assessment filing deadline, providing a familiar anchor point within the new MTD framework.

### Final Declaration and Payment Deadline

The Final Declaration, which brings together all your income and calculates your final tax bill, is due on the same date as the EOPS: 31 January following the end of the tax year. This is also the deadline for paying any Income Tax and National Insurance contributions owed for that tax year.

- For the tax year 2026/27, the Final Declaration and payment are due by 31 January 2028.

It is important to remember that while quarterly updates provide HMRC with information, the actual tax payment is only due once a year, following the Final Declaration. However, having up-to-date figures through quarterly submissions can help you plan for your tax payment more effectively.

### Worked Example of MTD ITSA Deadlines (2026/27 Tax Year)

Consider a sole trader, Mark, who is mandated for MTD ITSA from 6 April 2026.

- **6 April 2026:** Start of the 2026/27 tax year and Mark's MTD ITSA obligation begins.
- **5 July 2026:** End of Quarter 1 (April to July).
- **7 August 2026:** Deadline for Mark's first quarterly update.
- **5 October 2026:** End of Quarter 2 (July to October).
- **5 November 2026:** Deadline for Mark's second quarterly update.
- **5 January 2027:** End of Quarter 3 (October to January).
- **5 February 2027:** Deadline for Mark's third quarterly update.
- **5 April 2027:** End of Quarter 4 (January to April) and end of the 2026/27 tax year.
- **5 May 2027:** Deadline for Mark's fourth quarterly update.
- **31 January 2028:** Deadline for Mark's End of Period Statement (EOPS) for 2026/27.
- **31 January 2028:** Deadline for Mark's Final Declaration for 2026/27 and payment of any tax due.

This example illustrates the continuous nature of MTD ITSA reporting, with multiple touchpoints throughout the year leading up to the final annual declaration and payment.

**Importance of Timely Submissions:** While HMRC has announced a grace period for late submission penalties for quarterly updates in the first year of mandation (2026/27), consistent late filing can lead to future penalties under the new points-based system. Establishing good habits from the outset is vital. AccountsOS provides automated reminders to help you stay on track with all MTD ITSA deadlines.

## Mastering Digital Record Keeping for MTD ITSA

Digital record keeping is the foundational requirement for MTD ITSA. It is no longer sufficient to keep paper records or use basic spreadsheets that are not linked to MTD-compatible software. All relevant income and expense transactions must be recorded digitally and stored in a way that allows for easy extraction and submission to HMRC.

### What Records Must Be Kept Digitally?

HMRC specifies that you must keep digital records of:

- All your business income, including dates, amounts, and categories.
- All your business expenses, including dates, amounts, and categories.
- Any adjustments made for personal use of business assets.
- Details of capital expenditure, which might be eligible for capital allowances.
- Any other transactions that would typically appear in your business accounts.

Crucially, the records must be kept in a digital format within MTD-compatible software from the start of your first MTD accounting period. You cannot simply input summary totals at the end of the quarter. Each individual transaction should be recorded.

### The Role of MTD-Compatible Software

MTD-compatible software is essential. This software must be capable of:

- Recording and storing your digital records.
- Categorizing your income and expenses according to HMRC's requirements.
- Calculating your quarterly summaries based on these digital records.
- Submitting these quarterly summaries directly to HMRC via their API Application Programming Interface.
- Preparing your End of Period Statement and Final Declaration.

AccountsOS is an example of MTD-compatible software. VAT MTD is live today. MTD for Income Tax (ITSA), including quarterly submissions, EOPS, and Final Declaration, is in development ahead of April 2026.

### Benefits of Digital Record Keeping with AccountsOS

Beyond compliance, adopting digital record keeping with a platform like AccountsOS offers numerous business advantages:

- **Reduced Errors:** Automation minimizes manual data entry mistakes.
- **Real-Time Insights:** Access up-to-date financial data to make informed business decisions.
- **Time Savings:** Automate categorization and reconciliation, freeing up valuable time.
- **Improved Cash Flow Management:** Monitor income and expenses closely to better manage your finances.
- **Easier Collaboration:** Share access with your accountant effortlessly.
- **Simplified Audit Trails:** All transactions are recorded and easily traceable.

AccountsOS integrates directly with your bank accounts, automatically importing transactions. Its AI-powered categorization learns from your habits, making the process of assigning income and expenses to the correct categories quick and efficient. You can also upload receipts directly, linking them to transactions for a complete digital audit trail.

### Practical Steps for Digital Record Keeping

To prepare for MTD ITSA, you should:

- **Choose MTD-Compatible Software:** Select a software solution that is recognized by HMRC for MTD ITSA.
- **Set Up Your Accounts:** Connect your business bank accounts and credit cards to the software.
- **Understand Categories:** Familiarize yourself with how your software categorizes income and expenses to ensure accuracy.
- **Digitize Receipts:** Develop a habit of scanning or photographing receipts and linking them to transactions immediately.
- **Regular Review:** Periodically review your digital records to ensure they are accurate and complete, ideally weekly or monthly.

By implementing these practices, you will establish a robust digital record keeping system that not only ensures MTD ITSA compliance but also provides valuable financial insights for your business. The transition may seem daunting initially, but the long-term benefits of efficiency and accuracy are substantial.

## Choosing MTD-Compatible Software for Your Business

Selecting the right MTD-compatible software is perhaps the most critical step in preparing for MTD ITSA. HMRC mandates that all digital records and submissions must be made through software that integrates with their systems. This means generic spreadsheets or non-compliant accounting tools will no longer suffice.

### Key Features of MTD-Compatible Software

When evaluating software options, ensure they possess the following capabilities:

- **HMRC Recognition:** The software must be listed as MTD ITSA compatible by HMRC.
- **Digital Record Keeping:** Ability to record income and expenses digitally, ideally with bank feed integration.
- **Categorization:** Tools for categorizing transactions according to HMRC's tax rules.
- **Quarterly Update Submission:** Direct submission of quarterly summaries to HMRC.
- **EOPS and Final Declaration:** Functionality to prepare and submit the End of Period Statement and Final Declaration.
- **Error Correction:** A clear process for amending errors in previously submitted data.
- **Data Security:** Robust security measures to protect your financial information.
- **User-Friendliness:** An intuitive interface that is easy for you to navigate, even without extensive accounting knowledge.
- **Support:** Access to customer support for any queries or issues.

AccountsOS is designed to meet these requirements. VAT MTD is live today; ITSA support is in development ahead of April 2026.

### How AccountsOS Simplifies MTD ITSA Compliance

AccountsOS streamlines MTD. VAT MTD is live. [On HMRC's list of MTD VAT software](https://www.tax.service.gov.uk/making-tax-digital-software). ITSA quarterly submission support is in development ahead of April 2026:

- **Automated Bank Feeds:** Connect securely to your bank accounts for automatic import of transactions, eliminating manual data entry.
- **AI-Powered Categorization:** Our intelligent system learns your spending habits and suggests categories for your transactions, ensuring accuracy and saving time.
- **Real-Time Tax Position:** See an estimated view of your tax liability throughout the year, helping you budget and avoid surprises.
- **ITSA Quarterly Submissions (In Development):** ITSA quarterly update submission to HMRC is being built ahead of April 2026. VAT submissions are live today.
- **EOPS and Final Declaration (In Development):** End of Period Statement and Final Declaration support for Income Tax is in development ahead of April 2026.
- **Receipt Capture:** Upload photos of receipts or invoices directly, linking them to transactions for complete digital records.
- **Intuitive Dashboard:** A clear, easy-to-understand dashboard provides a snapshot of your financial health and MTD progress.
- **Dedicated MTD Support:** Access to resources and support to guide you through the MTD transition.

By using AccountsOS, you can be confident about your VAT MTD compliance today, and be ahead of the curve for ITSA when it launches.

### Migrating Existing Records to MTD Software

If you have been using spreadsheets or other non-MTD compliant methods, you will need to migrate your records to your chosen software. For the tax year starting 6 April 2026, you will need to ensure that all income and expense data from that date onwards is recorded digitally.

- **Data Import:** Many MTD software solutions, including AccountsOS, offer tools to import historical data, although for the first year of MTD ITSA, the focus should be on ensuring all new transactions are recorded digitally.
- **Opening Balances:** Ensure your opening balances in the new software accurately reflect your financial position at 6 April 2026.
- **Training:** Take advantage of any tutorials or onboarding processes offered by your chosen software to get familiar with its features.

The transition period is crucial. Start early to familiarize yourself with the software and ensure all records are correctly set up before the first quarterly update deadline of 7 August 2026. AccountsOS offers a straightforward setup process, making the migration as smooth as possible.

## Submitting Quarterly Updates to HMRC

The submission of quarterly updates is a new and central requirement of MTD ITSA. These updates provide HMRC with a summary of your business income and expenses for each three-month period. It is important to understand what information is required and how to ensure accurate submissions.

### What Information is Included in a Quarterly Update?

Each quarterly update will require you to submit summary totals for your income and expenses. These are not detailed line-by-line submissions but rather aggregated figures. For a self-employed business, this typically includes:

- Total income for the quarter.
- Total expenses for the quarter, broken down by category (e.g., travel, materials, professional fees).

For landlords, the update will include total rental income and total allowable property expenses for the quarter. The software will automatically compile these totals from your digital records.

### The Submission Process with MTD Software

The process of submitting a quarterly update using MTD-compatible software like AccountsOS is designed to be straightforward:

1. **Record Transactions:** Throughout the quarter, you continually record your income and expenses digitally.
2. **Review and Reconcile:** At the end of the quarter, you review your records, ensure all transactions are accounted for, and reconcile them with your bank statements.
3. **Generate Summary:** Your MTD software automatically generates a summary of your income and expenses for the quarter.
4. **Final Check:** You perform a final check of these summary figures.
5. **Submit to HMRC:** With a click of a button, the software transmits the summary directly to HMRC.

AccountsOS provides a clear interface that shows you exactly what is being submitted, allowing you to confirm accuracy before sending the data to HMRC.

### Common Pitfalls and How to Avoid Them

While the process is simplified by software, it is important to be aware of potential issues:

- **Incomplete Records:** Forgetting to record transactions can lead to inaccurate submissions. Regular record keeping is key.
- **Incorrect Categorization:** Misclassifying income or expenses can distort your tax position. AccountsOS's AI categorization helps prevent this.
- **Missing Deadlines:** While there is a grace period for penalties in 2026/27, consistent late submissions will incur points under the new penalty system. Use reminders.
- **Errors in Opening Balances:** If your starting figures for MTD are incorrect, all subsequent submissions will be affected. Ensure a clean start on 6 April 2026.
- **Not Reconciling:** Failure to reconcile bank statements with your digital records can lead to discrepancies and missing transactions.

By being diligent with your daily or weekly record keeping and utilizing the features of your MTD software, you can avoid these common pitfalls and ensure smooth, accurate quarterly submissions. AccountsOS provides tools and alerts to help you maintain accurate records and meet deadlines effortlessly.

## Understanding and Submitting Your End of Period Statement (EOPS)

The End of Period Statement EOPS is a critical component of MTD ITSA, serving as the bridge between your quarterly updates and your final annual tax calculation. It is where you finalize your business income and expenses for the entire tax year, making any necessary accounting adjustments that were not included in the quarterly submissions.

### Purpose of the EOPS

The primary purpose of the EOPS is to allow for annual accounting adjustments. While quarterly updates provide a snapshot of your cash flow, they may not incorporate all the nuances of accrual accounting or specific tax reliefs. The EOPS provides an opportunity to:

- **Claim Capital Allowances:** Deduct the cost of qualifying business assets, such as vehicles or equipment, over time.
- **Adjust for Accruals and Prepayments:** Account for income earned but not yet received, or expenses paid but not yet incurred.
- **Value Stock:** Include the value of opening and closing stock for businesses that hold inventory.
- **Account for Private Use Adjustments:** Adjust for any personal use of business assets or expenses.
- **Apply Specific Tax Reliefs:** Incorporate any other relevant tax reliefs or allowances applicable to your business.

The EOPS ensures that your final business profit or loss for the tax year is accurately calculated before it is integrated into your overall tax assessment.

### Deadline for EOPS Submission

The EOPS must be submitted by 31 January following the end of the tax year. For example, for the tax year 2026/27, which ends on 5 April 2027, the EOPS must be submitted by 31 January 2028. This deadline is consistent with the traditional Self Assessment filing deadline.

### How AccountsOS Facilitates EOPS

AccountsOS is designed to simplify the preparation and submission of your EOPS:

- **Consolidated Data:** All your quarterly data is automatically consolidated, providing a clear starting point for your annual adjustments.
- **Guidance on Adjustments:** The software will guide you through common annual adjustments, helping you identify and apply relevant reliefs and allowances.
- **Automated Calculations:** AccountsOS performs the necessary calculations to determine your final taxable profit or loss for the business.
- **Direct Submission:** Once finalized, the EOPS can be submitted directly to HMRC through the AccountsOS platform.

Working with an accountant can be particularly beneficial for the EOPS, as they can ensure all eligible reliefs and allowances are claimed, optimizing your tax position. AccountsOS allows for easy collaboration with your accountant, providing them with direct access to your digital records.

## The Final Declaration: Your Annual Tax Summary

The Final Declaration is the ultimate step in the MTD ITSA reporting cycle, replacing the traditional Self Assessment tax return. It consolidates all your income sources, calculates your total tax liability, and determines any National Insurance contributions due for the tax year. This is the document where your final tax bill is determined.

### Components of the Final Declaration

The Final Declaration brings together information from various sources:

- **Business Profits:** The finalized profit or loss figures from your End of Period Statement EOPS for each of your businesses.
- **Other Income:** Income not covered by MTD ITSA, such as employment income PAYE, pension income, bank interest, dividends, and other investment income.
- **Personal Allowances and Reliefs:** Your personal allowance, marriage allowance, pension contributions, gift aid, and other reliefs that reduce your taxable income.
- **Capital Gains:** Any capital gains made during the tax year.
- **Tax Calculation:** The final calculation of your Income Tax and National Insurance contributions.
- **Payments on Account:** Details of any Payments on Account you have already made towards your tax liability for the year.

This comprehensive document provides a complete picture of your financial year for tax purposes.

### Deadline for Final Declaration and Payment

The Final Declaration must be submitted, and any tax owed must be paid, by 31 January following the end of the tax year.

- For the tax year 2026/27 (ending 5 April 2027), the Final Declaration and payment are due by 31 January 2028.

This single annual deadline for payment remains unchanged from the current Self Assessment system, providing continuity in this aspect. However, the regular quarterly updates should provide a much clearer indication of your tax liability throughout the year, allowing for better financial planning.

### How AccountsOS Supports Your Final Declaration

AccountsOS is designed to make the Final Declaration process as smooth as possible:

- **Integrated Data:** All your MTD business data from quarterly updates and EOPS is automatically pulled into the Final Declaration.
- **Input for Other Income:** Provides clear sections to input other sources of income, ensuring all taxable income is included.
- **Reliefs and Allowances:** Helps you identify and apply relevant personal allowances and tax reliefs.
- **Automated Tax Calculation:** Calculates your total Income Tax and National Insurance contributions based on all provided data.
- **Direct Submission:** The completed Final Declaration can be submitted directly to HMRC via AccountsOS.
- **Payment Reminders:** Provides timely reminders for your tax payment deadline.

By consolidating all your financial information in one place, AccountsOS empowers you to complete your Final Declaration accurately and efficiently, minimizing stress and ensuring compliance with your annual tax obligations.

## Penalties for MTD ITSA Non-Compliance

HMRC is introducing a new points-based penalty system for MTD ITSA to encourage compliance with the new quarterly reporting requirements. It is crucial for businesses to understand these penalties to avoid unnecessary charges.

### New Points-Based Penalty System for Quarterly Updates

Under the new system, if you miss a quarterly update deadline, you will receive a point. Once you accumulate a certain number of points, a monetary penalty will be issued.

- **One point** for each late quarterly submission.
- **Penalty threshold:** Once you reach 4 points within a 24-month rolling period, a £200 penalty is issued.
- **Subsequent penalties:** An additional £200 penalty is issued for every 4 points thereafter.
- **Points expiry:** Points expire after 24 months from the end of the month in which the failure occurred, provided you have a period of 12 months of full compliance.

This system is designed to penalize persistent non-compliance rather than isolated mistakes.

### Grace Period for Quarterly Update Penalties in 2026/27

HMRC has announced a significant concession for the initial year of MTD ITSA mandation. For the tax year 2026/27, no points will be issued for late submission of quarterly updates. This provides a grace period for businesses to adapt to the new system without immediate penalty for minor delays.

However, this grace period does not extend to penalties for other failures, such as failing to keep digital records or failing to submit the EOPS or Final Declaration on time. It is also not an excuse to ignore the deadlines, as establishing good habits from the start will prevent problems in subsequent years.

### Penalties for Other MTD Failures

Other aspects of MTD ITSA compliance are subject to different penalty regimes:

- **Late End of Period Statement EOPS:** Subject to a fixed monetary penalty, similar to the current Self Assessment penalties for late filing.
- **Late Final Declaration:** Subject to a fixed monetary penalty, consistent with current Self Assessment penalties.
- **Failure to Keep Digital Records:** If you fail to keep digital records or use MTD-compatible software, you may face penalties ranging from £100 to £3,000, depending on the severity and duration of the failure.

In addition to penalties, HMRC will also charge interest on any unpaid tax from the due date until the date of payment. This interest can accrue quickly, especially on large tax bills.

### Summary of MTD ITSA Penalties

| Scenario | Penalty |
| --- | --- |
| Late quarterly update (first time in year) | No points in 2026/27 |
| Late quarterly update (subsequent times, after grace) | 1 point per late submission |
| Late End of Period Statement | Fixed monetary penalty |
| Late Final Declaration | Fixed monetary penalty |
| Failure to keep digital records | Fixed monetary penalty |
| Failure to use MTD-compatible software | Fixed monetary penalty |

**Interest on Late Payments:** HMRC also charges interest on late payments at the Bank of England base rate + 2.5%. This applies to any tax not paid by the 31 January deadline following the end of the tax year.

The best way to avoid penalties is to ensure you are fully prepared for MTD ITSA, use compliant software like AccountsOS, and adhere to all submission deadlines. AccountsOS provides reminders and a clear overview of your compliance status to help you stay on track.

## Exemptions and Opt-Outs from MTD ITSA

While MTD ITSA is becoming mandatory for many, certain individuals and businesses may be exempt or able to apply for an exemption. It is important to understand these provisions if you believe you might not need to comply.

### Who is Exempt from MTD ITSA?

The primary exemption relates to the income threshold. If your total qualifying income from self-employment and property falls below the current mandation threshold, you are not required to join MTD ITSA.

- **Below £50,000:** Not mandated for the tax year 2026/27.
- **Below £30,000:** Not mandated for the tax year 2027/28.
- **Below £20,000:** Not mandated for the tax year 2028/29.

It is crucial to monitor your income annually, as your MTD status can change if your income crosses a threshold.

### Digital Exclusion Exemption

HMRC recognizes that some individuals may genuinely be unable to comply with the digital requirements of MTD. You may be able to apply for an exemption if it is not reasonably practicable for you to use digital tools for MTD due to:

- **Age:** If you are of an advanced age.
- **Disability:** If you have a disability that prevents you from using digital technology.
- **Remoteness of Location:** If you live in a remote area with no internet access.
- **Religious Belief:** If your religious beliefs prevent you from using computers or the internet.
- **Other Exceptional Circumstances:** Any other reason that makes it genuinely impossible or unreasonable to comply digitally.

To apply for a digital exclusion exemption, you will need to contact HMRC and provide evidence supporting your claim. HMRC will review each case individually.

### Insolvency and Other Special Cases

There are also specific circumstances that may affect your MTD ITSA obligation:

- **Insolvency:** If you are subject to insolvency procedures, such as bankruptcy, your MTD ITSA obligations may be handled by the insolvency practitioner.
- **Trusts and Estates:** Trusts and estates are not currently within the scope of MTD ITSA.
- **Partnerships:** General partnerships with individuals as partners will be brought into MTD ITSA at a later date, currently unspecified but after 2028.

If you fall into any of these categories or believe you have other grounds for exemption, it is essential to contact HMRC or consult with a tax professional. Do not assume you are exempt without confirmation, as this could lead to non-compliance and penalties.

**Voluntary Compliance:** Even if you are not mandated, you can choose to voluntarily join MTD ITSA. Doing so can help you get ahead of future changes, benefit from digital record keeping, and gain a clearer view of your tax position. AccountsOS supports both mandated and voluntary MTD ITSA users.

## How AccountsOS Helps You Navigate MTD ITSA

AccountsOS is designed to be your trusted partner in navigating the complexities of Making Tax Digital for Income Tax Self Assessment. Our platform simplifies every step of the process, ensuring compliance while providing valuable financial insights.

### Automated Digital Record Keeping

Connect your bank accounts for automatic transaction imports. Our AI categorizes expenses, making record keeping effortless and HMRC-compliant.

### Seamless Quarterly Updates

Generate and submit your quarterly income and expense summaries directly to HMRC with a few clicks, ensuring timely and accurate submissions.

### Real-Time Tax Estimates

See your estimated tax liability update as you record transactions. Forecast your tax bill throughout the year to avoid year-end surprises.

### EOPS and Final Declaration Ready

Our platform helps you prepare your End of Period Statement and Final Declaration, incorporating all necessary adjustments and other income sources.

### Deadline Reminders

Receive automatic notifications for all MTD ITSA deadlines, including quarterly updates, EOPS, and the Final Declaration, so you never miss a submission.

### Easy Accountant Collaboration

Grant your accountant direct access to your AccountsOS records, simplifying year-end processes and ensuring professional oversight.

With AccountsOS, you gain more than just MTD compliance; you gain a powerful financial management tool that provides clarity, saves time, and helps you make better business decisions. Prepare for MTD ITSA confidently with AccountsOS.

## How to Prepare Your Small Business for MTD Tax Changes in 14 Days

With the 6 April 2026 deadline fast approaching, individuals mandated for MTD ITSA need to act quickly. While 14 days is a tight timeframe, focusing on these critical steps can help you achieve compliance and readiness.

### Week 1: Foundations and Software Setup

1. **Day 1-2: Confirm Your Mandation Status.** Review your gross income from self-employment and UK property for the tax year 2025/26. If it exceeds £50,000, you are mandated for MTD ITSA from 6 April 2026. If unsure, consult your previous Self Assessment returns or an accountant.
2. **Day 3-4: Research and Select MTD-Compatible Software.** Choose an HMRC-recognized software solution like AccountsOS. Look for features such as bank feeds, automated categorization, and direct submission capabilities. Sign up for a free trial or subscription.
3. **Day 5-7: Set Up Your AccountsOS Profile.** Complete your business profile in AccountsOS. Connect all your business bank accounts and credit cards to enable automatic transaction imports. Familiarize yourself with the dashboard and basic navigation.

### Week 2: Digital Record Keeping and Practice

4. **Day 8-9: Understand Digital Record Keeping.** Learn how to record income and expenses digitally within AccountsOS. Practice categorizing transactions, and understand how to upload or link receipts to entries. Ensure you know how to distinguish between personal and business expenses.
5. **Day 10-11: Implement Daily/Weekly Record Keeping Habits.** Start actively using AccountsOS to record all new transactions from 6 April 2026. Make it a daily or weekly habit to review bank feeds, categorize transactions, and upload any physical receipts. Consistency is key.
6. **Day 12-13: Review and Reconcile.** Conduct a preliminary review of your first week's digital records. Reconcile your AccountsOS data with your bank statements to catch any missed transactions or discrepancies. This practice run will be invaluable for your first official quarterly update.
7. **Day 14: Sign Up for MTD ITSA via Gov.uk.** Once you have MTD-compatible software and are ready to keep digital records, formally sign up for MTD ITSA via the gov.uk website. You will need your Government Gateway user ID and password. Ensure you inform HMRC that you will be using software for MTD.

**Beyond 14 Days:** Remember that your first quarterly update is due by 7 August 2026. Continue consistent digital record keeping, and AccountsOS will help you prepare and submit this update well in advance of the deadline. The grace period for penalties in 2026/27 provides some breathing room, but proactive compliance is always the best approach.

By following this accelerated plan, you can significantly reduce the stress associated with MTD ITSA and ensure your small business is well-positioned for the new digital tax era. AccountsOS is here to support you every step of the way.

## Frequently asked questions

### What if my income falls below the MTD threshold after I've started?

If your qualifying income consistently falls below the threshold, you may be able to deregister from MTD ITSA. You will need to contact HMRC to discuss your specific circumstances and confirm your eligibility for deregistration.

### Can I use a spreadsheet for MTD ITSA?

You can use a spreadsheet, but it must be MTD-compliant, meaning it needs 'bridging software' to connect to HMRC's systems. It is generally simpler and more efficient to use fully integrated MTD-compatible accounting software like AccountsOS.

### Do I still need an accountant with MTD ITSA?

Yes, an accountant can still provide invaluable advice, especially for complex tax situations, annual adjustments, and ensuring you claim all eligible reliefs. MTD software simplifies record keeping, but professional expertise remains highly beneficial.

### What if I have multiple businesses or properties?

If you have multiple self-employments or properties, you will need to keep digital records for each. Your MTD software will allow you to manage these separately, and the income from all qualifying sources will be combined for the quarterly updates and final declaration.

### What is the penalty for not signing up for MTD ITSA?

Failure to comply with MTD ITSA, including not signing up when mandated, can lead to penalties. These typically involve fixed monetary penalties and potentially daily penalties for continued non-compliance, similar to existing Self Assessment penalties.

### Can I submit my quarterly updates early?

Yes, you can submit your quarterly updates at any point after the end of the reporting period and before the deadline. Many businesses find it beneficial to submit early to ensure they meet the deadline and to keep their records up to date.

### What if I make a mistake in a quarterly update?

MTD-compatible software allows you to make corrections to previously submitted quarterly updates. If you discover an error, you should amend your digital records and submit an updated quarterly summary to HMRC as soon as possible.

### Is MTD ITSA just for VAT-registered businesses?

No, MTD ITSA is separate from MTD for VAT. MTD ITSA applies to self-employed individuals and landlords, regardless of whether they are VAT-registered. The income thresholds and requirements are distinct.

## Related guides

- [AccountsOS MTD Features](/features/mtd)
- [Understanding Allowable Expenses](/expenses)
- [All Tax Deadlines](/deadlines)