# Making Tax Digital for Income Tax (MTD ITSA)

Last updated: 23 September 2026

From April 2026, sole traders and landlords with qualifying income over £50,000 must transition to Making Tax Digital for Income Tax Self Assessment (MTD ITSA), requiring digital record keeping and quarterly income/expense updates to HMRC. This phased rollout will extend to those with income over £30,000 from April 2027, fundamentally changing how Self Assessment is managed.

Making Tax Digital (MTD) represents a significant shift in how businesses and individuals interact with HMRC. Following the successful implementation of MTD for VAT, the initiative is now extending to Income Tax Self Assessment (ITSA). This means that sole traders and landlords, traditionally accustomed to a single annual tax return, will soon be required to maintain digital records and submit regular updates to HMRC throughout the tax year. This guide provides a comprehensive overview of the new MTD ITSA rules for sole traders from April 2026, detailing who is affected, what the new requirements entail, key deadlines, and how to ensure compliance.

The transition to MTD ITSA is designed to make tax administration more efficient, reduce errors, and provide businesses with a clearer, more real-time understanding of their tax position. While the initial change may seem daunting, embracing digital tools can streamline your accounting processes and offer significant benefits in managing your finances. This document will serve as an authoritative reference, covering everything from eligibility thresholds and digital record keeping to the specifics of quarterly reporting, End of Period Statements, and the Final Declaration. We will also explore the penalty regime, potential exemptions, and how AccountsOS is uniquely positioned to simplify your MTD ITSA journey.

## Who Does Making Tax Digital for Income Tax Affect?

MTD ITSA applies to sole traders and landlords with qualifying income above a certain threshold. The rollout is phased, starting with higher income earners.

| Start | Qualifying income | Applies to |
| --- | --- | --- |
| From April 2026 | Over £50,000 | Sole traders and landlords |
| From April 2027 | Over £30,000 | Sole traders and landlords |
| Future (TBC) | Over £20,000 | Sole traders and landlords |

**What is 'Qualifying Income'?** Qualifying income refers to the total gross income from your self-employment businesses and UK property businesses. This is before any expenses or allowances are deducted. If the combined total of these gross incomes exceeds the relevant threshold for your tax year, you will be required to comply with MTD ITSA. It is crucial to monitor your gross income, not just your profit, to determine your MTD ITSA obligations.

## Core Requirements of Making Tax Digital for Income Tax Self Assessment

MTD ITSA fundamentally changes how sole traders and landlords report their income and expenses to HMRC. The two primary requirements are digital record keeping and digital submissions.

### Digital Record Keeping

All businesses and landlords mandated to join MTD ITSA must keep digital records of their income and expenses. This means moving away from paper-based ledgers or manual spreadsheets that are not digitally linked.

**What Records Must Be Kept Digitally?**

- **Income:** All sales, invoices, cash receipts, and other forms of business income must be recorded digitally. This includes the date, amount, and category of each transaction.
- **Expenses:** Every business expense must be recorded digitally, including the date, amount, and category. Examples include supplier invoices, utility bills, travel costs, and professional fees.
- **Adjustments:** Any adjustments made for business use of a home, private use of assets, or capital allowances must also be part of your digital records.

**What Constitutes Digital Software?**

- **HMRC-Recognised Software:** This is the most straightforward approach. Software like AccountsOS is designed to meet HMRC's MTD requirements, automating record keeping and submissions.
- **Spreadsheets with API Link:** You can continue to use spreadsheets for record keeping if they are linked to an MTD-compatible software via an Application Programming Interface (API). This API acts as a digital bridge, allowing data from your spreadsheet to be submitted to HMRC in the required format. Simply manually typing data from a spreadsheet into HMRC's portal is not MTD-compliant.

**The 'Digital Link' Rule**

- A core principle of MTD is the 'digital link'. This means that data must flow between different software programs or parts of a software suite without manual intervention. For example, if you use separate software for invoicing and accounting, these systems must be digitally linked to transfer data seamlessly. Copying and pasting, or re-typing data, breaks the digital link and is not compliant.

### Digital Submissions to HMRC

Under MTD ITSA, you will need to make three types of digital submissions to HMRC, replacing the single annual Self Assessment tax return.

### Quarterly Updates

Summary of business income and expenses every three months.

### End of Period Statement (EOPS)

Annual finalisation of business income and expenses for the tax year.

### Final Declaration

Consolidates all income sources and claims reliefs to calculate final tax.

### Quarterly Updates in detail

These are summaries of your business income and expenses, submitted every three months. They provide HMRC with a more frequent snapshot of your trading activity.

- **What's Included:** Each quarterly update will include a summary of your income and expenses for the specific three-month period. You won't need to send detailed breakdowns of every transaction, but rather categorised totals.
- **Frequency and Deadlines:** The tax year for MTD ITSA runs from 6 April to 5 April. You will have four quarterly reporting periods. The deadline for each quarterly update is one month and one week after the end of the period.
- **Adjustments in Quarterly Updates:** If you discover an error in a previous quarterly update, you can make an adjustment in a subsequent update or as part of your End of Period Statement.

### End of Period Statement (EOPS) in detail

After your final quarterly update, you will submit an End of Period Statement for each business or property letting activity. This statement finalises the income and expenses for that specific tax year.

- **Purpose:** The EOPS allows you to make any necessary accounting and tax adjustments that were not included in the quarterly updates. This includes disallowable expenses, capital allowances, and private use adjustments.
- **Deadline:** The EOPS must be submitted by 31 January following the end of the tax year. For example, for the tax year ending 5 April 2027, the EOPS would be due by 31 January 2028.
- **What's Included:** This is where you declare items such as your capital allowance claims, adjustments for personal use of business assets, stock valuations, and any other year-end accounting entries required to calculate your final taxable profit for the business.

### Final Declaration in detail

The Final Declaration is the equivalent of your current Self Assessment tax return. It brings together all your income sources, including those not covered by MTD ITSA (e.g., employment income, dividends, pensions), and allows you to claim any personal allowances and reliefs.

- **Purpose:** This is the final step in calculating your overall income tax and National Insurance contributions for the tax year.
- **Deadline:** Like the EOPS, the Final Declaration must be submitted by 31 January following the end of the tax year.
- **Comparison with Current Self Assessment:** While the information submitted is similar, the process is different. The MTD ITSA process involves multiple digital touchpoints throughout the year, culminating in the Final Declaration, rather than a single annual submission from scratch.

## Navigating MTD ITSA Timelines and Deadlines

Understanding the new deadlines is crucial for MTD ITSA compliance. The tax year remains 6 April to 5 April, but reporting becomes much more frequent.

### Quarterly Update Deadlines

For a standard tax year (e.g., 6 April 2026 to 5 April 2027), the quarterly reporting periods and their respective deadlines are as follows:

| Reporting 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 |

**Example:** For the tax year 6 April 2026 - 5 April 2027:

- Your first quarterly update (6 April - 5 July 2026) is due by 5 August 2026.
- Your fourth quarterly update (6 January - 5 April 2027) is due by 5 May 2027.
- Your End of Period Statement and Final Declaration are both due by 31 January 2028.

### End of Period Statement (EOPS) and Final Declaration Deadlines

Both the EOPS for each business/property and the overarching Final Declaration must be submitted by **31 January** following the end of the tax year. This deadline aligns with the current Self Assessment deadline for online submissions.

- **For tax year 6 April 2026 - 5 April 2027:** EOPS due: 31 January 2028. Final Declaration due: 31 January 2028.

### Payment on Account Under MTD ITSA

While MTD ITSA changes reporting, the system for paying your tax remains largely the same for now. You will still make Payments on Account in January and July each year, based on your previous year's tax liability.

- **How it Changes:** The benefit of quarterly updates is that you will have a more accurate, real-time estimate of your tax liability. This allows you to adjust your Payments on Account if your income changes significantly, helping to avoid overpaying or facing a large balancing payment at the end of the year.
- **Reducing Payments on Account:** If your quarterly updates indicate that your actual tax liability will be lower than your previous year's, you can apply to HMRC to reduce your Payments on Account. This can improve your cash flow.

## Practical Steps for Sole Traders to Prepare for MTD ITSA

Preparing for MTD ITSA involves several key steps to ensure a smooth transition and ongoing compliance.

### Step 1: Assess Your Income Threshold

The first step is to determine if you are mandated to join MTD ITSA.

- **Calculating Qualifying Income:** Sum the gross income (before expenses) from all your self-employment businesses and UK property businesses for the tax year. If this total exceeds the current threshold (£50,000 from April 2026, £30,000 from April 2027), you are in scope.
- **Fluctuating Income:** If your income fluctuates, you should monitor it regularly. If you fall below the threshold in a subsequent year, you may be able to opt out, but many find it beneficial to continue.

### Step 2: Choose MTD-Compatible Software

This is arguably the most critical decision. You must use software that is recognised by HMRC for MTD ITSA.

- **Criteria for Selection:** Look for software that offers automated bank feeds, intelligent expense categorisation, real-time tax estimates, and direct submission capabilities to HMRC. User-friendliness, support, and pricing are also key considerations.
- **AccountsOS as an MTD ITSA Solution:** AccountsOS is designed to simplify MTD ITSA compliance, providing all the necessary tools for digital record keeping, quarterly updates, and year-end submissions.

### Step 3: Migrate to Digital Record Keeping

Once you have your software, the next step is to set up your digital accounting system.

- **Setting Up Your Chart of Accounts:** Ensure your income and expense categories align with HMRC's requirements for MTD ITSA. Most MTD software will have pre-set categories.
- **Recording Income:** Connect your business bank accounts to your software for automatic import of transactions. Ensure all income is accurately categorised and linked to supporting documentation if needed.
- **Recording Expenses:** Similarly, import expense transactions and categorise them. Keep digital copies of receipts and invoices. Understand the difference between allowable and disallowable expenses early on.
- **Bank Reconciliation:** Regularly reconcile your bank accounts with your software records to ensure accuracy and identify any missing transactions. This is a critical step for MTD compliance.

### Step 4: Understand Allowable Expenses and Capital Allowances

Maximising your allowable deductions is key to reducing your tax bill. MTD ITSA requires these to be recorded digitally.

- **Common Allowable Expenses:** These include office costs (rent, utilities, stationery), travel costs, staff costs, marketing, professional fees, software subscriptions, and training. Keep detailed records for each.
- **Capital Allowances:** For larger purchases like equipment or vehicles, you may claim capital allowances instead of expensing the full cost. Examples include the Annual Investment Allowance (AIA) and Full Expensing. These adjustments are typically made in the EOPS.
- **Private Use Adjustments:** If you use business assets or incur expenses that have a private element (e.g., using your car for personal journeys, working from home), you must adjust the expense to reflect only the business portion. These adjustments are also typically made in the EOPS.

### Step 5: Training and Support

Don't hesitate to seek help as you transition to MTD ITSA.

- **Software Tutorials:** Most MTD-compatible software provides tutorials and guides to help you get started. Utilise these resources to familiarise yourself with the system.
- **Working with an Accountant:** While not mandatory, an accountant can provide invaluable advice on setting up your system, ensuring correct categorisation, making year-end adjustments, and navigating complex tax situations. They can also submit on your behalf if authorised.
- **HMRC Resources:** HMRC provides extensive guidance on MTD ITSA on GOV.UK. Regularly check these resources for updates and detailed information.

## Adjustments, Corrections, and Errors in MTD ITSA

Mistakes happen, and MTD ITSA provides mechanisms for correcting errors at different stages of the reporting process.

### Correcting Errors in Quarterly Updates

- If you discover an error in a quarterly update you have already submitted, you can correct it in a subsequent quarterly update for the same tax year. Your MTD software should allow you to make these adjustments, which will be reflected in the next submission.
- For minor errors, you might choose to wait and include the correction as part of your End of Period Statement.

### Adjustments in the End of Period Statement (EOPS)

- The EOPS is the primary opportunity to make comprehensive adjustments to your business or property income and expenses for the entire tax year.
- **Accounting Adjustments:** This includes standard year-end accounting entries such as accruals, prepayments, stock adjustments, and depreciation (if not claiming capital allowances).
- **Tax Adjustments:** This is where you apply tax-specific rules, such as adding back disallowable expenses (e.g., entertaining costs), claiming capital allowances, making private use adjustments, and applying any averaging rules for farmers/creatives.

### Correcting Errors After Final Declaration

- If you find an error after submitting your Final Declaration, you can amend it within 12 months of the 31 January submission deadline. This is typically done through your MTD-compatible software.
- For errors discovered outside this 12-month window, you would need to contact HMRC directly or write to them, explaining the error and providing the correct figures.

## Specific Scenarios and Considerations for MTD ITSA

MTD ITSA can present unique challenges depending on your business structure and income sources.

### Starting a Business Mid-Year

If you start a new business or property letting activity part-way through a tax year, your MTD ITSA obligations will begin from the date you start trading, provided your qualifying income is above the threshold. You will then submit quarterly updates for the remaining periods of that tax year.

### Stopping a Business

If you cease trading during a tax year, you will need to submit quarterly updates for the periods up to your cessation date. You will then complete a final EOPS and Final Declaration for that tax year, indicating that the business has ceased.

### Having Multiple Businesses or Properties

If you have multiple self-employment businesses or property letting activities, you have two options:

- **Separate EOPS:** You can submit a separate End of Period Statement for each business or property activity. This allows for individual adjustments and calculations for each.
- **Single EOPS (for similar businesses):** If you have multiple self-employment businesses or multiple UK property businesses, you can choose to combine them and submit a single EOPS for all of them, provided they use the same accounting period and accounting basis (cash basis or accruals). You cannot combine self-employment income with property income into a single EOPS.
- Regardless of how many EOPS you submit, all income sources will be consolidated in your single Final Declaration.

### Jointly Owned Property

If a property is jointly owned, each owner is responsible for reporting their share of the income and expenses via MTD ITSA, if their total qualifying income exceeds the threshold.

### Partnerships and MTD ITSA

MTD ITSA will eventually apply to partnerships, but the rollout for general partnerships is currently deferred. For now, only individuals who are partners in a partnership and also have other sole trade or property income may need to comply for their individual income sources.

### Overseas Income and MTD ITSA

MTD ITSA primarily focuses on UK property income and UK self-employment income. Other types of overseas income will continue to be reported in the Final Declaration. If you have overseas property income, it will be included in your qualifying income calculation and will require digital reporting if you meet the threshold.

### Voluntary Registration for MTD ITSA

Even if your qualifying income is below the threshold, you can voluntarily register for MTD ITSA. Many businesses choose to do this to benefit from improved digital record keeping, real-time tax insights, and to get ahead of future mandates.

## Penalties for Non-Compliance with MTD ITSA

HMRC has introduced a new penalty regime for MTD ITSA, distinct from the old Self Assessment penalties, designed to encourage timely and accurate submissions.

| Scenario | Penalty |
| --- | --- |
| Late Quarterly Update | Points-based system, then £200 per late submission |
| Late EOPS/Final Declaration | Points-based system, then £200 per late submission |
| Late Payment | Interest + initial 2% penalty, then further penalties |
| Inaccurate Return | Up to 100% of extra tax due, depending on behaviour |

### Late Submission Penalties: The Points-Based System

Instead of immediate financial penalties, HMRC will operate a points-based system for late submissions of quarterly updates, EOPS, and Final Declarations.

- **How it Works:** For each missed deadline (quarterly update, EOPS, Final Declaration), you will receive one penalty point.
- **Points Thresholds:** For annual submissions (EOPS, Final Declaration): 2 points. For quarterly submissions: 4 points.
- **Financial Penalties:** Once you reach the relevant points threshold, a fixed financial penalty of **£200** will be issued for each subsequent late submission.
- **Resets:** Points will expire after a period of good compliance. For quarterly submissions, your points will reset to zero after 12 months of continuous compliance. For annual submissions, it's 24 months.

### Late Payment Penalties

Penalties for late payment of tax under MTD ITSA are separate from late submission penalties.

- **Interest:** HMRC charges interest on any unpaid tax from the day it becomes due until it is paid. The interest rate is typically the Bank of England base rate plus 2.5%.
- **Initial Penalty:** A penalty of 2% of the unpaid tax is charged if the tax is still unpaid 30 days after the due date.
- **Further Penalties:** An additional 2% penalty is charged if the tax is still unpaid 6 months after the due date, and another 2% if it's still unpaid 12 months after the due date.

### Inaccuracy Penalties

HMRC can also charge penalties if your tax return contains inaccuracies that result in an underpayment of tax.

- **Careless Inaccuracies:** If the inaccuracy is due to a lack of reasonable care, the penalty can be up to 30% of the extra tax due.
- **Deliberate Inaccuracies:** If the inaccuracy is deliberate, the penalty can range from 20% to 70% of the extra tax due. If it's deliberate and concealed, it can be 30% to 100%.
- **Reduction for Disclosure:** Penalties can be reduced if you tell HMRC about the inaccuracy, help them to quantify it, and provide access to information.

## Benefits and Challenges of Making Tax Digital for Income Tax Self Assessment

Like any major reform, MTD ITSA comes with both advantages and potential hurdles for sole traders and landlords.

### Benefits of MTD ITSA

- **Improved Accuracy:** Digital record keeping and automated categorisation reduce the likelihood of human error in calculations and data entry.
- **Better Financial Oversight:** Regular updates mean you have a more current view of your business's financial performance and tax liability throughout the year, aiding in budgeting and financial planning.
- **Reduced Year-End Stress:** By dealing with your income and expenses quarterly, the burden of a single, large annual tax return is significantly reduced.
- **Real-Time Tax Estimates:** MTD-compatible software can provide ongoing estimates of your tax liability, helping you prepare for payments and potentially adjust Payments on Account proactively.
- **Modernisation:** Embracing digital tools aligns your business with modern accounting practices, which can offer broader efficiency gains beyond just tax compliance.

### Challenges of MTD ITSA

- **Initial Setup Time:** Migrating from manual records to digital software can require an initial investment of time and effort to set up your system correctly.
- **Learning New Software:** There will be a learning curve associated with understanding and effectively using MTD-compatible accounting software.
- **Increased Reporting Frequency:** While the workload might be spread out, the requirement for quarterly updates means more frequent interaction with your accounting records and HMRC.
- **Cost of Software:** While some free options exist, many MTD-compatible software solutions come with a subscription cost, which will be a new ongoing expense for some businesses.
- **Digital Exclusion:** For individuals with limited digital literacy or access to reliable internet, compliance can be a significant challenge, although HMRC does offer exemptions in such cases.

## The Future of Making Tax Digital for Income Tax

Making Tax Digital is a long-term government initiative, and the rollout for Income Tax is expected to expand further beyond the initial thresholds.

### The £20,000 Threshold and Beyond

After the initial rollout to those with qualifying income over £50,000 (April 2026) and £30,000 (April 2027), HMRC has indicated that the threshold will eventually drop to £20,000. While a specific date for this lower threshold has not yet been confirmed, it is a clear signal of HMRC's long-term intention to bring a much wider range of sole traders and landlords into the MTD ITSA regime.

### Potential for Other Income Types to be Included

Currently, MTD ITSA focuses on income from self-employment and property businesses. However, the broader vision for MTD could eventually see other income sources, such as interest, dividends, or even employment income, being brought into a more digital and integrated reporting system. While there are no immediate plans for this, it highlights the direction of travel for UK tax administration.

### Impact on Traditional Accounting Practices

The move to MTD ITSA is accelerating the shift towards digital accounting. This means traditional paper-based methods are becoming obsolete for many. Accountants are increasingly transitioning from year-end compliance work to offering more real-time advisory services, leveraging the digital data available through MTD-compatible software. This evolution benefits both businesses, who gain better insights, and accountants, who can provide more proactive support.

## How AccountsOS Simplifies MTD ITSA Compliance

AccountsOS is built to make your Making Tax Digital for Income Tax journey seamless and stress-free.

### Automated Digital Record Keeping

AccountsOS automatically categorises transactions from bank feeds, ensuring your records are MTD-compliant.

### Seamless Quarterly Updates

Generate and submit your quarterly income and expense summaries directly to HMRC with ease.

### Assisted EOPS & Final Declaration

We guide you through the End of Period Statement and Final Declaration, pre-filling data where possible.

### Real-Time Tax Liability Estimates

See your estimated MTD ITSA liability update throughout the year, helping you budget for tax payments.

### Proactive Deadline Reminders

Receive timely alerts for all your MTD ITSA quarterly, EOPS, and Final Declaration deadlines.

### Integrated Bank Feeds & Categorisation

Connect your bank accounts for automatic import and smart categorisation of income and expenses.

[Discover all MTD ITSA features](/features/mtd-itsa)

## Frequently asked questions

### What is 'qualifying income' for MTD ITSA?

Qualifying income is the gross income from your self-employment businesses and property businesses. This is before any expenses are deducted. If the total of these gross incomes exceeds the MTD ITSA threshold, you will need to comply.

### Can I still use spreadsheets for my MTD ITSA records?

Yes, but with a crucial condition. Your spreadsheet must be linked to MTD-compatible software via an API (Application Programming Interface) that can submit the required data to HMRC. You cannot simply upload a spreadsheet directly.

### What is the difference between an EOPS and a Final Declaration?

The End of Period Statement (EOPS) finalises the income and expenses for each individual business or property letting activity. The Final Declaration then consolidates all your income sources (including employment, pensions, etc.), claims any personal allowances or reliefs, and calculates your overall income tax liability.

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

HMRC operates a points-based penalty system for late submissions. You accrue points for each missed deadline. Once you reach a certain threshold of points, a financial penalty of £200 is issued for each subsequent late submission within a compliance period.

### Can I be exempt from MTD ITSA?

Yes, exemptions exist for individuals who genuinely cannot use digital tools due to age, disability, location (no internet), or for religious objections. You must apply to HMRC for an exemption, and it is not automatically granted.

### How does MTD ITSA affect my Payment on Account?

While MTD ITSA introduces quarterly reporting, the Payment on Account system for paying your tax remains. However, the more frequent updates should give you a clearer picture of your tax liability throughout the year, potentially allowing you to adjust your payments to better match your actual tax bill and avoid over or underpayment.

### Do I need an accountant to comply with MTD ITSA?

No, you are not legally required to use an accountant. MTD-compatible software like AccountsOS is designed to empower sole traders to manage their own MTD ITSA compliance. However, an accountant can provide valuable advice, especially for complex tax situations or if you prefer professional assistance.

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

If your qualifying income falls below the MTD ITSA threshold in a subsequent tax year, you may be able to opt out of MTD ITSA. However, if you have already started using the system, many businesses find it beneficial to continue due to the improved record keeping and financial oversight.

## Related guides

- [Self Assessment Guide](/filing/self-assessment)
- [Allowable Business Expenses](/guides/allowable-expenses)
- [All Tax Deadlines](/deadlines)