MTD for Income Tax Software Guide 2026

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) represents a significant shift in how sole traders and landlords report their income and expenses to HMRC. From 6 April 2026, millions of UK taxpayers will be required to embrace digital record-keeping and use MTD-compatible software for their tax submissions. This change aims to modernise the tax system, reduce errors, and provide taxpayers with a more real-time view of their tax position. The initial phase targets those with qualifying income over £50,000, with thresholds lowering to £30,000 in April 2027 and an anticipated £20,000 in April 2028.

The core of MTD ITSA compliance hinges on selecting and effectively utilising the right accounting software. This software must be capable of maintaining digital records of all business transactions and submitting quarterly summaries of income and expenses directly to HMRC. Beyond these mandatory functions, the ideal MTD-compatible solution should streamline financial management, offer clear insights, and simplify the entire tax compliance process. This comprehensive guide will walk you through the essential requirements, features to look for, and how AccountsOS is specifically designed to help sole traders and landlords navigate MTD ITSA with confidence.

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

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is a government initiative to modernise the tax system. It moves away from traditional annual tax returns towards a fully digital process, requiring businesses and landlords to keep digital records and submit regular updates to HMRC. The goal is to make tax administration more efficient, reduce errors, and provide taxpayers with a clearer, more up-to-date picture of their tax affairs throughout the year.

Key Requirements for MTD ITSA

Under MTD ITSA, sole traders and landlords will need to meet several new obligations:

Keep digital records of income and expenses
Send quarterly updates to HMRC using MTD-compatible software
Submit an End of Period Statement (EOPS) for each business
Submit a final declaration (similar to a Self Assessment tax return)

MTD ITSA Timeline and Income Thresholds

The implementation of MTD ITSA is being phased in, starting with those with higher incomes. It is crucial to be aware of the relevant dates and thresholds to determine when you will be affected.

Date	Event
6 April 2026	MTD ITSA live for income > £50,000
6 April 2027	MTD ITSA live for income > £30,000
6 April 2028	MTD ITSA live for income > £20,000 (anticipated)

It is important to note that these thresholds refer to your total qualifying income from all sole trader businesses and UK property, not just profit. If your combined gross income exceeds the threshold, you will need to comply with MTD ITSA.

What Does MTD-Compatible Software Mean?

HMRC defines MTD-compatible software as a program or set of programs that can:

Record keeping: Keep digital records of income and expenses. This means no more paper ledgers or standalone manual spreadsheets. The software must store the required data digitally.
Quarterly updates: Send summaries of this digital data to HMRC every quarter. This submission must be made directly from the software via HMRC's API.
End of Period Statement (EOPS): Allow for the submission of an annual EOPS for each business or property income source.
Final Declaration: Facilitate the submission of the final declaration, replacing the traditional Self Assessment tax return.

Crucially, the software must be listed on HMRC's official list of MTD-compatible software. This ensures it meets the technical specifications and security standards set by HMRC. AccountsOS is developed with MTD compliance at its core, ensuring seamless integration with HMRC's systems.

The Role of Digital Records

Digital record keeping is the foundation of MTD ITSA. It means that all your business transactions, both income and expenses, must be recorded and stored electronically. This includes:

Date of transaction
Amount of transaction
Type of income or expense
VAT details (if VAT registered)

This digital trail ensures accuracy, reduces manual data entry errors, and makes it easier to review your financial position at any time. AccountsOS automates much of this process, often directly linking to your bank accounts to import transactions securely.

Understanding Bridging Software and Spreadsheets

While MTD ITSA requires digital record keeping, HMRC has confirmed that spreadsheets can still be used for recording transactions, but with a significant caveat: they are not MTD-compatible on their own. If you wish to continue using spreadsheets, you must also use "bridging software."

What is Bridging Software? Bridging software is a digital tool that connects your spreadsheet to HMRC's MTD system. It extracts the necessary data from your spreadsheet and transmits it to HMRC in the required format. While this allows for continued spreadsheet use, it adds an extra step and potential for error compared to a fully integrated accounting software solution.

For most sole traders and landlords, a fully integrated MTD-compatible accounting software like AccountsOS offers a more streamlined and less error-prone approach, eliminating the need for separate bridging software. It combines record keeping, quarterly updates, EOPS, and final declaration capabilities into one cohesive platform.

Key Features to Look for in MTD-Compatible Software

Choosing the right MTD-compatible software is paramount for a smooth transition and ongoing compliance. Beyond basic MTD functionality, consider features that enhance efficiency, accuracy, and ease of use.

Automated digital record keeping
Bank feed integration for transactions
Categorisation of income and expenses
Automated quarterly update generation and submission to HMRC
Support for End of Period Statements (EOPS)
Assistance with the final declaration
Multi-business and multi-property support
Real-time tax liability estimates
Secure data storage and GDPR compliance
Integration with accountants/tax agents
Reporting and insights

Why AccountsOS Excels for MTD ITSA

AccountsOS is specifically designed to simplify MTD ITSA for sole traders and landlords. Our platform offers a robust suite of features that go beyond mere compliance, providing a comprehensive solution for managing your finances digitally.

Intuitive Interface: Easy to navigate, even for those new to accounting software, reducing the learning curve.
Automated Bank Feeds: Connects directly to your bank accounts, pulling in transactions automatically and securely, saving hours of manual data entry.
Smart Categorisation: Our AI-powered system suggests categories for your transactions, ensuring accurate digital records for MTD submissions.
One-Click Quarterly Submissions: Generate and submit your quarterly updates to HMRC with minimal effort, reducing stress and errors.
Real-Time Tax Estimates: See your estimated tax liability update throughout the year, helping you budget and avoid year-end surprises.
Dedicated Landlord Features: Specific tools for managing multiple properties, tracking rental income, and property-related expenses.
Accountant Access: Securely invite your accountant to access your AccountsOS data, facilitating collaboration and professional advice.

Who is Affected by MTD for Income Tax?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will primarily affect two groups of taxpayers in the UK: sole traders and landlords. However, it is not a universal requirement from day one; specific income thresholds determine when you must comply.

Sole Traders

If you operate as a sole trader and your gross income from your business activities exceeds the MTD ITSA threshold, you will be required to comply. This includes income from any trade, profession, or vocation.

Examples of sole traders who will be affected include:

Freelancers and contractors
Small business owners
Tradespeople (plumbers, electricians, builders)
Online sellers

Landlords

Landlords with rental income from UK property that exceeds the MTD ITSA threshold will also need to comply. This applies whether you own one property or multiple properties.

It is important to aggregate all your UK property income when determining if you meet the threshold. For example, if you have two properties generating £20,000 and £35,000 respectively, your total income of £55,000 would bring you into MTD ITSA from April 2026.

Income Thresholds in Detail

The mandatory start dates are tied to your total qualifying income, which is the gross income from all your sole trader businesses and UK property income.

From 6 April 2026: Mandatory for those with qualifying income over £50,000.
From 6 April 2027: Mandatory for those with qualifying income over £30,000.
From 6 April 2028: Anticipated mandatory start for those with qualifying income over £20,000. HMRC has confirmed they intend to lower the threshold further.

Important Note: The thresholds apply to your gross income, not your profit. If your gross income falls below the threshold in a subsequent year, you may still be required to continue with MTD ITSA once you have joined. Always check the latest HMRC guidance.

Who is Exempt from MTD ITSA?

While MTD ITSA will apply to many, certain individuals and entities are currently exempt or outside the scope of the new rules:

Companies: Limited companies are subject to Corporation Tax and already have their own MTD requirements for VAT. MTD ITSA does not apply to them.
Partnerships: General partnerships with only individual partners are excluded from MTD ITSA until at least April 2025, with specific rules for partnerships still under review.
Low Income: Individuals whose qualifying income remains below the specified thresholds are not required to join MTD ITSA, although they can do so voluntarily.
Specific Exemptions: A small number of individuals may be exempt due to reasons such as insolvency, religious objection, or inability to engage digitally. These are rare and require specific application to HMRC.

The MTD ITSA Filing Process: Quarterly Updates to Final Declaration

Understanding the new filing process is key to MTD ITSA compliance. It involves regular digital submissions throughout the tax year, culminating in an annual final declaration.

1. Digital Record Keeping

As discussed, the first step is to ensure all your income and expenses are recorded digitally using MTD-compatible software. This data forms the basis for all subsequent submissions. You must keep records of:

All business income and sales
All business expenses and purchases
The date of each transaction
The category of income or expense
Personal use adjustments (e.g., for car expenses)

2. Quarterly Updates (Income and Expenses)

Every three months, you will need to send a summary of your income and expenses for that quarter to HMRC. These are referred to as 'quarterly updates'. They are not a tax return but rather a snapshot of your trading or property income and expenditure.

The standard tax year runs from 6 April to 5 April. The quarterly periods and their respective deadlines are:

Quarter Period	Deadline for Submission
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

Your MTD-compatible software, like AccountsOS, will automatically compile this data and submit it to HMRC on your behalf, after your review and approval.

3. End of Period Statement (EOPS)

After your final quarterly update for the tax year (6 January to 5 April) has been submitted, you will need to prepare and submit an End of Period Statement (EOPS) for each business or property income source. The EOPS is an annual summary that allows you to make any necessary accounting adjustments that were not included in the quarterly updates.

These adjustments might include:

Capital allowances
Accruals and prepayments
Stock adjustments
Private use adjustments
Calculating deductible expenses for tax purposes

The EOPS must be submitted by 31 January following the end of the tax year. For example, for the tax year 2026/2027, the EOPS would be due by 31 January 2028.

4. Final Declaration

The final step in the MTD ITSA process is the submission of the 'final declaration'. This replaces the traditional Self Assessment tax return. It consolidates all your income sources, including those not covered by MTD ITSA (e.g., employment income, dividends, savings interest), and calculates your final tax liability.

The final declaration draws data from:

Your quarterly updates
Your End of Period Statements
Other income and deductions (e.g., pension contributions, gift aid)

The deadline for the final declaration is also 31 January following the end of the tax year. Your MTD-compatible software should help you compile this information, giving you a comprehensive view of your tax position.

How AccountsOS Simplifies the Process: AccountsOS integrates all these steps into a single workflow. From digital record keeping to automated quarterly submissions, EOPS assistance, and a clear path to your final declaration, we streamline the entire MTD ITSA journey, helping you stay compliant and organised.

Preparing for MTD for Income Tax

Even if MTD ITSA is not mandatory for you until April 2027 or later, it is highly advisable to start preparing now. Early preparation can significantly reduce stress and ensure a smooth transition.

1. Review Your Current Record-Keeping System

Before choosing software, assess how you currently manage your income and expenses.

Are you using paper receipts, spreadsheets, or a basic accounting package?
How easily can you categorise your transactions?
Do you track all required data points for each transaction?

Understanding your current workflow will help you identify what you need from new software and where improvements can be made.

2. Choose Your MTD-Compatible Software

This is arguably the most critical step. Look for software that:

Is listed on HMRC's MTD-compatible software list.
Offers the specific features you need (e.g., multi-property support for landlords).
Is user-friendly and has good customer support.
Fits your budget.
Provides secure data handling.

AccountsOS offers a free trial to allow you to explore its MTD ITSA capabilities before committing.

3. Consider Engaging a Tax Agent or Accountant

If you currently use an accountant, discuss MTD ITSA with them. They can:

Advise on your specific obligations.
Help you choose and set up MTD software.
Manage your MTD submissions on your behalf, using their own agent software that links to yours.
Provide ongoing tax planning advice.

Even if you manage your own tax affairs, an initial consultation can be invaluable.

4. Join the MTD ITSA Pilot Scheme (Voluntary)

HMRC runs a voluntary pilot scheme for MTD ITSA. If you are keen to get ahead and familiarise yourself with the new process, joining the pilot can be a beneficial step. It allows you to test out MTD-compatible software and the submission process in a live environment, with support from HMRC. This can be particularly useful for identifying any challenges or questions you might have before it becomes mandatory.

5. Understand the Penalties for Non-Compliance

HMRC is introducing a new penalty system for MTD ITSA, which includes penalties for:

Late Quarterly Update: Point-based system leading to fines
Late End of Period Statement: Point-based system leading to fines
Late Final Declaration: Point-based system leading to fines
Failure to keep digital records: Potential fines for non-compliance

The penalty system is point-based. For each missed submission, you receive a point. Accumulating a certain number of points (e.g., 4 points for annual filers, 2 points for quarterly filers) triggers a financial penalty. It is therefore crucial to stay on top of your submissions.

Worked Example: A Sole Trader's MTD ITSA Journey

Let's walk through a simplified example of how a sole trader, Sarah, who runs a graphic design business and has a gross income over £50,000, would navigate MTD ITSA using AccountsOS for the tax year 2026/2027.

Sarah's Business Profile:

Business: Sarah's Creative Designs (Sole Trader)
Gross Annual Income (estimated): £65,000
Accounting Period: Standard tax year (6 April to 5 April)
Software: AccountsOS

Step 1: Digital Record Keeping (Ongoing)

From 6 April 2026, Sarah uses AccountsOS to record all her business income and expenses. Her bank account is linked, so transactions are imported automatically. She quickly categorises each transaction as it comes in, such as 'Client Fees' for income and 'Software Subscriptions', 'Marketing', 'Office Supplies' for expenses.

AccountsOS securely stores these digital records, ready for quarterly submissions.

Step 2: Quarterly Updates

Sarah's tax year starts 6 April 2026.

Quarter 1: 6 April 2026 - 5 July 2026 (Due 5 August 2026)

Sarah's AccountsOS dashboard shows:

Income: £16,000
Expenses: £4,500

She reviews the summary in AccountsOS, confirms everything is correct, and with a click, submits the quarterly update to HMRC.

Quarter 2: 6 July 2026 - 5 October 2026 (Due 5 November 2026)

AccountsOS aggregates her data:

Income: £17,500
Expenses: £5,000

She submits this update, noting her estimated tax liability in AccountsOS is updating in real-time.

Quarter 3: 6 October 2026 - 5 January 2027 (Due 5 February 2027)

Data in AccountsOS:

Income: £15,000
Expenses: £4,000

Submission completed.

Quarter 4: 6 January 2027 - 5 April 2027 (Due 5 May 2027)

Final quarter for the tax year:

Income: £16,500
Expenses: £5,500

Sarah submits her last quarterly update.

Step 3: End of Period Statement (EOPS) (Due 31 January 2028)

After 5 April 2027, Sarah prepares her EOPS for the tax year 2026/2027. AccountsOS has aggregated all her quarterly data. She uses the EOPS feature to:

Add a capital allowance claim for new computer equipment purchased in January 2027.
Adjust for some private use of her mobile phone.

AccountsOS helps her calculate these adjustments and she submits the EOPS to HMRC.

Step 4: Final Declaration (Due 31 January 2028)

Finally, Sarah prepares her final declaration. AccountsOS pulls in her business income and expenses from the EOPS. Sarah also adds:

Her PAYE employment income (P60 data).
Interest from a savings account.
Pension contributions.

AccountsOS then calculates her total tax liability for the year, including Income Tax and National Insurance contributions. Sarah reviews the comprehensive summary and submits her final declaration to HMRC. She then arranges payment of any outstanding tax by the 31 January 2028 deadline.

Key takeaway from Sarah's journey: By using AccountsOS, Sarah maintained digital records effortlessly, submitted her quarterly updates on time, handled her EOPS adjustments, and completed her final declaration seamlessly. The real-time view of her finances helped her manage cash flow and prepare for her tax payments well in advance.

How AccountsOS Helps You Comply with MTD ITSA

AccountsOS is built from the ground up to make Making Tax Digital for Income Tax as straightforward as possible for sole traders and landlords.

Digital Record Keeping

Automatically capture and store all your income and expense data in a compliant digital format.

Automated Quarterly Updates

Generate and submit your quarterly income and expense summaries to HMRC directly from AccountsOS.

End of Period Statement Support

AccountsOS helps you prepare and review your EOPS, ensuring accuracy and compliance.

Final Declaration Readiness

All your MTD data feeds into your annual tax position, simplifying your final declaration process.

Frequently asked questions

No, MTD for Income Tax is only mandatory for sole traders and landlords whose qualifying income exceeds the specified thresholds (£50,000 from April 2026, £30,000 from April 2027, £20,000 from April 2028). You can choose to opt in voluntarily if you wish.

Can I still use spreadsheets for my records?

Yes, but only if you use 'bridging software' to send the required data to HMRC. Spreadsheets alone are not MTD-compatible. AccountsOS offers a fully integrated solution, eliminating the need for bridging software.

What if I have multiple businesses or properties?

You must use MTD-compatible software to keep digital records and submit quarterly updates for each business and property income stream that falls under MTD. AccountsOS supports managing multiple income sources efficiently.

When do the quarterly updates need to be submitted?

Quarterly updates are due one month after the end of each tax quarter. For example, for the quarter 6 April to 5 July, the update is due by 5 August. There are four such deadlines each tax year.

What is an End of Period Statement (EOPS)?

The EOPS is an annual summary for each business or property income stream, allowing you to make any accounting adjustments, such as calculating capital allowances or accruals. It is due by 31 January following the tax year.

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

MTD software allows you to make corrections to previous quarterly updates. It is important to correct errors promptly to ensure your final tax position is accurate and to avoid potential penalties.

Is there a pilot scheme for MTD for Income Tax?

Yes, HMRC has been running a voluntary pilot scheme for MTD for Income Tax. Participating in the pilot can be a good way to familiarise yourself with the new requirements before it becomes mandatory.

Will my accountant handle MTD for me?

Your accountant can manage your MTD obligations on your behalf, using MTD-compatible agent software. It is crucial to discuss your MTD plans with your accountant to ensure a smooth transition and compliance.