MTD for Income Tax: New Thresholds for UK Sole Traders 2026-2028

Introduction to Making Tax Digital for Income Tax Self Assessment

Making Tax Digital (MTD) is a fundamental part of the UK government's plan to modernise the tax system, making it more efficient, more effective, and easier for taxpayers to get their tax right. MTD for Income Tax Self Assessment (ITSA) marks a significant shift from annual tax returns to a system of digital record-keeping and regular, quarterly updates of income and expenditure directly to HMRC via MTD-compatible software. This move aims to reduce errors, provide taxpayers with a clearer, real-time view of their tax position, and streamline the tax administration process.

Initially, MTD for ITSA was planned for implementation in April 2024 for those with income over £10,000. However, after extensive reviews and pilot programmes, the government announced a revised timeline and higher entry thresholds. The latest announcement further refines these thresholds, bringing more businesses and landlords into the MTD regime over the coming years. Understanding these new thresholds and the requirements of MTD for ITSA is crucial for all affected sole traders and landlords to ensure timely compliance and avoid potential penalties. This comprehensive guide will detail the updated timeline, who is affected, what is required, and how AccountsOS can assist in navigating these changes.

The Evolving MTD for ITSA Mandation Timeline and Thresholds

The journey towards Making Tax Digital for Income Tax Self Assessment has seen several adjustments to its timeline and scope. The government's latest announcement in December 2022, and further refinements in 2023, confirmed a phased rollout with revised income thresholds, aiming for a smoother transition for businesses and landlords. These changes reflect a commitment to ensuring MTD is implemented effectively, allowing taxpayers sufficient time to prepare.

Understanding the Phased Mandation

The mandation of MTD for ITSA will occur in three distinct phases, based on an individual's total annual business or property income. It is important to note that this threshold refers to gross income, not profit. If an individual has both business and property income, these are combined to determine if they meet the threshold.

Date	Income	Details
April 2026	Income over £50,000	Initial mandation for higher-income individuals.
April 2027	Income over £30,000	Second phase of mandation, extending to more taxpayers.
April 2028	Income over £20,000	New threshold announced, significantly broadening MTD scope.

The mandation dates refer to the start of the first accounting period beginning on or after the specified date. For example, if your accounting period ends on 31 March, and your income is over £50,000, you will be mandated into MTD from your tax year beginning 6 April 2026. If your accounting period ends on 5 April, your MTD journey will also begin from 6 April 2026.

Detailed Breakdown of Each Phase

Phase 1: April 2026 Mandation for Income Over £50,000

From the tax year beginning 6 April 2026, sole traders and landlords with annual business or property income exceeding £50,000 will be required to comply with MTD for ITSA. This initial group represents the largest businesses and property owners who are likely to have more established accounting practices or professional support. The threshold is based on the total gross income from all businesses and property ventures, not just profit. This means that even if a business is making a small profit or a loss, if its gross income is above £50,000, it will fall into this first phase.

Phase 2: April 2027 Mandation for Income Over £30,000

Following the initial phase, from the tax year beginning 6 April 2027, the mandation will extend to sole traders and landlords with annual business or property income exceeding £30,000. This significantly broadens the scope of MTD for ITSA, bringing in a substantial number of medium-sized businesses and property portfolios. This phase will require a greater number of individuals to adapt to digital record-keeping and quarterly reporting, necessitating earlier preparation for those falling within this income bracket.

Phase 3: April 2028 Mandation for Income Over £20,000 (The Latest Change)

The most recent and impactful announcement confirms that from the tax year beginning 6 April 2028, the threshold will be further reduced to £20,000. This decision will bring approximately 970,000 additional sole traders and landlords into the MTD for ITSA regime. This group typically consists of smaller businesses and property owners who may have previously managed their tax affairs manually or with basic spreadsheets. The implications for this segment of the taxpayer population are considerable, as they will need to transition to MTD-compatible software and adopt a new rhythm of tax reporting. The government has stated that this phased approach allows for lessons to be learned from earlier phases and for software providers to refine their offerings, ultimately aiming for a smoother experience for all taxpayers.

Who is Affected by the New £20,000 Threshold from April 2028?

The reduction of the MTD for ITSA mandation threshold to £20,000 from April 2028 will significantly expand the number of individuals required to comply. This change is particularly relevant for:

Sole Traders with Smaller Businesses: Many self-employed individuals, freelancers, and small business owners whose gross annual turnover falls between £20,000 and £30,000 will now need to adopt MTD. This includes a wide array of professions, from tradespeople and consultants to online sellers and creative professionals.
Landlords with Modest Property Portfolios: Individuals who rent out one or a few properties, generating a gross rental income between £20,000 and £30,000, will also be brought into the MTD regime. This includes those with single high-value properties or multiple properties generating cumulative income within this bracket.
Individuals with Combined Business and Property Income: If an individual has both self-employment income and property rental income, these amounts are aggregated. If the combined gross income exceeds £20,000, they will be mandated from April 2028. This is a crucial point, as neither income stream might individually meet the threshold, but their sum does.

HMRC estimates that the £20,000 threshold will bring an additional 970,000 taxpayers into MTD for ITSA. This represents a significant expansion of the digital tax system, impacting nearly a million individuals who previously would not have been mandated. It underscores the importance of understanding the new requirements and planning for compliance well in advance of the April 2028 deadline.

How to Determine Your Income for MTD Purposes

To ascertain whether you fall within the MTD for ITSA mandation thresholds, you need to calculate your total gross income from qualifying sources. This includes:

Gross income from all self-employment businesses.
Gross income from all UK property businesses.

It is crucial to use the gross income figure, which is your total receipts before deducting any expenses. If your combined gross income from these sources for a given tax year exceeds the relevant threshold (£50,000 for 2026, £30,000 for 2027, £20,000 for 2028), you will be mandated for MTD for ITSA from the beginning of your next accounting period. For most individuals, this will be the tax year starting 6 April.

Important Note: The income threshold is determined annually. If your income fluctuates, you may move in and out of the MTD regime. However, once mandated, it is generally expected that you will continue with MTD unless your income consistently falls below the threshold for multiple years or you qualify for an exemption. HMRC guidance provides specifics on exiting MTD.

What Does MTD for ITSA Require? The Core Pillars

Making Tax Digital for Income Tax Self Assessment fundamentally changes how sole traders and landlords interact with HMRC. It introduces a new system built on four core requirements, moving away from the traditional annual Self Assessment tax return.

Overview of the four requirements

Digital Record Keeping: Maintain records of income and expenses using MTD-compatible software.
Quarterly Updates: Submit summaries of income and expenses to HMRC every three months.
End of Period Statement (EOPS): Finalise business income and expenses for the tax year.
Final Declaration: Consolidate all income sources and make any final adjustments.

1. Digital Record Keeping

This is the foundation of MTD for ITSA. Instead of keeping paper records or using non-digital methods, you must maintain digital records of your business or property income and expenses. This means using MTD-compatible software or bridging software that can interact with HMRC's systems.

What Constitutes Digital Records? This includes records of all sales and purchases, bank transactions related to your business or property, and any other relevant financial data. While you do not need to scan every receipt, the data must be recorded and stored digitally within your software.
Software Requirements: The software must be able to record transactions, categorise income and expenses, and communicate directly with HMRC for quarterly updates and final declarations. AccountsOS is designed to meet these requirements, simplifying the process for you.
Benefits: Digital records reduce the risk of errors, make it easier to track financial performance, and provide a clear audit trail.

2. Quarterly Updates (Submissions)

Instead of one annual tax return, MTD for ITSA requires you to send summaries of your business or property income and expenses to HMRC every three months. These are known as 'quarterly updates' or 'quarterly submissions'.

What is Submitted? Each quarterly update will include a summary of the income and expenses for that three-month period. This is not a full tax calculation but a snapshot of your financial activity.
Deadlines: Quarterly updates must be submitted within one month of the end of each tax quarter. For tax years running from 6 April to 5 April, the standard quarters end on 5 July, 5 October, 5 January, and 5 April.
Benefits: Regular updates provide you with a more current view of your tax position, allowing for better financial planning and reducing the likelihood of a large, unexpected tax bill at year-end. It also helps HMRC to identify and address potential errors earlier.

3. End of Period Statement (EOPS)

After the final quarterly update for the tax year, you will need to submit an End of Period Statement (EOPS) for each business or property income source.

Purpose and Content: The EOPS allows you to make any accounting adjustments required at the end of the tax year. This might include claiming capital allowances, adjusting for accruals and prepayments, or making any other tax adjustments not included in the quarterly summaries.
Deadline: The EOPS must be submitted by 31 January following the end of the tax year (the same deadline as the old Self Assessment tax return).
Importance: This is where your taxable profit or loss is finalised for each income source, taking into account all relevant tax rules and allowances.

4. Final Declaration

The final step in the MTD for ITSA process is the submission of the Final Declaration. This replaces the traditional Self Assessment tax return.

Consolidates All Income: The Final Declaration consolidates information from all your EOPS (if you have multiple income sources) and includes any other sources of income not covered by MTD for ITSA, such as employment income, dividends, or interest.
Calculates Final Tax Liability: This is where your overall income tax and National Insurance contributions for the year are calculated.
Deadline: The Final Declaration must also be submitted by 31 January following the end of the tax year.
Overall View: It provides a complete picture of your tax affairs for the year, ensuring all income and deductions are accounted for.

Exemptions from MTD for ITSA

While MTD for ITSA aims for broad coverage, certain individuals and entities may be exempt from the requirements. HMRC recognises that some circumstances make digital compliance impractical or impossible. It is important to understand if you qualify for an exemption, as non-compliance can lead to penalties.

Key Categories for Exemption

The primary grounds for exemption from MTD for ITSA include:

Digital Exclusion: This is arguably the most common ground for exemption. If it is not reasonably practicable for you to use digital tools to keep records and send updates to HMRC, you may be exempt. This typically applies to individuals who cannot use a computer, the internet, or MTD-compatible software for reasons such as age, disability, remote geographical location with no internet access, or religious objections. HMRC will assess these cases individually.
Insolvency: Individuals who are bankrupt or subject to an insolvency arrangement may be exempt from MTD for ITSA for the period they are under such an arrangement.
Specific Trusts and Estates: Certain types of trusts and estates may be exempt, particularly those with complex structures or specific legal requirements that are not easily accommodated by the MTD framework.
Non-Resident Companies: Non-resident companies that are subject to Income Tax on their UK property income, but do not operate as a UK sole trade, may also be exempt from MTD for ITSA.
Foster Carers: Individuals who receive income solely from qualifying foster care are not required to join MTD for ITSA.
Other Impracticable Reasons: HMRC may consider other exceptional circumstances where it is genuinely impracticable for an individual to comply with MTD requirements. These cases are rare and require strong justification.

How to Apply for an Exemption

If you believe you qualify for an exemption, you must contact HMRC to explain your circumstances and formally request an exemption. You cannot simply opt out. HMRC will review your application and inform you of their decision. It is advisable to do this well in advance of your mandation date.

Seek Advice: If you are unsure whether you qualify for an exemption, or need assistance with the application process, it is recommended to consult with a tax professional or contact HMRC directly for guidance.

Benefits of MTD for ITSA for Sole Traders and Landlords

While the transition to MTD for ITSA represents a significant change, it also brings several potential benefits for sole traders and landlords, extending beyond mere compliance.

Improved Accuracy and Reduced Errors

Digital record-keeping and automated software can significantly reduce human error in tax calculations. Data entry mistakes are minimised, and the software can help categorise transactions correctly. This leads to more accurate tax submissions and fewer compliance issues with HMRC.

Better Financial Management and Planning

With quarterly updates, you gain a more real-time view of your income and expenses throughout the year. This allows for better financial planning, cash flow management, and the ability to set aside funds for tax liabilities gradually, avoiding year-end surprises. It provides a clearer picture of business performance.

Smoother Tax Planning and Forecasting

By submitting data quarterly, you and your accountant can monitor your tax position more closely. This enables proactive tax planning strategies, such as maximising allowable expenses, considering capital allowances, and making informed decisions about business investments or property management.

Reduced Administrative Burden Over Time

While there is an initial learning curve, MTD-compatible software can automate many routine tasks. By maintaining records digitally throughout the year, the process of preparing your End of Period Statement and Final Declaration can become much quicker and less stressful than scrambling to gather all information at year-end.

Challenges and How to Prepare for MTD for ITSA

The transition to MTD for ITSA, especially for those newly mandated by the £20,000 threshold, presents several challenges. However, with adequate preparation, these can be effectively managed.

Common Challenges

Initial Setup and Learning Curve: For individuals accustomed to manual record-keeping, adopting new software and understanding digital processes requires an initial investment of time and effort.
Cost of Software: While free options may exist, robust MTD-compatible software often comes with a subscription fee, which can be a new overhead for smaller businesses.
Quarterly Reporting Discipline: The shift from annual to quarterly reporting demands a more disciplined approach to record-keeping and a consistent schedule for submissions.
Digital Literacy: Some individuals may lack confidence or experience with digital tools, making the transition more daunting.
Internet Access and Reliability: Consistent and reliable internet access is essential for digital submissions, which can be an issue in certain remote areas.

Actionable Steps for Preparation

To ensure a smooth transition and compliance with MTD for ITSA, sole traders and landlords should take the following steps:

Assess Your Income: Regularly review your gross business and property income to determine when you will be mandated. If your income is close to a threshold, start preparing early.
Review Current Record-Keeping: Evaluate your existing system. If you are using paper or basic spreadsheets, identify where you need to transition to digital processes.
Research MTD-Compatible Software: Begin exploring different software options well in advance. Look for software that is user-friendly, HMRC-recognised, and meets your specific business needs. AccountsOS offers a comprehensive solution.
Familiarise Yourself with Digital Tools: If you are new to digital accounting, consider online tutorials or courses to build your confidence with accounting software.
Seek Professional Advice: Consult with an accountant or tax advisor who is knowledgeable about MTD. They can help you choose the right software, set up your systems, and ensure you understand your obligations.
Start Early: Do not wait until the last minute. The earlier you begin to adapt your record-keeping practices, the smoother your transition will be. Consider voluntarily joining the MTD pilot if eligible, to get hands-on experience.
Organise Your Existing Records: Ensure all your current and past financial records are well-organised. This will make the initial setup in new software much easier.
Understand Your Business Categories: Familiarise yourself with how you typically categorise your income and expenses. MTD software will require this categorisation for quarterly updates.

Choosing MTD-Compatible Software

Selecting the right MTD-compatible software is a critical step for compliance. HMRC requires that all digital records are kept and all updates are submitted using software that can connect directly to their systems via an Application Programming Interface (API).

Key Features to Look For:

HMRC Recognition: Ensure the software is listed as MTD-compatible by HMRC. This guarantees it meets the technical specifications for submitting data.
Ease of Use: The interface should be intuitive, making it easy to input data, categorise transactions, and generate reports, even if you are not an accounting expert.
Digital Record Keeping Capabilities: It must allow you to digitally record all relevant income and expense transactions. Features like bank feed integration can automate much of this process.
Quarterly Update Functionality: The software must be able to compile the required information for quarterly updates and submit them directly to HMRC.
End of Period Statement (EOPS) and Final Declaration Support: It should facilitate the adjustments needed for EOPS and the consolidation for the Final Declaration.
Reporting and Insights: Look for features that offer financial reports, such as profit and loss statements, to help you understand your business performance and tax position.
Customer Support: Good customer support is invaluable, especially during the initial setup and if you encounter any issues.
Scalability: Consider if the software can grow with your business. If your income increases or your business becomes more complex, will it still meet your needs?
Cost: Compare pricing models. Some software charges per user, some per transaction, and some offer tiered subscriptions based on features.

How AccountsOS Fits In

AccountsOS is designed to simplify MTD for sole traders and landlords. VAT MTD is live today (On HMRC's list of MTD VAT software); ITSA support is in development ahead of April 2026. Our platform offers:

Intuitive Interface: Easy-to-use design makes digital record-keeping straightforward, even for those new to accounting software.
Automated Bank Feeds: Connect your bank accounts for automatic categorisation of income and expenses, saving you time and reducing manual entry errors.
Real-Time Tax Estimates: See your estimated MTD tax liability update as you record transactions, helping you plan for quarterly payments.
HMRC Submissions: VAT returns submit directly to HMRC today. ITSA quarterly updates, EOPS, and Final Declaration support is in development ahead of April 2026.
Comprehensive Reporting: Access clear financial reports to understand your business performance and make informed decisions.
Dedicated Support: Our support team is available to assist you with any questions or challenges you encounter during your MTD journey.
Compliance Assurance: AccountsOS stays updated with the latest HMRC regulations, ensuring your submissions are always compliant.

Penalties for Non-Compliance with MTD for ITSA

HMRC has a penalty regime in place for non-compliance with MTD for ITSA, similar to existing penalties for Self Assessment. Understanding these can help you avoid unnecessary costs. The MTD penalty system is points-based for late submissions and percentage-based for late payments.

Late Submission Penalties (Points-Based System)

This system applies to late quarterly updates, EOPS, and Final Declarations.

Points Accumulation: For each late submission (quarterly update, EOPS, or Final Declaration), you will receive a point.
Penalty Threshold: Once you reach a certain number of points within a rolling 12-month period, a financial penalty is triggered. For annual submissions (EOPS and Final Declaration), the threshold is 2 points. For quarterly submissions, the threshold is 4 points.
Financial Penalty: Once the penalty threshold is reached, you will incur a £200 penalty. Further penalties of £200 will be charged for every additional point accumulated thereafter.
Points Reset: Points expire after a certain period of continuous compliance. For quarterly reporters, points expire after 12 months of compliance, and for annual reporters, after 24 months.

Late Payment Penalties and Interest

If you do not pay your tax bill on time, HMRC will charge both penalties and interest.

First Late Payment Penalty: A penalty of 5% of the unpaid tax is charged if payment is 30 days late.
Second Late Payment Penalty: An additional 5% of the unpaid tax is charged if payment is 6 months late.
Third Late Payment Penalty: A further 5% of the unpaid tax is charged if payment is 12 months late.
Interest: HMRC also charges interest on any unpaid tax from the date it was due until it is paid in full. The interest rate is typically the Bank of England base rate plus 2.5%.

Penalties for Inaccurate Records

If HMRC discovers that you have submitted inaccurate information, you could face penalties for errors. The level of penalty depends on whether the error was careless, deliberate but not concealed, or deliberate and concealed. Penalties can range from 0% to 100% of the additional tax due.

Mitigation: You can reduce potential penalties by taking reasonable care, telling HMRC about any errors as soon as you discover them, and cooperating fully with any enquiries. Using MTD-compatible software and keeping good digital records can significantly help in demonstrating reasonable care.

Worked Examples: Applying the MTD Thresholds

Understanding how the MTD for ITSA thresholds apply to different income scenarios is crucial. Here are several worked examples to illustrate the mandation dates.

Example 1: Sole Trader with Income Over £50,000 (Mandated April 2026)

Scenario: Sarah is a freelance graphic designer. Her gross income for the tax year 2024-2025 was £65,000. Her accounting period runs from 6 April to 5 April.

Analysis: Sarah's gross income of £65,000 exceeds the £50,000 threshold.

Mandation Date: Sarah will be mandated into MTD for ITSA from her tax year beginning 6 April 2026. She will need to keep digital records and submit quarterly updates from this date.

Example 2: Landlord with Income Over £30,000 (Mandated April 2027)

Scenario: David owns two rental properties. His total gross rental income for the tax year 2025-2026 was £38,000. His accounting period is also the standard tax year.

Analysis: David's gross rental income of £38,000 is below £50,000 but above £30,000.

Mandation Date: David will be mandated into MTD for ITSA from his tax year beginning 6 April 2027. He will need to start digital record-keeping and quarterly reporting from this date.

Example 3: Sole Trader with Income Over £20,000 (Mandated April 2028)

Scenario: Emily runs a small online craft business. Her gross sales for the tax year 2026-2027 were £27,000. Her accounting period aligns with the tax year.

Analysis: Emily's gross income of £27,000 is below £30,000 but above the newly announced £20,000 threshold.

Mandation Date: Emily will be mandated into MTD for ITSA from her tax year beginning 6 April 2028. This means she needs to prepare for digital record-keeping and quarterly updates by this date.

Example 4: Combined Income Scenario (Mandated April 2027)

Scenario: John is a part-time consultant (sole trader) and also rents out a small property. For the tax year 2025-2026, his gross consulting income was £18,000, and his gross rental income was £15,000.

Analysis: Individually, neither income source meets the £30,000 threshold. However, his combined gross income is £18,000 + £15,000 = £33,000. This combined income exceeds the £30,000 threshold for the April 2027 mandation.

Mandation Date: John will be mandated into MTD for ITSA from his tax year beginning 6 April 2027. He will need to keep digital records for both his consulting business and his property business and submit combined quarterly updates.

Example 5: Fluctuating Income (Mandated April 2028)

Scenario: Maria runs a seasonal business. Her gross income was £28,000 in 2025-2026, £22,000 in 2026-2027, and £32,000 in 2027-2028.

Analysis:

For 2025-2026 (£28,000): Below £50k and £30k thresholds.
For 2026-2027 (£22,000): Below £50k and £30k thresholds, but above the new £20k threshold.
For 2027-2028 (£32,000): Above £30k threshold.

The mandation applies based on the income of the previous tax year relative to the active threshold.

Mandation Date: Based on her 2026-2027 income of £22,000, which exceeds the £20,000 threshold, Maria will be mandated into MTD for ITSA from her tax year beginning 6 April 2028. Even though her 2027-2028 income (£32,000) would have mandated her in April 2027, the rules state that the mandation applies from the first date that her income surpasses the then-active threshold. The £20,000 threshold becomes active in April 2028.

The Role of Your Accountant in an MTD World

The introduction of MTD for ITSA fundamentally changes the relationship between taxpayers and their accountants. Far from making accountants redundant, MTD enhances their role, shifting it from retrospective data entry to proactive advisory and real-time support.

Increased Importance of Digital Collaboration

In the MTD environment, accountants and clients must engage in closer, more frequent digital collaboration. Accountants will need access to their clients' MTD-compatible software to review quarterly data, make adjustments, and submit updates. This requires clients to maintain accurate and up-to-date digital records consistently throughout the year.

Data Review and Verification: Accountants will regularly review the digitally recorded data for accuracy, ensuring transactions are correctly categorised and that all allowable expenses are captured.
Quarterly Submission Management: Many clients will rely on their accountants to prepare and submit the quarterly updates, EOPS, and Final Declarations to HMRC, ensuring compliance with deadlines and regulations.
Software Integration: Accountants can advise on and help set up MTD-compatible software, ensuring it is correctly configured for the client's specific business or property income.

Enhanced Advisory Services

With real-time access to financial data, accountants can move beyond traditional year-end compliance to offer more valuable, ongoing advisory services.

Proactive Tax Planning: Regular financial insights allow accountants to provide timely advice on tax planning strategies, such as maximising deductions, managing capital allowances, and forecasting tax liabilities.
Cash Flow Management: By monitoring income and expenditure throughout the year, accountants can help clients understand their cash flow better and identify potential issues or opportunities.
Business Performance Analysis: The digital data provides a rich source of information for business analysis, helping clients make informed decisions about pricing, investments, and growth strategies.
Compliance Guidance: Accountants will play a crucial role in keeping clients informed about the latest MTD rules, deadlines, and best practices, mitigating the risk of penalties.

For sole traders and landlords, engaging with an MTD-savvy accountant can transform the burden of compliance into an opportunity for improved financial insight and strategic growth. It is an investment that can save time, reduce stress, and ultimately lead to better financial outcomes. AccountsOS is designed to facilitate seamless collaboration between clients and their accountants, streamlining the MTD process for both parties.

Voluntary Adoption of MTD for ITSA

While MTD for ITSA is being phased in with specific mandation thresholds, sole traders and landlords whose income falls below these thresholds are not precluded from joining voluntarily. In fact, HMRC has been running a pilot scheme for MTD for ITSA for several years, allowing eligible individuals to opt in early.

Benefits of Early Adoption

Voluntarily adopting MTD for ITSA can offer several advantages:

Get Ahead of the Curve: Early adoption allows you to familiarise yourself with the new system, software, and reporting rhythm at your own pace, without the pressure of a looming deadline.
Identify and Resolve Issues Early: By engaging with MTD before it becomes mandatory, you can identify any challenges or learning gaps in your record-keeping or software usage and resolve them proactively.
Smoother Transition: A gradual transition can be less disruptive to your business operations than a rushed implementation closer to your mandation date.
Enjoy MTD Benefits Sooner: You can start benefiting from improved financial insights, better cash flow management, and more accurate tax planning earlier.
Feedback to HMRC: Participating in the pilot allows you to provide valuable feedback to HMRC, potentially influencing the future development of the MTD system.

How to Join the Pilot Scheme

If you are interested in voluntarily joining the MTD for ITSA pilot, you will need to:

Use MTD-Compatible Software: Ensure you have chosen and are using MTD-compatible software, such as AccountsOS, which supports the pilot scheme.
Meet Eligibility Criteria: HMRC has specific eligibility criteria for joining the pilot, which may include having relatively straightforward tax affairs. Check the latest guidance on GOV.UK.
Sign Up: Register for the pilot through your chosen software or via your accountant.

Voluntary adoption is a strategic move for many forward-thinking sole traders and landlords who want to transform their tax compliance into an opportunity for better business management.

Future Outlook for Making Tax Digital

Making Tax Digital for Income Tax Self Assessment is a significant milestone in HMRC's broader digitisation strategy. The journey towards a fully digital tax system is ongoing, and MTD for ITSA is just one piece of a larger puzzle. Understanding the future direction of MTD can help businesses and individuals prepare for what lies ahead.

Potential for Further Threshold Changes

While the current thresholds are set at £50,000 (April 2026), £30,000 (April 2027), and £20,000 (April 2028), it is plausible that HMRC may eventually lower the threshold further in future years, potentially bringing even smaller businesses and landlords into the regime. The initial ambition was to include all businesses and landlords with income over £10,000, and while this has been paused, the long-term vision for a fully digital tax system remains. Taxpayers should remain vigilant for future announcements regarding MTD expansion.

MTD for Other Taxes

MTD has already been successfully implemented for VAT for most VAT-registered businesses. HMRC's long-term strategy includes extending MTD principles to other taxes, such as Corporation Tax. While no firm dates have been announced for MTD for Corporation Tax, businesses should anticipate that similar digital record-keeping and reporting requirements may eventually apply to limited companies. This suggests a future where all business tax interactions with HMRC are digital.

The Broader Digital Transformation of Tax

The overarching goal of MTD is to create a more streamlined, efficient, and accurate tax system. This digital transformation aims to:

Reduce the Tax Gap: By minimising errors and improving compliance, HMRC hopes to reduce the difference between the tax that should be paid and the tax that is actually paid.
Simplify Tax for Taxpayers: While there's an initial adjustment, the aim is for MTD to make tax easier for individuals and businesses by integrating it more seamlessly into their day-to-day operations.
Provide Better Taxpayer Service: A digital system can enable HMRC to offer more personalised services and support, as they will have a more up-to-date view of taxpayer affairs.
Embrace Technology: Leveraging modern technology will allow for greater automation and efficiency in tax administration.

For sole traders and landlords, adapting to MTD for ITSA is not just about meeting a current requirement, but also about preparing for the evolving digital landscape of tax in the UK. Embracing digital tools now will put you in a strong position for future changes and ensure your business remains compliant and efficient.

How AccountsOS Simplifies MTD for ITSA

Navigate the new MTD thresholds with ease and confidence.

HMRC-Recognised for VAT MTD

AccountsOS is HMRC-recognised for VAT MTD today. ITSA quarterly submission support is in development ahead of April 2026.

Automated Digital Record Keeping

Connect your bank accounts for automatic categorisation of income and expenses, making digital records effortless.

ITSA Quarterly Updates (In Development)

ITSA quarterly submission support is in development ahead of April 2026. VAT returns submit today.

Real-Time Tax Position

See your estimated tax liability update throughout the year, helping you plan finances and avoid surprises.

EOPS and Final Declaration Support

Prepare and submit your End of Period Statements and Final Declarations accurately and on time.

Collaboration with Your Accountant

Easily share access with your accountant, facilitating seamless collaboration and expert guidance.

Frequently asked questions

What is the primary purpose of Making Tax Digital for Income Tax Self Assessment?

MTD for ITSA aims to modernise the tax system by mandating digital record-keeping and quarterly updates to HMRC. This is intended to reduce errors, provide taxpayers with a clearer view of their tax position, and streamline tax administration.

Does the MTD for ITSA threshold apply to gross income or net profit?

The MTD for ITSA mandation threshold applies to your total gross income from all self-employment businesses and UK property businesses. This is before any expenses or allowances are deducted.

What if my income falls below the threshold in a future tax year?

HMRC has guidance on exiting MTD for ITSA if your income consistently falls below the mandation threshold for multiple years. However, once mandated, it is generally expected that you will continue to comply unless you meet specific exit criteria.

Are partnerships affected by MTD for ITSA?

Initially, MTD for ITSA applies to sole traders and landlords. General partnerships with individual partners are expected to be mandated from April 2025, but specific details and thresholds for partnerships are subject to separate guidance from HMRC.

Can I use spreadsheets for MTD for ITSA?

You can use spreadsheets for digital record-keeping, but you must use 'bridging software' to send your quarterly updates and other MTD submissions directly to HMRC. The bridging software acts as a digital link between your spreadsheet and HMRC's systems.

What if I have multiple income sources, e.g., two sole trades?

If you have multiple sole trades or multiple property businesses, the gross income from all these sources is combined to determine if you meet the MTD for ITSA threshold. You will then need to keep digital records and submit quarterly updates for each business.

What happens if I miss a quarterly update deadline?

Missing a quarterly update deadline can result in a penalty under HMRC's points-based system. Each late submission accrues a point, and once a certain threshold of points is reached within a rolling 12-month period, a financial penalty of £200 is triggered.

Is there any support available for those new to digital accounting?

Yes, HMRC provides guidance on MTD, and many software providers like AccountsOS offer customer support and resources. Accountants also play a key role in helping clients transition to digital accounting and comply with MTD requirements.