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

Last updated: 9 October 2026

For UK sole trader freelancers, Making Tax Digital for Income Tax Self Assessment, MTD ITSA, rolls out from 6 April 2026 for those with qualifying income over £50,000, and from 6 April 2027 for those with qualifying income over £30,000.

The UK tax landscape for sole traders and landlords is undergoing its most significant transformation in decades with the introduction of Making Tax Digital for Income Tax Self Assessment, MTD ITSA. This initiative, spearheaded by HMRC, aims to modernise the tax system by moving away from traditional annual tax returns towards a fully digital, real-time reporting framework. For many sole traders and freelancers, this means a fundamental change in how financial records are kept and how tax information is submitted to HMRC. The phased rollout of MTD ITSA begins in April 2026, targeting those with higher incomes first, before expanding to a wider range of businesses. Understanding these new requirements, particularly the income thresholds and timelines, is crucial for ensuring compliance and avoiding potential penalties. This comprehensive guide will detail everything you need to know about MTD ITSA, focusing on the specific thresholds for UK sole trader freelancers and providing practical steps for preparation.

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

Making Tax Digital, MTD, is a government initiative to make tax administration more effective, more efficient, and easier for taxpayers to get their tax right. MTD for Income Tax Self Assessment, MTD ITSA, specifically targets self-employed individuals and landlords who pay Income Tax. At its core, MTD ITSA requires businesses and landlords to:

- Keep digital records of their income and expenses using MTD-compatible software.
- Send quarterly summaries of their income and expenses to HMRC directly from this software.
- Submit an End of Period Statement, EOPS, to finalise their business income and expenses after the tax year.
- Submit a final declaration, similar to the current Self Assessment tax return, which consolidates all income sources.

The overarching aim is to give HMRC a more real-time view of a taxpayer's income and expenses, helping to reduce errors that often occur during the annual self-assessment process. For taxpayers, the benefits are intended to include better financial oversight, more regular tax estimates, and potentially fewer late payment penalties due to improved awareness of their tax position throughout the year. It represents a significant shift from a once-a-year submission to a continuous digital interaction with the tax system. This digital transformation is designed to streamline compliance, make tax affairs more transparent, and ultimately modernise the entire UK tax system for the digital age.

## Key Timelines and the Phased Rollout of MTD ITSA

MTD ITSA is not being introduced for all sole traders and landlords simultaneously. HMRC has opted for a phased rollout, starting with those with higher qualifying incomes. This approach allows businesses time to adapt and for the systems to be refined. Understanding these key dates is essential for planning your transition to MTD compliance.

### The Current Timeline:

| Date | Event |
| --- | --- |
| 2024-25 Tax Year | Qualifying income assessed for 2026 start |
| 6 April 2026 | MTD ITSA starts for sole traders with qualifying income over £50,000 |
| 2025-26 Tax Year | Qualifying income assessed for 2027 start |
| 6 April 2027 | MTD ITSA starts for sole traders with qualifying income over £30,000 |
| Future (TBC) | Potential rollout for sole traders with qualifying income over £20,000 |

It is important to note that the income thresholds refer to your total qualifying income from self-employment and UK property, before any expenses are deducted. The relevant tax year for determining whether you must comply from April 2026 is the 2024-25 tax year. Similarly, for the April 2027 rollout, your income from the 2025-26 tax year will be assessed.

**Forward Planning is Key:** Even if you are not immediately affected by the April 2026 threshold, it is advisable to start preparing now. The digital record-keeping requirements are a significant change, and early adoption can help you familiarise yourself with the new processes and MTD-compatible software. This proactive approach ensures a smoother transition when MTD ITSA becomes mandatory for your income bracket.

## Understanding the Income Thresholds for Sole Traders

The MTD ITSA thresholds are critical for determining when a sole trader or freelancer must begin complying with the new rules. These thresholds are based on your total "qualifying income" from self-employment and UK property. It is vital to understand how this income is calculated and what it means for your business.

### The £50,000 Threshold: Starting April 2026

From 6 April 2026, sole traders and landlords whose qualifying income for the tax year 2024-25 was £50,000 or more will be mandated to follow MTD ITSA rules. This means they must start keeping digital records and submitting quarterly updates for their 2026-27 tax year.

**Worked Example 1: £50,000 Threshold.** Sarah is a freelance graphic designer. Her gross self-employment income for the tax year 2024-25 was £55,000.

**Decision:** Sarah's qualifying income (£55,000) is above the £50,000 threshold. Therefore, she must comply with MTD ITSA from 6 April 2026 for her 2026-27 tax year.

David runs a small online store. His gross self-employment income for 2024-25 was £48,000.

**Decision:** David's qualifying income (£48,000) is below the £50,000 threshold. He is not mandated to comply with MTD ITSA from 6 April 2026. He will need to assess his income for 2025-26 to determine if he falls into the £30,000 threshold for 2027.

### The £30,000 Threshold: Starting April 2027

From 6 April 2027, the MTD ITSA mandate will extend to sole traders and landlords whose qualifying income for the tax year 2025-26 was £30,000 or more. This lower threshold will bring a significantly larger number of businesses into the MTD framework.

**Worked Example 2: £30,000 Threshold.** Emily is a freelance writer. Her gross self-employment income for 2025-26 was £35,000.

**Decision:** Emily's qualifying income (£35,000) is above the £30,000 threshold. She must comply with MTD ITSA from 6 April 2027 for her 2027-28 tax year.

Mark is a part-time consultant. His gross self-employment income for 2025-26 was £28,000.

**Decision:** Mark's qualifying income (£28,000) is below the £30,000 threshold. He is not mandated to comply from 6 April 2027. He will need to monitor future announcements regarding potential further reductions to the threshold.

### What Happens if Your Income Fluctuates?

The MTD ITSA rules account for fluctuating income. Once you are mandated into MTD ITSA, you generally remain in it, even if your income drops below the threshold in a subsequent year. However, there are specific rules for exiting MTD ITSA if your income remains consistently below the threshold for a certain period. HMRC's guidance indicates that you can leave MTD ITSA if your qualifying income falls below £10,000 in three consecutive tax years. This is to prevent businesses from constantly moving in and out of the system.

It is crucial to keep accurate records of your gross income each tax year to determine your MTD ITSA obligations correctly. If you are close to a threshold, it is prudent to prepare for MTD ITSA in advance, as crossing it will necessitate compliance.

## What Constitutes "Qualifying Income" for MTD ITSA?

The term "qualifying income" is central to determining your MTD ITSA obligations. It is not simply your total earnings from all sources, but specifically refers to certain types of gross income before any expenses are deducted. Understanding what counts as qualifying income is essential for accurately assessing your compliance date.

### Components of Qualifying Income:

- **Gross Self-Employment Income**: This includes all income generated from your trade, profession, or vocation as a sole trader or freelancer. This is the total amount you invoice or receive from clients before deducting any business expenses, such as materials, travel, or marketing costs.
- **Gross UK Property Income**: This refers to all rental income received from UK property, whether residential or commercial. Similar to self-employment income, it is the total amount received before deducting any property-related expenses like mortgage interest, repairs, or agent fees.

### What is NOT Included in Qualifying Income?

It is equally important to know what income sources are excluded from the MTD ITSA qualifying income calculation. These will still be reported in your final tax return but do not count towards the MTD thresholds.

- **Employment Income**: Any income earned as an employee, subject to PAYE, is excluded.
- **Investment Income**: Income from savings, dividends, or interest is not included.
- **Capital Gains**: Profits from selling assets are not part of qualifying income.
- **Pension Income**: Income from state or private pensions is excluded.
- **Foreign Income**: Income from property or self-employment outside the UK is not included in the UK qualifying income for MTD ITSA purposes.

**Worked Example 3: Calculating Qualifying Income.** Anna is a web developer and also rents out a small flat. In the 2024-25 tax year, her income sources were:

- Gross self-employment income (web development): £40,000
- Gross UK property rental income: £15,000
- Employment income (part-time job): £10,000
- Dividend income: £2,000

To calculate her qualifying income for MTD ITSA:

Qualifying Income = Gross Self-Employment Income + Gross UK Property Income

Qualifying Income = £40,000 + £15,000 = £55,000

**Decision:** Anna's qualifying income is £55,000. This is above the £50,000 threshold, so she must comply with MTD ITSA from 6 April 2026. Her employment and dividend income are not included in this calculation but will still be reported in her final tax declaration.

Accurately calculating your qualifying income is the first critical step in determining your MTD ITSA readiness. If you have multiple income streams, carefully distinguishing between what counts and what does not is paramount.

## The Pillars of MTD ITSA Compliance

Compliance with MTD ITSA revolves around three core requirements: digital record keeping, quarterly updates, and the End of Period Statement, EOPS, followed by a final declaration. Each pillar is interconnected and requires the use of MTD-compatible software.

### Digital Record Keeping

Under MTD ITSA, sole traders and landlords are required to keep digital records of all their business income and expenses. This means that traditional paper ledgers, spreadsheets not linked to MTD software, or physical receipts alone will no longer suffice. Your records must be stored and maintained digitally from the start of your MTD ITSA compliance period.

- **What records**: This includes details of all sales and purchases, bank transactions related to your business, and any other relevant financial transactions. Each transaction should be recorded digitally, often through direct bank feeds or manual entry into MTD-compatible software.
- **Software integration**: The MTD-compatible software must be capable of receiving and storing this data digitally and then transmitting it directly to HMRC. This ensures a "digital link" from the initial transaction record to the final submission.
- **Benefits**: Digital records offer improved accuracy, reduced errors, and easier access to financial information for business analysis and tax planning. They also streamline the process of preparing quarterly updates.

### Quarterly Updates

Instead of a single annual tax return, MTD ITSA requires sole traders to submit a summary of their business income and expenses to HMRC every three months. These are known as "quarterly updates".

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

These updates are not full tax returns, nor do they trigger an immediate tax payment. They are essentially summaries of your digital records for that quarter, providing HMRC with an estimate of your tax position. The software you use will extract the relevant data from your digital records and submit it directly.

**Worked Example 4: Quarterly Update.** Liam is a freelance photographer who starts MTD ITSA on 6 April 2026. For his first quarter, 6 April to 5 July 2026, his digital records show:

- Total Gross Income: £12,000
- Total Allowable Expenses: £3,000

He will submit these summary figures through his MTD-compatible software by 5 August 2026. This submission will give HMRC an estimated profit of £9,000 for that quarter.

### End of Period Statement (EOPS)

After the end of your tax year, you must submit an End of Period Statement, EOPS, for each business or property income source. This statement is where you finalise your income and expenses for the entire tax year, making any necessary accounting adjustments or claiming specific tax reliefs and allowances that could not be included in the quarterly updates.

- **Adjustments**: This might include adjustments for capital allowances, stock valuations, accruals, prepayments, or specific tax reliefs.
- **Deadline**: 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 would be due by 31 January 2028.

### Final Declaration (Self Assessment Tax Return)

The final step in the MTD ITSA process is the submission of a "final declaration". This is essentially the equivalent of your current Self Assessment tax return. It consolidates all your income sources, including those not covered by MTD ITSA, such as employment income, dividends, or capital gains.

- **Consolidation**: The final declaration combines the finalised business and property income from your EOPS with all other taxable income.
- **Tax Calculation**: It is at this stage that your total tax liability for the year is calculated, taking into account all reliefs and allowances.
- **Payment**: Your tax payment, including any payments on account for the following year, will be due by 31 January following the end of the tax year, as per current Self Assessment rules.

These pillars form the complete MTD ITSA reporting cycle, ensuring a continuous digital flow of information to HMRC. Adhering to each stage is crucial for full compliance.

## Choosing MTD-Compatible Software

A cornerstone of MTD ITSA is the mandatory use of MTD-compatible software. This software must be able to keep digital records, prepare quarterly updates, and submit them directly to HMRC using the MTD API, Application Programming Interface. There are various options available, from comprehensive accounting packages to bridging software for those who prefer to use spreadsheets.

### What to Look For in MTD-Compatible Software:

- **HMRC Recognition**: Ensure the software is listed as MTD for ITSA compatible on the HMRC website. This guarantees it meets the technical requirements for digital submissions.
- **Digital Record Keeping**: The software should facilitate easy and accurate digital record keeping. Features like bank feeds, automated categorisation of transactions, and receipt scanning can significantly streamline this process.
- **Quarterly Update Generation**: It must be able to summarise your digital records into the required quarterly update format and submit it directly to HMRC.
- **EOPS and Final Declaration Support**: While some software will fully support the EOPS and final declaration, others may require an accountant to use additional tools to complete these steps.
- **Ease of Use**: Choose software that matches your technical comfort level and business complexity. A user-friendly interface can save significant time and reduce frustration.
- **Integration**: Consider if the software integrates with other tools you use, such as payment processors or e-commerce platforms.

### Types of MTD-Compatible Software:

**Full Accounting Software**: These are comprehensive solutions, such as AccountsOS, that handle all aspects of your bookkeeping, from invoicing and expense tracking to bank reconciliation and MTD submissions. They are designed to automate many tasks and provide a complete financial overview.

**Bridging Software**: If you prefer to keep your records in a spreadsheet, bridging software acts as a digital link. It takes the data from your spreadsheet and converts it into an MTD-compliant format, then submits it to HMRC. While it allows for continued spreadsheet use, it adds an extra step and may lack the automation features of full accounting software.

**Important Note on Spreadsheets:** While bridging software allows you to continue using spreadsheets for record keeping, the spreadsheet itself must be digitally linked to the bridging software. This means no manual re-keying of data between the spreadsheet and the software, maintaining the digital trail from source data to HMRC.

## Exemptions from MTD ITSA

While MTD ITSA is designed to be widespread, certain individuals and entities are exempt from its requirements. Understanding these exemptions is important to determine if you need to comply.

### Automatic Exemptions:

- **Income Below Thresholds**: If your total qualifying income from self-employment and UK property remains consistently below the mandated thresholds, you are automatically exempt from MTD ITSA. Currently, this means below £50,000 for the 2026 rollout and below £30,000 for the 2027 rollout.
- **Specific Entity Types**: Some types of entities are not included in the initial MTD ITSA rollout, such as trusts, estates, and non-resident companies.
- **Limited Companies**: Limited companies are not subject to MTD ITSA. They fall under MTD for Corporation Tax, which has a different timeline and set of rules.

### Exemptions by Application to HMRC:

Even if your income is above the threshold, you might be able to apply to HMRC for an exemption if it is "not reasonably practicable" for you to use digital tools to keep business records or send updates. This typically applies in specific circumstances, including:

- **Religious Belief**: If your religious beliefs are incompatible with the use of electronic communications.
- **Age, Disability or Location**: If you are genuinely unable to use digital technology due to age, a disability, or if you live in a remote area with no internet access. This is assessed on a case-by-case basis by HMRC.
- **Insolvency**: If you are subject to an insolvency procedure.

To claim an exemption on these grounds, you must contact HMRC directly and provide evidence to support your claim. HMRC will review your application and inform you of their decision. It is important not to assume you are exempt; always confirm your status with HMRC if you believe you qualify for one of these discretionary exemptions.

**Do Not Assume Exemption:** If you believe you are exempt for reasons other than your income being below the threshold, you must apply to HMRC. Continuing with traditional Self Assessment without an approved exemption could result in penalties once MTD ITSA becomes mandatory for your income level.

## Penalties for Non-Compliance with MTD ITSA

HMRC is introducing a new penalty system for MTD ITSA to encourage compliance with the digital record keeping and quarterly reporting requirements. This new system is points-based, similar to that used for MTD VAT.

### Late Submission Penalties:

For each missed quarterly update, you will receive a point. Once you accumulate a certain number of points within a rolling period, a financial penalty will be issued.

- **Points Accumulation**: For annual submissions, 2 points will trigger a penalty. For quarterly submissions, 4 points will trigger a penalty.
- **Penalty Amount**: Each penalty for late submission is £200.
- **Points Expiry**: Points expire after a certain period of compliance. For quarterly submissions, points generally expire after 24 months of full compliance.

### Late Payment Penalties and Interest:

The penalties for late payment of tax will also change. A new stepped approach will apply:

- **First Penalty**: If tax is not paid within 15 days of the due date, a penalty of 2% of the unpaid tax is charged.
- **Second Penalty**: If tax is not paid within 30 days of the due date, an additional 2% of the unpaid tax is charged.
- **Daily Penalties**: After 30 days, a daily penalty of 4% per annum will apply to the outstanding amount.
- **Interest**: HMRC will also charge interest on any unpaid tax from the due date until it is paid in full. The interest rate is typically the Bank of England base rate plus 2.5%.

### Penalties for Failure to Keep Digital Records:

If you fail to keep digital records as required by MTD ITSA, you could face penalties ranging from £100 to £400 for each failure. HMRC may issue these penalties if your records are not kept digitally, are incomplete, or are not preserved for the required period.

### Penalties for Inaccurate Returns:

Penalties for inaccuracies in returns can range from 0% to 100% of the additional tax due, depending on whether the error was careless, deliberate, or concealed. While MTD ITSA aims to reduce errors, it does not remove the responsibility for accuracy.

**Avoid Penalties Through Preparation:** The best way to avoid MTD ITSA penalties is to prepare thoroughly. This includes setting up MTD-compatible software, maintaining accurate digital records consistently, and submitting all quarterly updates and annual statements on time. Proactive management of your tax affairs will be more critical than ever under MTD.

## Benefits of Making Tax Digital for Sole Traders and Freelancers

While the transition to MTD ITSA represents a significant change, it also brings several potential benefits for sole traders and freelancers who embrace the digital transformation.

### Improved Accuracy and Reduced Errors

Digital record keeping and automated submissions can significantly reduce the risk of human error, which is common with manual data entry and calculations. MTD-compatible software can flag potential mistakes, leading to more accurate tax returns and fewer issues with HMRC.

### Better Financial Overview and Business Insights

By keeping digital records and reviewing your finances quarterly, you gain a more up-to-date and comprehensive understanding of your business's performance. This real-time data can help you make more informed business decisions, identify trends, and manage cash flow more effectively.

### Enhanced Tax Planning and Cash Flow Management

Regular quarterly updates provide a clearer picture of your estimated tax liability throughout the year. This allows for better tax planning, enabling you to set aside funds for your tax bill incrementally rather than facing a large, unexpected payment at the end of the tax year.

### Streamlined Administration and Time Savings

While there is an initial learning curve, MTD-compatible software can automate many routine bookkeeping tasks. Features like bank feeds and automated categorisation can save significant time compared to manual record keeping, freeing you to focus more on your core business activities.

### Simplified Collaboration with Accountants

If you use an accountant, digital records make it much easier for them to access your financial data, provide advice, and prepare your EOPS and final declaration. This can lead to more efficient collaboration and potentially reduce accounting fees if your records are well-maintained.

Embracing MTD ITSA is not just about compliance, it is an opportunity to digitise and optimise your financial management, bringing long-term benefits to your business operations and financial health.

## How AccountsOS Simplifies MTD ITSA for You

AccountsOS is designed to make your transition to MTD as smooth as possible. VAT MTD is live today ([on HMRC's list of MTD VAT software](https://www.tax.service.gov.uk/making-tax-digital-software)). MTD for Income Tax (ITSA) support is in development ahead of April 2026.

### Automated Digital Record Keeping

Seamlessly connect your bank accounts and credit cards to AccountsOS. Our smart categorisation helps you keep digital records of all your income and expenses effortlessly, meeting HMRC's MTD requirements from day one.

### ITSA Quarterly Updates (In Development)

AccountsOS is building quarterly update submission direct to HMRC for Income Tax ahead of April 2026. VAT submissions are live today.

### Real-Time Tax Estimates

See your estimated Income Tax liability update in real-time as you record transactions. This constant overview empowers you with better financial planning, allowing you to set aside funds and avoid year-end surprises.

### EOPS and Final Declaration (In Development)

EOPS and Final Declaration support for Income Tax is being built ahead of April 2026. AccountsOS already prepares digital records that make this process straightforward.

### Compliance Assurance

Stay confident with built-in MTD ITSA compliance checks and reminders. AccountsOS keeps you informed of upcoming deadlines and ensures your records adhere to HMRC's digital standards.

### Intuitive Interface

Designed for sole traders and freelancers, our platform is user-friendly and easy to navigate, even if you have no prior accounting experience. Focus on your business, not complex tax software.

## Frequently asked questions

### What is the main goal of MTD ITSA?

The primary goal of MTD ITSA is to modernise the tax system, making it easier for individuals to manage their tax affairs digitally. It aims to reduce common errors in tax returns and provide HMRC with a more up-to-date view of taxpayer income.

### Do I need to buy new software for MTD ITSA?

Yes, you will need MTD-compatible software to keep digital records and submit your quarterly updates to HMRC. This can be full accounting software like AccountsOS, or bridging software if you prefer to maintain records in a spreadsheet.

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

Once mandated into MTD ITSA, you generally remain in the scheme. You can only leave if your qualifying income falls below £10,000 for three consecutive tax years, at which point you can notify HMRC to opt out.

### Can I still use an accountant with MTD ITSA?

Absolutely. Accountants will continue to play a crucial role. They can help you choose and set up MTD-compatible software, ensure your records are accurate, prepare your End of Period Statements, and submit your final declarations. Their expertise remains invaluable.

### Are quarterly updates a new tax return?

No, quarterly updates are not full tax returns. They are summaries of your income and expenses for the quarter, providing an estimate of your tax position. Your actual tax liability is calculated later with the End of Period Statement and final declaration.

### What is an End of Period Statement (EOPS)?

The EOPS is an annual statement that finalises your business or property income and expenses for the entire tax year. It allows for any necessary accounting adjustments, claims for capital allowances, and other reliefs before your total tax liability is calculated.

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

Mistakes in quarterly updates can be corrected in a subsequent quarterly update or in your End of Period Statement. The key is to rectify errors as soon as you identify them to maintain accuracy and avoid potential penalties for careless inaccuracies.

### Does MTD ITSA affect my VAT returns?

No, MTD ITSA is separate from MTD for VAT. If you are VAT registered, you are already complying with MTD for VAT. MTD ITSA applies specifically to Income Tax Self Assessment for sole traders and landlords.

## Related guides

- [AccountsOS MTD Hub](/mtd)
- [HMRC MTD Guidance](https://www.gov.uk/guidance/making-tax-digital-for-income-tax)
- [All Tax Deadlines](/deadlines)