MTD for ITSA Guide 2026 | UK Self Assessment Changes

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

Making Tax Digital (MTD) is a fundamental part of the UK government's plan to modernise the tax system, making it more efficient and easier for taxpayers to get their tax right. MTD for Income Tax Self Assessment (ITSA) represents a significant shift from the traditional annual tax return to a fully digital system of record keeping and reporting. This new regime aims to reduce errors, provide taxpayers with a more up-to-date view of their tax position, and streamline interactions with HMRC.

For many sole traders and landlords, the introduction of MTD for ITSA will fundamentally change how they manage their financial records and report their income to HMRC. Instead of a single annual submission, businesses will be required to keep digital records and send quarterly updates of their income and expenses, followed by an End of Period Statement and a Final Declaration. This guide provides a comprehensive overview of MTD for ITSA, detailing who is affected, the key requirements, important deadlines, and how you can prepare for these changes to ensure compliance and minimise disruption to your business operations.

Who is Affected by MTD for ITSA?

MTD for ITSA is being introduced in phases, targeting specific groups of taxpayers based on their qualifying income. It is crucial to understand if and when these changes will apply to you.

Income Thresholds and Phased Rollout

The mandatory start dates for MTD for ITSA depend on your total qualifying income from all businesses and properties.

From 6 April 2026: Mandatory for sole traders and landlords with qualifying income above £50,000.
From 6 April 2027: Mandatory for sole traders and landlords with qualifying income between £30,000 and £50,000.
Future Phases: HMRC has indicated that MTD for ITSA will eventually extend to general partnerships. Further details and dates for partnerships and potentially other income types are yet to be confirmed.

What is 'Qualifying Income'? Your qualifying income is the total gross income from all of your businesses and UK or overseas property income. It does not include income from employment, pensions, or investments. If you have multiple businesses or properties, you must combine all gross income from these sources to determine if you meet the MTD for ITSA threshold.

Sole Traders

If you operate as a sole trader and your gross business income exceeds the relevant threshold, you will be required to comply with MTD for ITSA. This means keeping digital records of all your business transactions and submitting quarterly updates to HMRC. This applies regardless of whether your business is full-time or part-time, as long as the income criteria are met.

For example, a freelance graphic designer whose gross annual earnings from their business are £60,000 will fall into the first phase and must comply from April 2026. A small shop owner with gross annual sales of £40,000 will be mandated from April 2027.

Landlords

Landlords with UK or overseas property income that exceeds the threshold will also be mandated into MTD for ITSA. This includes income from residential and commercial properties. Like sole traders, landlords will need to maintain digital records of all rental income and property-related expenses, submitting quarterly updates.

It is important to note that if you are both a sole trader and a landlord, your combined gross income from these sources will be used to determine if you meet the threshold. For example, if you earn £30,000 from your sole trade and £25,000 from your property rental, your combined qualifying income is £55,000, meaning you would be mandated from April 2026.

Partnerships

While MTD for ITSA is currently focused on sole traders and landlords, HMRC intends to extend it to general partnerships. The timeline and specific requirements for partnerships are still under review and will be announced by HMRC in due course. It is advisable for partnerships to begin preparing for digital record keeping in anticipation of future mandates. Limited Liability Partnerships (LLPs) and Limited Partnerships are not currently within the scope of MTD for ITSA.

Exemptions from MTD for ITSA

HMRC has outlined certain exemptions for taxpayers who may not be able to comply with MTD for ITSA. These include:

Digital Exclusion: Individuals who are genuinely unable to use digital tools due to age, disability, or remoteness of location, and for whom it is not reasonable to require them to do so.
Religious Objection: Those whose religious beliefs are incompatible with the use of electronic communications.
Insolvency: Individuals who are subject to insolvency procedures.
Non-resident landlords: Who do not have a UK agent for their property business.

If you believe you may be exempt, you should contact HMRC to discuss your circumstances. It is important not to assume an exemption without confirmation.

The MTD for ITSA Reporting Journey: A Step-by-Step Guide

MTD for ITSA introduces a new reporting cycle that replaces the single annual Self Assessment tax return. This cycle involves four key stages: digital record keeping, quarterly updates, an End of Period Statement (EOPS), and a Final Declaration.

Digital Records: Keep accurate digital records of all income and expenses for your business and property.
Quarterly Updates: Submit summary figures of your income and expenses to HMRC every three months using MTD-compatible software.
End of Period Statement (EOPS): Finalise your business or property income and expenses for the tax year, making any necessary accounting adjustments.
Final Declaration: Combine all your income sources, including those outside MTD, and submit your final tax position for the year.

1. Digital Record Keeping

The foundation of MTD for ITSA is the requirement to keep digital records of your business and property income and expenses. This means that all relevant transactions must be recorded and stored in a digital format using MTD-compatible software.

What Records Need to be Kept Digitally?

You must record the following digitally for each business or property:

Business Name and Description: For each business.
Income: The date and amount of all income, categorised appropriately (e.g., sales, services, rent).
Expenses: The date and amount of all expenses, categorised by type (e.g., office costs, travel, marketing, repairs, utilities).
Adjustments: Any adjustments for capital allowances, private use, or other accounting adjustments.

The key principle is that the data must flow digitally from its origin to the MTD-compatible software without manual re-entry. This is known as the 'digital link' rule. For example, if you use a spreadsheet, the data must be transferred to your MTD software via an automated link, not by copying and pasting.

AccountsOS helps automate this process by connecting directly to your bank accounts, automatically categorising transactions, and storing them digitally, ensuring your records are MTD-compliant from day one.

2. Quarterly Updates

Once your digital records are in order, the next step is to submit quarterly updates to HMRC. These updates are summaries of your income and expenses for each three-month period.

Purpose of Quarterly Updates

The purpose of these updates is to provide HMRC with a more frequent, near real-time view of your business or property income. This allows HMRC to identify potential errors earlier and provides you with a clearer picture of your tax liability throughout the year, helping with cash flow management and tax planning.

Deadlines for Quarterly Updates

Quarterly updates are due one month after the end of each tax quarter. For businesses that follow the standard tax year (6 April to 5 April), the deadlines are:

Quarter 1 (6 April to 5 July): Due by 5 August
Quarter 2 (6 July to 5 October): Due by 5 November
Quarter 3 (6 October to 5 January): Due by 5 February
Quarter 4 (6 January to 5 April): Due by 5 May

If your accounting period does not align with the standard tax quarters, your software will adjust the quarterly reporting periods accordingly.

How to Submit Quarterly Updates

Quarterly updates must be submitted directly from your MTD-compatible software to HMRC. These updates are provisional and do not require complex accounting adjustments at this stage. They are simply a summary of your recorded income and expenses for the period. Your software should automatically compile these figures from your digital records, making the submission process straightforward.

3. End of Period Statement (EOPS)

At the end of your accounting period for each business or property, you will need to submit an End of Period Statement (EOPS). This statement finalises the income and expenses for that specific business or property for the tax year.

Purpose of the EOPS

The EOPS is where you make any necessary accounting adjustments that were not included in the provisional quarterly updates. This includes:

Capital Allowances: Deductions for qualifying capital expenditure.
Accruals and Prepayments: Adjusting income and expenses to the correct accounting period.
Stock Adjustments: Valuing opening and closing stock.
Private Use Adjustments: Apportioning expenses between business and personal use.
Bad Debts: Writing off unrecoverable income.

Deadline for EOPS

The EOPS must be submitted by 31 January following the tax year to which it relates. For example, for the tax year 2026/27 (ending 5 April 2027), the EOPS would be due by 31 January 2028. If you have multiple businesses or properties, you will need to submit a separate EOPS for each.

4. Final Declaration

The Final Declaration replaces the traditional Self Assessment tax return. It combines all your income sources, including those that are not part of MTD for ITSA, and calculates your final tax position for the year.

What is Included in the Final Declaration?

The Final Declaration will consolidate:

The finalised figures from your EOPS for each business or property.
Other income sources, such as employment income, pensions, interest from savings, dividends, and capital gains.
Any tax reliefs or allowances you are claiming.

Your MTD-compatible software or an accountant will help you compile all this information into the Final Declaration, which is then submitted to HMRC.

Deadline for Final Declaration

Similar to the EOPS, the Final Declaration must be submitted by 31 January following the end of the tax year. This is also the deadline for paying any tax owed for that tax year.

Choosing MTD-Compatible Software

A critical component of MTD for ITSA is the use of HMRC-recognised, MTD-compatible software. This software will be your primary tool for keeping digital records and submitting your quarterly updates, EOPS, and Final Declaration.

HMRC-Recognised Software

Not just any accounting software will do. You must use software that HMRC has recognised as MTD-compatible for Income Tax. These software providers have developed their systems to integrate with HMRC's MTD platform, allowing for seamless digital submissions.

You can find a list of recognised software on the GOV.UK website.
Ensure the software specifically supports MTD for ITSA, as some only support MTD for VAT.

Key Features to Look For

When selecting MTD software, consider features that will simplify your compliance and improve your financial management:

Bank Feeds: Automatic connection to your bank accounts to import transactions, reducing manual data entry.
Automated Categorisation: AI-powered categorisation of income and expenses, saving time and improving accuracy.
MTD Submission Capabilities: Direct submission of quarterly updates, EOPS, and Final Declaration to HMRC.
Reporting: Clear financial reports, including profit and loss statements, to help you understand your business performance and tax position.
Expense Management: Tools for easily recording receipts, perhaps via mobile app uploads.
Cloud-Based Access: Allows you to access your financial data from anywhere, on any device.
Integration: Ability to integrate with other business tools you use, such as invoicing software or payment platforms.

AccountsOS's Role in MTD for ITSA

AccountsOS is designed to make MTD for ITSA compliance effortless for sole traders and landlords. Our platform offers:

Automated digital record keeping with bank feeds and smart categorisation.
Streamlined quarterly update submissions directly to HMRC.
Tools to assist with EOPS and Final Declaration preparation.
Real-time insights into your tax position, helping you plan and budget.

Preparing Your Business for MTD for ITSA

Proactive preparation is key to a smooth transition to MTD for ITSA. Starting early will help you understand the requirements, choose the right tools, and adapt your processes without last-minute stress.

1. Assess Your Current Income

First, determine if and when MTD for ITSA will apply to you. Calculate your total gross income from all your businesses and properties for the current and previous tax years. If your income is consistently above £50,000, you will be mandated from April 2026. If it is between £30,000 and £50,000, you will be mandated from April 2027. Keep an eye on your income levels, as qualifying income can fluctuate.

2. Review Your Current Record-Keeping

Evaluate your existing record-keeping methods. If you currently use paper ledgers or non-digital spreadsheets, you will need to transition to a digital system. Consider how you currently track income and expenses and identify any gaps that might prevent you from maintaining fully digital records.

3. Choose MTD-Compatible Software

Research and select an HMRC-recognised MTD for ITSA software solution well in advance of your mandatory start date. Look for software that is user-friendly, offers the features you need, and fits your budget. AccountsOS offers a comprehensive solution designed to simplify MTD compliance. Sign up for a free trial to get familiar with the interface and features.

4. Get Familiar with Your Software

Once you have chosen your software, spend time learning how to use it. Practice recording transactions, categorising expenses, and generating reports. The more comfortable you are with the software before the deadline, the smoother your transition will be. AccountsOS provides intuitive tools and support to help you get started quickly.

5. Seek Professional Advice

Consider consulting with an accountant or tax advisor who is knowledgeable about MTD for ITSA. They can provide tailored advice, help you set up your software correctly, ensure accurate record keeping, and assist with submitting your quarterly updates, EOPS, and Final Declaration. An accountant can also help you understand any complex accounting adjustments required for your specific business.

6. Plan for Cash Flow Management

While MTD for ITSA does not change tax payment deadlines, the quarterly updates provide a more immediate view of your tax liability. Use this information to better plan for your tax payments. Setting aside funds regularly based on your real-time tax estimate can prevent payment shocks at the 31 January and 31 July deadlines. AccountsOS's real-time tax estimates can be a valuable tool for this.

7. Understand HMRC's Penalty System

HMRC is introducing a new points-based penalty system for MTD for ITSA. Familiarise yourself with this system to avoid penalties for late or inaccurate submissions. The best defence against penalties is timely and accurate compliance.

Key Dates and Deadlines for MTD for ITSA (2026/27 Tax Year Example)

Understanding the reporting deadlines is crucial for MTD for ITSA compliance. Below are the key dates for a sole trader or landlord with a standard tax year accounting period (6 April to 5 April) for the 2026/27 tax year.

Event	Date	Description
Start of MTD for ITSA	April 2026	Mandatory for sole traders and landlords with qualifying income over £50,000.
First Quarterly Update (Q1 2026/27)	5 August 2026	For the period 6 April to 5 July 2026.
Second Quarterly Update (Q2 2026/27)	5 November 2026	For the period 6 July to 5 October 2026.

Full Reporting Cycle for 2026/27 Tax Year

For a sole trader or landlord mandated for MTD for ITSA from April 2026, the reporting schedule for the tax year 6 April 2026 to 5 April 2027 would be:

2026/27 Tax Year (6 April 2026 - 5 April 2027)

Quarterly Update 1 (6 April 2026 - 5 July 2026): Due by 5 August 2026
Quarterly Update 2 (6 July 2026 - 5 October 2026): Due by 5 November 2026
Quarterly Update 3 (6 October 2026 - 5 January 2027): Due by 5 February 2027
Quarterly Update 4 (6 January 2027 - 5 April 2027): Due by 5 May 2027
End of Period Statement (EOPS) for 2026/27: Due by 31 January 2028
Final Declaration for 2026/27: Due by 31 January 2028
Tax Payment for 2026/27: Payments on Account due 31 January 2027 and 31 July 2027. Balancing Payment due 31 January 2028.

Non-Standard Accounting Periods: If your business or property accounting period does not align with the tax year (e.g., you use a calendar year, 1 January to 31 December), your quarterly reporting periods will be adjusted by your MTD software to align with your chosen accounting period end date. However, the EOPS and Final Declaration deadlines remain 31 January following the tax year.

Penalties for Non-Compliance with MTD for ITSA

HMRC is introducing a new points-based penalty system for late submissions and late payments under MTD for ITSA. This system aims to be fairer and more proportionate than previous penalty regimes.

Late Submission Penalties

For each missed submission deadline (quarterly updates, EOPS, Final Declaration), you will receive a point. Once you accumulate a certain number of points, a financial penalty will be issued.

Quarterly Updates: One point for each late submission.
End of Period Statement (EOPS): One point for each late submission.
Final Declaration: One point for each late submission.

Penalty Thresholds and Financial Penalties

The number of points that trigger a financial penalty depends on how frequently you are required to submit returns:

Annual filing: 2 points to trigger a penalty.
Quarterly filing (MTD for ITSA): 4 points to trigger a penalty.
Monthly filing: 5 points to trigger a penalty.

Once a penalty threshold is reached, a £200 penalty is issued. For every subsequent late submission while at the penalty threshold, another £200 penalty is issued. Points expire after a certain period of good compliance.

Late Payment Penalties and Interest

In addition to submission penalties, HMRC will charge penalties for late payment of tax and interest on any overdue amounts.

Late Payment Penalty: A percentage of the unpaid tax, increasing over time. This typically starts after 15 days, then 30 days, and again after 6 months and 12 months.
Interest: Interest is charged on all unpaid tax from the day after the payment due date until the tax is paid. The interest rate is the Bank of England base rate plus 2.5%.

Accuracy Penalties: Penalties can also be issued for errors in your submissions, particularly if the errors are careless, deliberate, or concealed. These penalties can be a percentage of the additional tax owed.

The best way to avoid penalties is to ensure your records are accurate and your submissions are made on time. AccountsOS provides reminders and simplifies the submission process to help you stay compliant.

Benefits and Challenges of MTD for ITSA

Like any major reform, MTD for ITSA brings both potential advantages and new challenges for sole traders and landlords. Understanding these can help you maximise the benefits and mitigate the difficulties.

Potential Benefits

Reduced Errors: Digital record keeping and direct submission from software can significantly reduce common human errors in calculations and data entry, leading to more accurate tax returns.
Real-Time Financial Overview: Quarterly updates provide a more up-to-date picture of your income and expenses throughout the year, allowing for better financial management and business planning.
Easier Tax Planning: With a clearer view of your tax position in real time, you can better forecast your tax liability and plan for payments, avoiding year-end surprises.
Streamlined Processes: Automated software can save time on manual record keeping, invoicing, and expense tracking, freeing up more time for your core business activities.
Improved Compliance: The structured nature of digital reporting and software prompts can help ensure you meet all your tax obligations.

Challenges and Considerations

Initial Setup Costs and Time: There will be an initial investment in time and potentially money to choose and implement MTD-compatible software, and to learn how to use it effectively.
Learning Curve: Adapting to new digital processes and software may present a learning curve for those accustomed to traditional paper-based or manual systems.
Increased Reporting Frequency: Submitting quarterly updates is a significant change from annual reporting and requires more consistent engagement with financial records throughout the year.
Digital Divide: Some individuals may face challenges due to limited digital literacy, internet access, or technical resources, though HMRC offers exemptions in certain cases.
Accuracy of Quarterly Data: While provisional, consistent errors in quarterly updates could lead to discrepancies at year-end, requiring more complex adjustments in the EOPS.

By acknowledging these challenges and actively preparing, businesses can minimise potential disruption and leverage the benefits that MTD for ITSA can offer in terms of efficiency and financial insight.

Worked Example: A Sole Trader's MTD Journey (2026/27)

Let us follow Sarah, a freelance web designer, through her first MTD for ITSA tax year, 2026/27. Sarah's gross income from her web design business is typically around £70,000 per year, placing her above the £50,000 threshold and mandating her for MTD for ITSA from April 2026. She uses AccountsOS to manage her finances.

The Scenario: Sarah's Web Design Business

Business Type: Sole Trader, Web Design.
Annual Gross Income: Approximately £70,000.
Accounting Period: Standard tax year (6 April - 5 April).
Software: AccountsOS, linked to her business bank account.

Step 1: Digital Record Keeping

From 6 April 2026, all of Sarah's business income and expenses flow directly into AccountsOS via her bank feed. AccountsOS automatically categorises most transactions, and Sarah quickly reviews and confirms them. She also uploads receipts for cash expenses using the AccountsOS mobile app.

Step 2: Quarterly Updates

Quarter 1: 6 April 2026 - 5 July 2026

Income: £18,000
Expenses: £4,500 (e.g., software subscriptions, marketing, utilities)
Net Profit: £13,500

Action: By 5 August 2026, Sarah logs into AccountsOS, reviews the summarised figures, and submits her first quarterly update to HMRC directly from the software.

Quarter 2: 6 July 2026 - 5 October 2026

Income: £17,500
Expenses: £4,800 (e.g., new laptop purchase, professional development course)
Net Profit: £12,700

Action: By 5 November 2026, Sarah submits her second quarterly update. She notes the new laptop is a capital expense, but for quarterly updates, she just reports the payment. Adjustments for capital allowances will be made in the EOPS.

Quarter 3: 6 October 2026 - 5 January 2027

Income: £19,000
Expenses: £4,200 (e.g., web hosting, freelance assistant fees)
Net Profit: £14,800

Action: By 5 February 2027, Sarah submits her third quarterly update. AccountsOS shows her year-to-date estimated tax liability, helping her save for her January 2027 Payment on Account.

Quarter 4: 6 January 2027 - 5 April 2027

Income: £16,500
Expenses: £4,000 (e.g., professional indemnity insurance, travel)
Net Profit: £12,500

Action: By 5 May 2027, Sarah submits her final quarterly update for the 2026/27 tax year.

Step 3: End of Period Statement (EOPS)

After the end of the tax year (5 April 2027), Sarah prepares her EOPS for her web design business.

Total Income (Provisional): £18,000 + £17,500 + £19,000 + £16,500 = £71,000
Total Expenses (Provisional): £4,500 + £4,800 + £4,200 + £4,000 = £17,500
Provisional Net Profit: £53,500

Adjustments in AccountsOS for EOPS:

Sarah claims Annual Investment Allowance for her new laptop (£2,000).
She adjusts for a small amount of private use of her mobile phone.
She accounts for an accrual for a web hosting bill due early April 2027 but paid in May.

Result: AccountsOS calculates her final adjusted net profit for the EOPS as £51,000.

Action: By 31 January 2028, Sarah submits her EOPS to HMRC via AccountsOS.

Step 4: Final Declaration

Sarah also has some savings interest and dividends from a small investment. She inputs these into AccountsOS, which then compiles all her income sources.

Business Profit (from EOPS): £51,000
Savings Interest: £500
Dividends: £1,200
Personal Allowance: £12,570 (for 2026/27)

Result: AccountsOS calculates her total taxable income and her final Income Tax and National Insurance liability for 2026/27.

Action: By 31 January 2028, Sarah submits her Final Declaration to HMRC via AccountsOS and makes any balancing payment due. Her Payments on Account for 2027/28 are also calculated and due on 31 January 2028 and 31 July 2028.

This example illustrates how MTD for ITSA requires continuous digital record keeping and regular submissions, culminating in the year-end EOPS and Final Declaration. Using MTD-compatible software like AccountsOS simplifies each step, providing clarity and reducing the administrative burden.

How AccountsOS Simplifies MTD for ITSA Compliance

AccountsOS is your trusted partner for navigating the complexities of Making Tax Digital for Income Tax Self Assessment. We provide the tools you need to stay compliant and gain control over your finances.

Automated Digital Records

Connect your bank accounts and let AccountsOS categorise transactions, ensuring MTD-compliant digital records.

Easy Quarterly Updates

Generate and submit your quarterly income and expense summaries directly to HMRC with a few clicks.

EOPS & Final Declaration Ready

AccountsOS compiles all necessary data, simplifying the End of Period Statement and Final Declaration preparation.

Real-Time Tax Estimates

See your estimated tax liability update throughout the year, helping you budget and avoid surprises.

Frequently asked questions

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

Once mandated for MTD for ITSA, you generally remain in the scheme even if your income subsequently drops below the threshold. HMRC's guidance indicates you must continue to follow MTD rules.

Can I still use a spreadsheet for MTD?

Yes, but only if your spreadsheet is digitally linked to HMRC-recognised MTD software. The software must be able to extract and submit the required data digitally. Manual data entry into the software is not permitted if the data originated in a spreadsheet.

What counts as 'digital records'?

Digital records mean that certain business records must be kept and maintained digitally within MTD-compatible software. This includes income, expenses, and any adjustments. Paper records are no longer sufficient on their own.

You must sign up through HMRC's online service once you have MTD-compatible software in place. Do not sign up until your software is ready, as you will need to start submitting quarterly updates immediately.

What if I have multiple businesses or properties?

If you have multiple businesses or properties, you must keep digital records and submit separate quarterly updates for each. These will then be combined in a single End of Period Statement and Final Declaration.

Do I need an accountant for MTD?

While not mandatory, many businesses find an accountant invaluable for MTD. They can help set up software, ensure correct record keeping, submit updates, and provide advice on accounting adjustments and tax planning.

What if I make a loss in a quarter?

You still need to submit a quarterly update even if you make a loss. The software will report the loss, which can then be offset against future profits or carried back as part of your End of Period Statement and Final Declaration.

How does MTD for ITSA affect my tax payments?

MTD for ITSA does not change your tax payment deadlines. Tax is still paid on 31 January and 31 July (Payments on Account) and the following 31 January (Balancing Payment). However, the quarterly updates provide a real-time view, helping you budget for these payments.