# What Accounting Software Do I Need for Making Tax Digital 2026 as a Landlord or Sole Trader? Last updated: 23 September 2026 ## Key dates at a glance - **Start Date: 6 April 2026.** For sole traders and landlords with gross income over £50,000. - **Income Threshold: £50,000+.** Gross income from business or property, replacing the previous £10,000 threshold. - **Reporting Frequency: Quarterly.** Four quarterly updates per tax year, plus an End of Period Statement and Final Declaration. ## Introduction to Making Tax Digital for Income Tax Self Assessment (MTD ITSA) Making Tax Digital for Income Tax Self Assessment, or MTD ITSA, represents a significant shift in how sole traders and landlords manage and report their income to HMRC. From 6 April 2026, this digital reporting system becomes mandatory for those with a gross income from business or property exceeding £50,000. This change moves away from the traditional annual Self Assessment tax return towards a more frequent, digital reporting cycle. At its core, MTD ITSA requires affected individuals to use HMRC-compatible software to keep digital records of their income and expenses, and to submit quarterly updates to HMRC. This ensures a near-real-time view of tax liabilities, aiming to reduce errors and make tax simpler for taxpayers. For landlords and sole traders, selecting the right accounting software is not just about convenience, it is a fundamental compliance requirement. This guide will help you understand the requirements and identify the essential features your software needs to navigate MTD ITSA successfully. **Key takeaway:** MTD ITSA mandates digital record keeping and quarterly reporting via HMRC-compatible software for landlords and sole traders with over £50,000 gross income from 6 April 2026. Choosing the correct software is essential for compliance. ## Understanding MTD ITSA for Landlords and Sole Traders Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is HMRC's initiative to modernise the tax system, making it more efficient and reducing the tax gap caused by errors. For landlords and sole traders, this represents a significant change from the familiar annual Self Assessment process. ### Who is Affected by MTD ITSA 2026? From 6 April 2026, MTD ITSA becomes mandatory for: - **Sole Traders:** Individuals who run a business as a sole proprietor. - **Unincorporated Landlords:** Individuals who rent out property in the UK (this includes furnished holiday lets). - **Combined Income Threshold:** Those whose total gross income from these sources (business and/or property) is £50,000 or more in a tax year. It is important to note that the £50,000 threshold refers to gross income, not profit. If your gross income falls below this threshold, MTD ITSA is currently optional, but HMRC plans to extend it to those earning over £30,000 from April 2027. ### Key Changes Introduced by MTD ITSA MTD ITSA fundamentally alters the reporting cycle and record-keeping requirements: ### 1. Digital Record Keeping You must keep digital records of all your business or property income and expenses. This means moving away from paper receipts and manual ledgers to an electronic system, typically accounting software. This software must be able to store transaction details, including date, amount, category, and type. ### 2. Quarterly Updates Instead of one annual tax return, you will submit a summary of your income and expenses to HMRC every three months. These 'quarterly updates' provide HMRC with a more frequent overview of your financial activity. The deadlines for these updates are typically one month after the end of each tax quarter. **Example Quarterly Periods:** - 6 April to 5 July (submission by 5 August) - 6 July to 5 October (submission by 5 November) - 6 October to 5 January (submission by 5 February) - 6 January to 5 April (submission by 5 May) ### 3. End of Period Statement (EOPS) After your fourth quarterly update, you will submit an End of Period Statement for each business or property. This is where you make any accounting adjustments, claim capital allowances, and finalise your taxable profits or losses for the year. This must be submitted by 31 January following the tax year. ### 4. Final Declaration Finally, you will submit a 'Final Declaration', which replaces the traditional Self Assessment tax return. This brings together all your income sources (including employment income, pensions, savings interest, dividends, etc.) to calculate your final tax liability. This also has a deadline of 31 January following the tax year. These changes mean a more proactive approach to tax management. Instead of a single annual scramble, MTD ITSA encourages continuous record keeping and regular financial reviews, which can lead to better financial insights and fewer year-end surprises. ## The Crucial Role of HMRC-Compatible Software The cornerstone of MTD ITSA is the mandatory use of HMRC-compatible software. This isn't just a suggestion, it's a legal requirement for those falling within the income threshold. Without it, you cannot meet your MTD ITSA obligations. ### Why Software is Mandatory for MTD ITSA HMRC's MTD ITSA framework is built on the principle of digital submission of data directly from your records. This requires software that can: - **Digitally Store Records:** Your income and expenses must be stored in a digital format, eliminating paper-based systems. - **Process Data:** Categorise transactions according to HMRC's requirements. - **Transmit Information Securely:** Send your quarterly updates, EOPS, and Final Declaration directly to HMRC's systems via an API (Application Programming Interface). - **Receive Information:** Allow HMRC to communicate with you digitally, for instance, by sending tax statements to your software. ### What Does "HMRC-Compatible Software" Mean? "HMRC-compatible" means the software has been tested and approved by HMRC to interact with their MTD systems. It must meet specific functional requirements, including the ability to: - Keep digital records of income and expenses. - Prepare and send quarterly summaries of income and expenses. - Prepare and submit an End of Period Statement. - Prepare and submit the Final Declaration. - Receive information from HMRC, such as tax codes or statements. HMRC maintains a list of approved software providers on its website. When choosing software, always verify its MTD ITSA compatibility with this list. ### Full Accounting Software vs. Bridging Software There are broadly two types of MTD-compatible software solutions available: ### Full Accounting Software This type of software handles all your financial tasks, from invoicing and expense tracking to bank reconciliation and MTD ITSA submissions. It keeps all your records digitally within the system, making the quarterly update process highly automated. - Comprehensive digital record keeping. - Automated bank feeds and transaction categorisation. - Direct submission of all MTD ITSA returns. - Provides real-time financial insights. ### Bridging Software Bridging software acts as a link between non-MTD-compatible digital records (like spreadsheets) and HMRC's MTD system. You would continue to keep your records in a spreadsheet, then use the bridging software to extract the necessary data and submit it to HMRC. - Allows use of existing spreadsheet records. - Less comprehensive, focuses solely on MTD submission. - Requires manual data entry or careful export from spreadsheets. - Higher risk of manual errors compared to full software. While bridging software might seem like a simpler option for those accustomed to spreadsheets, full accounting software like AccountsOS offers a more integrated, automated, and error-reducing solution for long-term MTD ITSA compliance. It streamlines the entire process, from data entry to submission, providing a robust framework for managing your finances. ## Essential Features of MTD ITSA Accounting Software When selecting accounting software for MTD ITSA, it is crucial to look beyond basic compatibility. The best solutions offer features that not only ensure compliance but also simplify your financial management and provide valuable insights into your business or property portfolio. ### HMRC Compatibility The software must be recognised and listed by HMRC as MTD-compatible for Income Tax Self Assessment. ### Digital Record Keeping Ability to record all income and expenses digitally, ideally with bank feeds and receipt capture. ### Automated Quarterly Updates Seamless preparation and submission of quarterly summaries of income and expenses to HMRC. ### End of Period Statement (EOPS) Support for making adjustments and finalising business or property income/expenses at year-end. ### Final Declaration Support Assistance in bringing together all income sources for the final tax computation and submission. ### Error Checking & Validation Built-in tools to identify potential errors before submission, reducing compliance risks. ### User-Friendly Interface Intuitive design and clear navigation to simplify complex tax processes for non-accountants. ### Secure Data Handling Robust security measures to protect sensitive financial data in compliance with GDPR. ### Specific Features for Landlords Landlords have unique accounting needs that MTD ITSA software should address: - **Property-Specific Income & Expense Categories:** Ability to track rental income, repairs, maintenance, letting agent fees, legal costs, insurance, council tax, utility bills, and mortgage interest relief (calculated correctly, considering restrictions). - **Multi-Property Management:** If you own more than one property, the software should allow you to easily manage and report income and expenses for each property separately, while consolidating for overall MTD ITSA submission. - **Tenant Management (Optional but useful):** Features to track rent payments, deposits, and tenant details. - **Capital Allowances Tracking:** For items like furniture in furnished holiday lets, or integral features in commercial properties. - **Reporting for Property Profitability:** Generate reports to assess the profitability of individual properties or your entire portfolio. ### Specific Features for Sole Traders Sole traders also benefit from tailored software functionalities: - **Invoicing & Sales Tracking:** Create and send professional invoices, track payments, and manage customer accounts. - **Categorisation of Business Expenses:** Tools to easily categorise expenses like office costs, travel, marketing, professional fees, and training. - **Mileage Tracking:** For those who use their personal vehicle for business, integrated mileage tracking can simplify expense claims. - **VAT Management (if applicable):** While MTD ITSA is for Income Tax, many sole traders are also VAT registered. Integrated VAT MTD functionality can be a significant advantage. - **Profit & Loss Reporting:** Generate reports to understand your business's financial health, track performance, and make informed decisions. ### User Experience, Support, and Cost Beyond features, consider: - **Ease of Use:** A clean, intuitive interface reduces the learning curve and makes daily tasks quicker. - **Customer Support:** Good support channels (phone, email, chat) are vital for resolving issues quickly. - **Integrations:** Compatibility with other tools you use, such as payment processors or e-commerce platforms. - **Cost:** Compare subscription models and what is included in each tier. Factor in the value for money, not just the lowest price. ## AccountsOS: Your MTD ITSA Solution for Landlords and Sole Traders AccountsOS is designed to simplify MTD ITSA compliance for UK landlords and sole traders, offering a comprehensive and user-friendly platform that meets all HMRC requirements. We aim to take the complexity out of digital tax, allowing you to focus on your business or property portfolio. ### HMRC-Compatible for MTD ITSA AccountsOS is built to meet all HMRC requirements for MTD ITSA, ensuring seamless compliance. ### Automated Digital Record Keeping Connect your bank accounts for automatic transaction imports and categorisation. Capture receipts digitally. ### Effortless Quarterly Updates Automatically compile and submit your quarterly income and expense summaries to HMRC with a few clicks. ### Tailored for Landlords Specific features for tracking rental income, property-specific expenses, and managing multiple properties. ### Designed for Sole Traders Tools for invoicing, categorising business expenses, and monitoring profitability. ### End of Period & Final Declaration Guidance and tools to help you complete your year-end adjustments and final tax submission. ### How AccountsOS Specifically Helps Landlords AccountsOS understands the nuances of property income and expenses, providing tailored features for landlords: - **Dedicated Property Tracking:** Easily set up and manage multiple properties within the platform, allocating income and expenses to each. - **Automated Rental Income Categorisation:** Bank feeds intelligently recognise recurring rental payments, categorising them correctly. - **Comprehensive Expense Management:** Pre-set categories for common landlord expenses, including repairs, maintenance, letting agent fees, insurance, and utilities. - **Mortgage Interest Relief Calculation:** AccountsOS assists with the correct calculation and restriction of finance costs for residential landlords. - **Property Profitability Reports:** Gain insights into which properties are performing best, helping you make informed investment decisions. ### How AccountsOS Empowers Sole Traders For sole traders, AccountsOS provides tools to manage their entire business finances efficiently, ensuring MTD ITSA compliance is a seamless byproduct: - **Easy Invoicing:** Create, send, and track professional invoices directly from the platform, ensuring you get paid on time. - **Smart Expense Categorisation:** Our AI-driven system suggests categories for your expenses, streamlining digital record keeping. - **Bank Reconciliation:** Connect your business bank accounts for automatic feeds, making reconciliation quick and accurate. - **Real-Time Tax Estimates:** See your estimated income tax liability update throughout the year, helping you budget for tax payments. - **Profit & Loss Reporting:** Generate comprehensive financial reports to understand your business performance at any time. **Get MTD Ready with AccountsOS:** AccountsOS provides a seamless journey to MTD ITSA compliance, offering a robust platform for digital record keeping, automated quarterly submissions, and comprehensive support for your year-end obligations. ## Preparing for MTD ITSA 2026: A Step-by-Step Approach While the mandatory start date for MTD ITSA for those earning over £50,000 is 6 April 2026, proactive preparation is key to a smooth transition. Starting early can help you familiarise yourself with the new processes and software without the pressure of looming deadlines. ### Timeline for Implementation Understanding the phased rollout helps in planning: - **Currently:** MTD ITSA is optional for those who wish to sign up voluntarily. - **6 April 2026:** Mandatory for sole traders and landlords with gross income over £50,000. - **6 April 2027:** Mandatory for sole traders and landlords with gross income over £30,000. ### Practical Steps to Take Now Even if your mandatory start date is some time away, you can begin preparing today: ### 1. Assess Your Current Record Keeping Review how you currently track income and expenses. Are you using spreadsheets, paper records, or existing software? Identify any gaps in your digital records and understand how much effort it will take to transition. ### 2. Understand Your Income Threshold Calculate your gross income from all sole trader businesses and UK property income. If it's consistently above £50,000 (or approaching it), you need to start planning for MTD ITSA. ### 3. Research HMRC-Compatible Software Begin exploring options like AccountsOS. Look at features, pricing, and user reviews. Consider whether you need full accounting software or if bridging software is a temporary solution (though full software is generally recommended). ### 4. Start Digitalising Your Records Even before mandatory MTD ITSA, adopt digital record keeping. Use a cloud-based solution to capture receipts, link bank accounts, and categorise transactions. This will build good habits and make the transition smoother. ### 5. Consider Professional Advice If your tax affairs are complex, or you feel unsure about MTD ITSA, consult with an accountant. Many accountants are MTD-ready and can offer guidance or manage your submissions for you. ## Exemptions and Penalties for MTD ITSA While MTD ITSA is becoming mandatory for many, there are specific exemptions. It is equally important to understand the penalties for non-compliance, as HMRC is implementing a new points-based system. ### Who is Exempt from MTD ITSA? Not everyone will be required to join MTD ITSA. Exemptions include: - **Income Below Threshold:** Individuals with gross income from business or property below the mandatory threshold (currently £50,000, reducing to £30,000 from April 2027). - **Digitally Excluded:** Individuals who cannot reasonably use digital tools due to age, disability, location, or other reasons. You must apply to HMRC for this exemption. - **Religious Objections:** Those whose religious beliefs prevent them from using electronic communications. This also requires an application to HMRC. - **Insolvency:** Individuals who are subject to insolvency procedures. It is important to note that if you believe you are exempt, you should check HMRC's guidance and, if necessary, formally apply for an exemption. Do not assume you are exempt without confirmation. ### Understanding MTD ITSA Penalties HMRC is introducing a new penalty system for late submissions and late payments under MTD ITSA, moving to a points-based model: - **Late Submission Penalties:** You will receive a point for each late submission (quarterly update, EOPS, or Final Declaration). Once you reach a certain threshold of points (e.g., 4 points for annual submissions), you will incur a financial penalty of £200. The points expire after a certain period of good compliance. - **Late Payment Penalties:** Penalties apply if you do not pay your tax on time. These are charged in stages: 15 days late: first penalty. 30 days late: second penalty. Beyond 30 days: daily penalties may apply. - **Interest on Late Payments:** HMRC will also charge interest on any unpaid tax from the day it was due until it is paid in full. This interest can accrue significantly over time. The new penalty system aims to be fairer for occasional mistakes but more stringent for persistent non-compliance. Using MTD-compatible software helps you avoid these penalties by automating submissions and providing clear reminders for deadlines. ## Frequently asked questions ### Do I have to use MTD ITSA if my income is below £50,000? No, MTD ITSA becomes mandatory from 6 April 2026 for sole traders and landlords with a gross income over £50,000. If your income is below this, MTD ITSA is optional for now. ### What if I have multiple businesses or properties? If your *total* gross income from all sole trader businesses and UK property income is over £50,000, you must comply with MTD ITSA. Your software should be able to handle multiple income sources. ### Can I still use spreadsheets for my records? You can use spreadsheets to record your transactions, but you will still need 'bridging software' to send the data to HMRC in an MTD-compatible format. Full accounting software is generally more efficient. ### What happens if I don't sign up for MTD ITSA? If you are mandated to use MTD ITSA and do not comply, HMRC may issue penalties for late or incorrect submissions. It is crucial to register and use compatible software by the deadline. ### Is VAT MTD the same as MTD ITSA? No, they are separate. MTD for VAT is for VAT-registered businesses and has been in effect for some time. MTD ITSA is for Income Tax Self Assessment for sole traders and landlords. ### Do I need an accountant to use MTD ITSA software? While MTD ITSA software is designed to be user-friendly, an accountant can provide valuable advice, especially for complex tax situations, and can often submit on your behalf using their agent software. ### What is an End of Period Statement (EOPS)? The EOPS is a summary of your business or property income and expenses for the tax year, submitted after your final quarterly update. It includes any year-end adjustments and claims for allowances. ### How often do I need to submit updates? Under MTD ITSA, you will need to submit four quarterly updates of your income and expenses to HMRC, followed by an End of Period Statement and a Final Declaration for the tax year. ## Related guides - [HMRC MTD Guidance](https://www.gov.uk/guidance/help-and-support-for-making-tax-digital) - [MTD ITSA Deadlines](/deadlines/mtd-itsa) - [Digital Record Keeping Tips](/guides/digital-record-keeping)