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

Last updated: 22 July 2026

From April 6, 2026, self-employed individuals and landlords with annual business or property income exceeding £50,000 must comply with Making Tax Digital for Income Tax Self Assessment (MTD ITSA), requiring them to keep digital records of income and expenses, and submit quarterly summaries to HMRC using MTD-compatible software, alongside an End of Period Statement and a Final Declaration.

The UK tax landscape is undergoing a significant transformation with the phased introduction of Making Tax Digital (MTD). One of the most impactful changes for individuals is MTD for Income Tax Self Assessment (MTD ITSA). This initiative is designed to modernise the tax system, making it more efficient, accurate, and easier for taxpayers to manage their affairs digitally. However, it also introduces substantial new obligations for hundreds of thousands of self-employed individuals and landlords across the UK.

Beginning April 6, 2026, the traditional annual Self Assessment tax return will be largely replaced for eligible taxpayers by a system of quarterly digital updates, an End of Period Statement (EOPS), and a final declaration. This shift requires businesses to adopt MTD-compatible software for record-keeping and submissions, representing a fundamental change in how income tax is reported and managed. Understanding these new rules, the associated deadlines, and the potential costs and penalties is crucial for ensuring compliance and avoiding disruption to your business operations. This comprehensive guide will equip you with the knowledge needed to navigate MTD ITSA successfully.

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

MTD ITSA represents a fundamental shift from the current annual Self Assessment system. Its core aim is to digitise the reporting process, moving from a once-a-year submission to more frequent, digital updates. This is intended to reduce errors, provide taxpayers with a more up-to-date view of their tax position, and make interactions with HMRC simpler and more efficient.

### What is Making Tax Digital?

Making Tax Digital is a government initiative to make it easier for individuals and businesses to get their tax right and to keep on top of their tax affairs. It is part of a wider government strategy to become one of the most digitally advanced tax administrations in the world. MTD has already been implemented for VAT-registered businesses, and MTD ITSA extends these principles to income tax for self-employed individuals and landlords.

### The Purpose of MTD ITSA

HMRC states that the purpose of MTD ITSA is to:

- Reduce errors in tax returns, which currently cost the Exchequer billions each year.
- Make tax administration more effective, efficient, and easier for taxpayers.
- Provide businesses with a clearer, more up-to-date picture of their tax affairs, enabling better financial planning.
- Simplify the process of keeping records by mandating digital tools.

## Who Needs to Comply? MTD ITSA Eligibility and Thresholds

MTD ITSA is being rolled out in phases, based on a taxpayer's gross income from self-employment and/or property. It is crucial to understand these thresholds and dates to determine if you are affected.

### Income Thresholds and Start Dates

| Start date | Income threshold | Who is affected |
| --- | --- | --- |
| From April 6, 2026 | £50,000+ | Self-employed individuals and landlords |
| From April 6, 2027 | £30,000+ | Self-employed individuals and landlords |
| From April 6, 2028 | £20,000+ | Further expansion possible, details TBC |

The income threshold refers to your total gross income from all self-employment businesses and UK property income. It does not include income from employment, pensions, or investments. If your combined gross income from these sources exceeds the relevant threshold in a tax year, you will be mandated to comply with MTD ITSA from the start of your next accounting period.

### Calculating Your Relevant Income

To determine if you meet the threshold, you should calculate your gross income from:

- All self-employment businesses.
- Any UK property income (e.g., rental income).

If you have multiple self-employment businesses or multiple property incomes, these are aggregated to determine if you cross the threshold. For example, if you have two self-employment businesses, one earning £30,000 gross and another £25,000 gross, your total relevant income is £55,000. This would put you above the £50,000 threshold for April 2026.

**What if my income fluctuates?** HMRC will generally use the income from the previous tax year to determine if you meet the threshold. If your income drops below the threshold in a future year, you may be able to opt out, but you must continue to comply for at least one full tax year after becoming mandated.

## The New MTD ITSA Rules: What You Need to Do

MTD ITSA introduces three main reporting obligations that replace the annual Self Assessment return for eligible taxpayers: digital record-keeping, quarterly updates, and an End of Period Statement (EOPS) followed by a Final Declaration.

### 1. Digital Record Keeping

The cornerstone of MTD ITSA is the requirement to keep digital records of all your business and property income and expenses. This means:

- **No more paper ledgers:** All records must be held digitally, typically within MTD-compatible software.
- **Categorisation:** Income and expenses need to be categorised appropriately for tax purposes, often mapped to HMRC's standard categories.
- **Transaction-level detail:** Each transaction should be recorded, not just summarised totals.

While HMRC does not mandate specific software, it must be "HMRC-compatible" and capable of sending and receiving information digitally from HMRC. This could be dedicated accounting software, spreadsheet software with bridging functionality, or a combination.

### 2. Quarterly Updates (Income and Expenses)

Instead of a single annual return, you will need to submit summaries of your business and property income and expenses to HMRC every three months. These are known as "quarterly updates".

Each quarterly update will report the totals of your income and expenses for that specific quarter. It is important to note that these are summaries of your records, not a full tax calculation. The software will extract the necessary data from your digital records and send it to HMRC.

#### Quarterly Update Deadlines

The deadlines for quarterly updates are fixed, regardless of your business's accounting period end date, and are based on the tax year (6 April to 5 April).

| Period Start | Period End | Quarterly Update 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 |

Note: If your accounting period does not align with the tax year, your software will need to extract the relevant data for these fixed tax year quarters.

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

After your fourth quarterly update, you will need to submit an End of Period Statement (EOPS) for each business or property income source. The EOPS allows you to make any necessary accounting adjustments and claim reliefs or allowances that were not included in the quarterly updates.

This is where you finalise your taxable profit or loss for the accounting period. Adjustments might include:

- Capital allowances.
- Accruals and prepayments.
- Private use adjustments.
- Stock adjustments.
- Any other year-end accounting adjustments.

The deadline for submitting your EOPS is the same as your Final Declaration deadline, which is January 31 following the end of the tax year.

### 4. Final Declaration

The Final Declaration replaces the current Self Assessment tax return. After all EOPS have been submitted for all your income sources, you will make a single Final Declaration. This declaration will bring together all your income streams, including those not covered by MTD ITSA (e.g., employment income, dividends, interest), and calculate your final income tax and National Insurance contributions liability for the tax year.

The deadline for the Final Declaration is January 31 following the end of the tax year (e.g., for the tax year ending April 5, 2027, the deadline is January 31, 2028).

**Important:** Your tax liability will be calculated after your Final Declaration, but you are still expected to make payments on account based on your previous year's liability, as per the current Self Assessment system.

## MTD ITSA Software Requirements and Associated Costs

A key part of MTD ITSA compliance is the mandatory use of MTD-compatible software. This software must be capable of keeping digital records and communicating directly with HMRC's systems to submit quarterly updates, EOPS, and the Final Declaration.

### What is MTD-Compatible Software?

HMRC does not provide its own MTD software. Instead, it relies on third-party software providers. MTD-compatible software must meet specific technical requirements set by HMRC, allowing it to:

- Record all relevant business transactions digitally.
- Categorise income and expenses according to HMRC's requirements.
- Generate and submit the quarterly summaries of income and expenses.
- Generate and submit the End of Period Statement.
- Generate and submit the Final Declaration.
- Receive information from HMRC, such as estimated tax liabilities.

#### Types of MTD Software Solutions

There are generally two main types of MTD-compatible software solutions:

- **Integrated Accounting Software:** Full accounting software packages (like AccountsOS) that handle all aspects of bookkeeping, invoicing, bank reconciliation, and MTD submissions. These are often cloud-based and offer a comprehensive solution for managing business finances.
- **Bridging Software:** For those who prefer to keep their records using spreadsheets, bridging software acts as an intermediary. It takes data from your spreadsheet and converts it into the MTD-compliant format, then submits it to HMRC. This can be a lower-cost option but requires more manual data entry and careful management of your spreadsheet.

### Estimated Costs of MTD ITSA Compliance

Complying with MTD ITSA will involve some costs, primarily related to software and potentially professional advice or training. HMRC's own impact assessment provides estimates:

#### Initial Setup Costs

The initial costs are estimated to be around **£280 to £350 per business**. These costs typically cover:

- **Software purchase or subscription setup:** Setting up an account with an MTD-compatible software provider.
- **Training:** Learning how to use the new software and understanding the new MTD processes. This could be self-taught or involve paid training courses.
- **Initial data migration:** Transferring existing records into the new digital format, if not already digital.
- **Professional advice:** Consulting with an accountant or tax advisor to ensure a smooth transition.

#### Ongoing Software Fees

Ongoing software fees are estimated to be around **£110 yearly**. This is typically a subscription fee for your chosen MTD-compatible software. The actual cost will vary significantly depending on the software package you choose, its features, and the number of users. Basic bridging software might be cheaper, while comprehensive accounting suites will be more expensive.

**Cost-Benefit Analysis:** While there are upfront and ongoing costs, HMRC argues that MTD ITSA will lead to long-term benefits, including fewer errors, less time spent correcting mistakes, and a clearer picture of tax liabilities, potentially reducing reliance on professional advisors for routine tasks.

## Penalties for MTD ITSA Non-Compliance

HMRC is introducing a new points-based penalty system for MTD ITSA. This system is designed to be fairer and more proportionate than previous penalty regimes, but penalties can still accumulate quickly if compliance is not maintained.

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

For late submission of quarterly updates, a points-based system will apply:

- **Points Accumulation:** You will receive one point for each late quarterly submission.
- **Penalty Threshold:** Once you reach a certain number of points, you will be issued a financial penalty.
  - For annual submissions (like EOPS or Final Declaration), the threshold is 2 points.
  - For quarterly submissions, the threshold is 4 points.
- **Financial Penalty:** Each time you reach the penalty threshold, you will receive a £200 penalty.
- **Points Expiry:** Points expire after 24 months of continuous compliance for quarterly submissions, or after 24 months if no further submissions are due for annual submissions.

#### Example of Points-Based Penalty for Quarterly Updates

A self-employed individual is mandated for MTD ITSA from April 2026.

- **Quarter 1 (Apr-Jul):** Submitted on time. Points: 0.
- **Quarter 2 (Jul-Oct):** Submitted late. Points: 1.
- **Quarter 3 (Oct-Jan):** Submitted late. Points: 2.
- **Quarter 4 (Jan-Apr):** Submitted late. Points: 3.
- **Quarter 1 (Apr-Jul, next tax year):** Submitted late. Points: 4. A £200 penalty is issued.

Subsequent late submissions will incur further £200 penalties as points accumulate beyond the threshold, for instance, if the points reach 8, another £200 penalty will be issued.

### Other Penalties

Beyond the points system for quarterly updates, other types of non-compliance can also incur penalties:

| Type | Description |
| --- | --- |
| Late Quarterly Update | Points-based system, 1 point per late submission, leading to fines. |
| Failure to Keep Digital Records | Up to £300 for initial failure, £50-£500 for ongoing failures. |
| Inaccurate Returns | Penalties based on behaviour (careless, deliberate) and potential lost tax. |
| Late End of Period Statement (EOPS) | Likely to mirror existing Self Assessment penalties for annual returns, starting at £100. |
| Late Final Declaration | Likely to mirror existing Self Assessment penalties for annual returns, starting at £100. |

**Interest on Late Payments:** In addition to penalties, HMRC will also charge interest on any tax paid late. This interest accrues from the payment due date until the tax is paid in full. The rate is typically the Bank of England base rate plus 2.5%, and it can add up quickly on larger tax liabilities.

**Preventative Action:** The best way to avoid penalties is to ensure you use MTD-compatible software, keep accurate digital records, and submit all required updates and declarations by their respective deadlines.

## Exemptions from MTD ITSA

While MTD ITSA is becoming mandatory for many, certain individuals may be exempt from the requirements. These exemptions are generally in place to protect those who genuinely cannot comply digitally.

### Who is Exempt?

You may be exempt from MTD ITSA if:

- **Digital Exclusion:** It is not reasonably practicable for you to use digital tools to keep records or submit returns for reasons of age, disability, remoteness of location, or any other reason. You must apply to HMRC for this exemption.
- **Religious Objection:** Your religious beliefs are incompatible with the use of electronic communications. Again, you must apply to HMRC for this exemption.
- **Insolvency:** You are subject to an insolvency procedure (e.g., bankruptcy).
- **Not meeting the income threshold:** If your gross qualifying income (from self-employment and property) consistently falls below the relevant threshold, you are not mandated to join MTD ITSA, although you can choose to join voluntarily.
- **Trusts, Estates, and Corporate Landlords:** MTD ITSA currently applies to individuals. Trusts, estates, and companies (including corporate landlords) are not within the scope of MTD ITSA. Companies are subject to Corporation Tax, and those required to comply with MTD for VAT already do so.

**Applying for an Exemption:** If you believe you qualify for an exemption based on digital exclusion or religious objection, you must contact HMRC to request an exemption. You will need to provide reasons and evidence to support your claim. Do not assume you are exempt without confirmation from HMRC.

## Practical Steps to Prepare for MTD ITSA

Preparing for MTD ITSA now can save you significant stress and potential penalties later. Here are the key steps you should take:

1. Assess your eligibility based on income thresholds.
2. Choose HMRC-compatible MTD software or bridging software.
3. Ensure all income and expenses are recorded digitally.
4. Understand the quarterly reporting schedule.
5. Familiarise yourself with End of Period Statements (EOPS) and Final Declarations.
6. Consider professional advice or MTD-ready accounting software.

### Choosing the Right Software

Selecting appropriate software is perhaps the most critical preparatory step. Consider:

- **Ease of use:** How intuitive is the interface? Can you easily record transactions?
- **Features:** Does it offer bank feed integration, invoicing, expense management, and reporting?
- **HMRC compatibility:** Ensure it is listed as MTD ITSA compatible on HMRC's website.
- **Cost:** Compare subscription fees and consider any free trials.
- **Support:** What kind of customer support is available?
- **Accountant integration:** If you use an accountant, can they easily access and work with your chosen software?

### Aligning Your Accounting Period

Currently, many businesses use accounting periods that do not align with the tax year (April 6 to April 5). Under MTD ITSA, while quarterly updates are fixed to tax year quarters, your EOPS and Final Declaration will still be based on your business's accounting period.

HMRC is introducing "tax year basis" reforms alongside MTD ITSA. This will eventually require all unincorporated businesses to align their accounting periods with the tax year. While there's a transition year (2023-24) and further flexibility for 2024-25, by 2026, most businesses will likely need to be on a tax year basis to simplify MTD ITSA compliance. Discuss this with your accountant to understand the implications for your business.

### Training and Support

Invest time in understanding the new system and learning your chosen software. Many software providers offer tutorials and support. Your accountant can also provide invaluable guidance during this transition.

## Benefits and Challenges of MTD ITSA

Like any major reform, MTD ITSA presents both opportunities and challenges for self-employed individuals and landlords.

### Potential Benefits

- **Reduced errors:** Digital record-keeping and direct submission can minimise manual errors.
- **Real-time tax view:** Quarterly updates provide a more up-to-date picture of your tax liability, aiding financial planning.
- **Better business insights:** Digital records can offer better insights into business performance.
- **Streamlined processes:** Once established, the system aims to make tax administration more efficient.
- **Easier collaboration with accountants:** Cloud-based software allows accountants to access records easily.

### Potential Challenges

- **Initial setup costs:** Software subscriptions and potential training expenses.
- **Learning curve:** Adapting to new software and processes.
- **Increased frequency of reporting:** Quarterly submissions mean more frequent compliance tasks.
- **Potential for penalties:** The new points-based system means errors or missed deadlines can lead to fines.
- **Digital literacy:** Some individuals may struggle with the digital-first approach.
- **Time commitment:** Initially, more time may be needed to ensure compliance.

## MTD ITSA for Specific Scenarios

MTD ITSA's rules can interact differently depending on your business structure and income sources.

### Partnerships

Partnerships will be brought into MTD ITSA at a later date, with the current expectation for general partnerships being from April 2026 if all partners are individuals and the partnership income exceeds the threshold. However, complex partnerships (e.g., those with corporate partners) will follow later. When a partnership is mandated, the partnership itself will need to keep digital records and submit quarterly updates. Each individual partner will then use this information to complete their own EOPS and Final Declaration.

### Multiple Income Streams

If you have multiple self-employment businesses or a combination of self-employment and property income, you will need to keep separate digital records for each income source. Each income source will require its own set of quarterly updates and an individual EOPS. Your Final Declaration will then bring all these together.

For instance, a person with a freelance design business and a buy-to-let property will need to maintain two sets of digital records, submit two sets of quarterly updates, and two EOPS before filing their single Final Declaration.

### Voluntary Compliance Below the Threshold

Even if your income is below the MTD ITSA threshold, you can choose to comply voluntarily. This can be beneficial as it allows you to get used to the system before it potentially becomes mandatory for you in future phases. It can also help streamline your record-keeping and provide a clearer picture of your tax position throughout the year.

## How AccountsOS Simplifies MTD ITSA Compliance

AccountsOS is designed to make your MTD ITSA journey as smooth as possible, ensuring you meet all HMRC requirements with ease.

### HMRC-Compatible Digital Records

Seamlessly record all your income and expenses digitally, categorised for MTD ITSA compliance. Our platform ensures your records meet HMRC's stringent requirements.

### Automated Quarterly Updates

Generate and submit your quarterly income and expense summaries directly to HMRC with just a few clicks. AccountsOS handles the complex data formatting for you.

### End of Period Statement (EOPS) Support

Effortlessly make year-end adjustments and prepare your EOPS, ensuring all reliefs and allowances are correctly applied before your final submission.

### Real-Time Tax Estimates

Get an ongoing estimate of your income tax liability throughout the year, updated as you record transactions, helping you avoid year-end surprises and plan payments.

### Deadline Reminders

Receive automated alerts for all your MTD ITSA deadlines, including quarterly updates, EOPS, and Final Declarations, helping you stay compliant and avoid penalties.

### Secure Cloud Access

Access your financial data and make submissions securely from anywhere, at any time. Your data is protected with industry-leading encryption.

## Frequently asked questions

### When does MTD ITSA officially start?

MTD ITSA launches on April 6, 2026, for self-employed individuals and landlords with annual business or property income over £50,000. The threshold will drop to £30,000 from April 6, 2027.

### What is the income threshold for MTD ITSA?

Initially, the threshold is £50,000 of combined gross income from self-employment and/or property. This reduces to £30,000 from April 6, 2027, and further phases are planned.

### Do I still need to submit a Self Assessment tax return?

For income covered by MTD ITSA, the traditional annual Self Assessment return is replaced by quarterly updates, an End of Period Statement (EOPS), and a Final Declaration. Other income not covered by MTD will be included in the Final Declaration.

### What kind of software do I need for MTD ITSA?

You must use HMRC-compatible software that can keep digital records of your income and expenses and submit the required updates directly to HMRC. This could be full accounting software or bridging software.

### What happens if I miss a quarterly update deadline?

HMRC will implement a new points-based penalty system. Each late submission accrues points, and once a threshold (e.g., 4 points for quarterly submissions) is reached, a £200 penalty is issued. Further penalties apply for continued non-compliance.

### Are there any exemptions from MTD ITSA?

Yes, individuals who are digitally excluded due to age, disability, or location, or those with religious objections, may apply for an exemption from HMRC. Trusts, estates, and limited companies are also currently exempt from MTD ITSA.

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

The EOPS is a summary of your business's financial activity for its accounting period, allowing you to make any necessary accounting adjustments and claim reliefs or allowances before your final tax calculation.

### Can I join MTD ITSA voluntarily if my income is below the threshold?

Yes, you can choose to join MTD ITSA voluntarily even if your income is below the mandatory threshold. This can be a good way to familiarise yourself with the new system and benefit from digital record-keeping.

## Related guides

- [MTD for VAT Guide](/filing/mtd-vat)
- [Self Assessment Tax Guide](/filing/self-assessment)
- [All Tax Deadlines](/deadlines)