# Making Tax Digital for Sole Traders (MTD for ITSA)

Last updated: 3 October 2026

Yes, many UK sole traders will need to file quarterly tax returns as part of HMRC's Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) initiative. This will begin for those with business or property income over £50,000 from April 2026, and for those earning over £30,000 from April 2027.

## Introduction to Making Tax Digital for Sole Traders

HMRC's Making Tax Digital (MTD) initiative is revolutionising how businesses and individuals manage their tax affairs in the UK. After successfully implementing MTD for VAT, the focus has now shifted to Income Tax Self Assessment (ITSA), bringing significant changes for sole traders and landlords. This guide provides a comprehensive overview of MTD for ITSA, specifically addressing the core question: Will UK sole traders need to file quarterly tax returns from 2026?

The short answer is yes, for a significant portion of sole traders. From April 2026, those with gross business or property income exceeding £50,000 will be mandated to comply with MTD for ITSA. A year later, in April 2027, this requirement will extend to sole traders and landlords with gross income above £30,000. This marks a fundamental shift from annual self-assessment to a more frequent, digital reporting system, requiring businesses to keep digital records and submit regular updates to HMRC. Understanding these changes and preparing adequately is crucial for ensuring compliance and avoiding potential penalties. This guide will walk you through the details, helping you navigate the new digital tax landscape with confidence.

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

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is HMRC's vision for a modern, digital tax system. It aims to make tax administration more effective, efficient, and easier for taxpayers to get their tax right. The core principle is to move away from traditional paper-based record keeping and annual tax returns, towards a system of digital record keeping and regular, automated submissions of income and expenditure data to HMRC.

### The Core Concept: Digital Record Keeping and Quarterly Updates

At its heart, MTD for ITSA requires sole traders and landlords to maintain digital records of their business and property transactions. This means using MTD-compatible software to record all income and expenses, rather than spreadsheets or paper ledgers. From these digital records, taxpayers will then be required to submit quarterly summaries of their income and expenses to HMRC. These 'quarterly updates' provide HMRC with a more real-time view of a business's financial activity, aiming to reduce errors and improve compliance.

The system is designed to provide greater clarity on tax liabilities throughout the year, allowing businesses to better plan for tax payments. It also intends to reduce the number of errors that arise from manual data entry and year-end rushes, as discrepancies can be identified and corrected much earlier.

### Objectives of MTD for ITSA

HMRC has outlined several key objectives for the MTD initiative:

- **Reduce Errors:** By requiring digital records and more frequent submissions, MTD aims to minimise common mistakes that lead to incorrect tax calculations.
- **Simplify Tax:** While the initial transition may seem complex, the long-term goal is to simplify the tax process for businesses by integrating record-keeping directly with tax reporting.
- **Provide a Real-Time View:** Quarterly updates give HMRC a more up-to-date picture of a taxpayer's income and expenses, potentially allowing for more timely support or interventions.
- **Increase Productivity:** Automation of routine tasks through MTD-compatible software is expected to free up time for businesses and their agents.

### The Evolution of MTD: From VAT to ITSA

MTD for ITSA is not HMRC's first foray into digital tax. Making Tax Digital for VAT was introduced in April 2019 for VAT-registered businesses above the VAT threshold, and then extended to all VAT-registered businesses in April 2022. The experience gained from the VAT rollout has informed the development and phased implementation of MTD for ITSA, with HMRC taking on feedback to refine the process and provide a more gradual transition for sole traders and landlords. This measured approach reflects the significant impact these changes will have on millions of self-employed individuals and property owners across the UK.

## Who Will Be Affected and When? The Phased Rollout Explained

The implementation of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is a significant undertaking, and HMRC has opted for a phased rollout to allow businesses and software providers time to adapt. This approach means that not all sole traders will be affected at the same time. Understanding the specific thresholds and start dates is critical for determining when you need to comply.

### What Are the Current MTD for ITSA Thresholds and Start Dates?

Following revisions to the original timetable, HMRC has confirmed the following phased implementation:

| Group | Start date | Description |
| --- | --- | --- |
| Income over £50,000 | April 2026 | Sole traders and landlords with gross income above this threshold. |
| Income over £30,000 | April 2027 | Sole traders and landlords with gross income above this threshold. |
| Income below £30,000 | TBC | HMRC has not yet announced a start date for this group. |

**Sole Traders and Landlords with Income Over £50,000:** The first group to be mandated for MTD for ITSA will be those with gross income from self-employment and/or property that exceeds £50,000. This cohort will be required to join MTD for ITSA for accounting periods beginning on or after **6 April 2026**. This means if your business or property year-end is 5 April, your first MTD tax year will start on 6 April 2026. If your accounting period is different, say 31 March, your first MTD tax year will be the one starting on 1 April 2026.

**Sole Traders and Landlords with Income Over £30,000:** The second wave of mandatory compliance will include those with gross income from self-employment and/or property between £30,000 and £50,000. These individuals will need to comply with MTD for ITSA for accounting periods beginning on or after **6 April 2027**.

### Is My Income Calculated on Gross or Net Figures?

For the purpose of determining whether you meet the MTD for ITSA threshold, HMRC refers to your **gross income**. This is the total amount of money you earn from your business or property before any expenses, allowances, or tax reliefs are deducted. If you have income from both self-employment and property, these amounts are combined to assess whether your total gross income exceeds the £50,000 or £30,000 threshold. It is crucial to use your gross figures when assessing your MTD for ITSA obligations, as relying on net profit could lead to incorrect conclusions about your compliance requirements.

### What if My Income Fluctuates Above and Below the Threshold?

HMRC has provided guidance for situations where a sole trader's or landlord's income fluctuates around the MTD for ITSA thresholds. Generally, your MTD status is determined by your gross income in the previous tax year. If your gross income was above the threshold in the tax year immediately preceding the MTD start date for your income bracket, you will be mandated to join. If your income subsequently drops below the threshold, you may be able to opt out, but specific rules and conditions apply. It is advisable to consult HMRC guidance or a tax professional if your income is volatile to ensure continuous compliance. Once mandated, it is often simpler to continue with MTD, even if your income temporarily dips, rather than frequently joining and leaving the scheme.

### Who is Currently Exempt from MTD for ITSA?

While MTD for ITSA aims for broad coverage, certain individuals and entities are currently exempt from the mandatory requirements:

- Sole traders or landlords with gross income below £30,000 (until a future start date is announced).
- Trusts, estates, insolvency cases, and foreign landlords (unless they opt in).
- Individuals with no Self Assessment obligation.
- Those who are genuinely unable to use digital tools for reasons such as age, disability, or remoteness (must apply for exemption).

It is important to note that even if you are exempt, you can still choose to join MTD for ITSA voluntarily if you believe the digital record-keeping and quarterly reporting would benefit your business. For those genuinely unable to use digital tools, HMRC has a process to apply for an exemption based on 'digital exclusion.' This typically applies to individuals who cannot reasonably use computers, the internet, or MTD-compatible software due to age, disability, or geographical remoteness, or for religious reasons.

## Understanding the MTD for ITSA Reporting Requirements

Making Tax Digital for Income Tax Self Assessment introduces a new framework for reporting income and expenses to HMRC. This framework moves beyond the single annual Self Assessment tax return, requiring more frequent interactions and digital submissions. To comply, sole traders must understand the four core components of MTD for ITSA reporting.

### What Are the Core Components of MTD for ITSA Reporting?

MTD for ITSA is built around a sequence of digital submissions throughout the tax year:

- **Digital Record Keeping:** Maintain digital records of all business 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):** An annual declaration of business adjustments and claims, submitted after the final quarterly update.
- **Final Declaration:** A combined statement of all income sources (business, property, employment, etc.) and personal allowances, similar to the current Self Assessment.

**Digital Record Keeping:** This is the foundation of MTD for ITSA. You must keep digital records of all your business income and expenses using MTD-compatible software. This means that every transaction related to your business or property must be recorded digitally. This is not merely about storing scanned receipts, but about recording the financial data itself in a structured format within the software. The software must be capable of interacting with HMRC's systems.

**Quarterly Updates:** Every three months, you will need to submit a summary of your business or property income and expenses to HMRC directly from your MTD-compatible software. These are not full tax returns, but rather a snapshot of your financial activity for that quarter. The deadlines for these submissions are fixed, regardless of your accounting period. For example, for the tax year 6 April to 5 April, the quarterly periods end on 5 July, 5 October, 5 January, and 5 April. The submission deadlines are generally one month after the period end, so 5 August, 5 November, 5 February, and 5 May respectively.

**End of Period Statement (EOPS):** After your final quarterly update for the tax year, you will need to submit an End of Period Statement (EOPS). This is an annual declaration that allows you to make any accounting adjustments required for tax purposes. These adjustments might include capital allowances, private use adjustments, accruals, prepayments, and other tax-specific calculations that are not typically included in your day-to-day quarterly figures. The EOPS must be submitted by 31 January following the end of the tax year.

**Final Declaration:** The final stage is the Final Declaration, which is akin to the current Self Assessment tax return. This combines all your income sources, not just your MTD-reported business and property income, but also any employment income, bank interest, dividends, pensions, and other taxable income. It also includes personal allowances and any reliefs you are entitled to. This declaration finalises your overall tax liability for the year and must also be submitted by 31 January following the end of the tax year.

### What Information Needs to Be Submitted in Quarterly Updates?

For each quarterly update, you will typically need to report:

- Total income for the quarter.
- Total allowable expenses for the quarter, categorised appropriately.

HMRC expects a breakdown of expenses into categories like "motor expenses," "travel expenses," "office costs," "legal and professional fees," etc. The exact level of detail required for categorisation will be handled by your MTD-compatible software. It is important to ensure your software correctly maps your internal categorisation to HMRC's required categories. For those using the cash basis, income and expenses are reported when money is received or paid. For accruals basis, they are reported when invoiced or incurred.

### How Does the End of Period Statement (EOPS) Work?

The EOPS is critical for ensuring your tax liability is calculated accurately. Your quarterly updates provide a running total of income and expenses, but they do not typically include many year-end tax adjustments. The EOPS is where you account for:

- **Capital allowances:** Deductions for the depreciation of assets like equipment or vehicles.
- **Private use adjustments:** Adjustments for any personal use of business assets or expenses.
- **Accounting basis changes:** If you switch between cash basis and accruals.
- **Stock adjustments:** For businesses that hold stock.
- **Loss relief claims:** If your business has made a loss.
- **Overlap relief:** For those transitioning from an old accounting period basis.

Your MTD software or accountant will help you compile these adjustments into the EOPS, which is then submitted to HMRC. This ensures that your taxable profit for the year is correctly calculated before your final tax bill is determined.

### What is the Final Declaration and How Does It Differ from Self Assessment?

The Final Declaration under MTD for ITSA is the successor to the traditional Self Assessment tax return. While the Self Assessment return historically captured all income and expenses in one annual submission, the MTD Final Declaration primarily consolidates the information from your EOPS for your business and property income, and then adds all other sources of taxable income.

Key differences and similarities:

- **Scope:** The Final Declaration is broader than the MTD-specific submissions, encompassing all your taxable income, including employment income (PAYE), pensions, dividends, savings interest, and capital gains.
- **Personal Allowances and Reliefs:** This is where you claim your personal allowance, marriage allowance, pension contributions, gift aid, and other personal tax reliefs to reduce your overall tax liability.
- **Tax Calculation:** HMRC uses the information in your Final Declaration to calculate your total income tax and National Insurance contributions for the year.
- **Deadline:** Like the EOPS, the Final Declaration must be submitted by 31 January following the end of the tax year. The tax payment due date remains the same as the current Self Assessment system.

In essence, MTD for ITSA breaks down the annual Self Assessment into more manageable quarterly chunks for business and property income, culminating in an EOPS for adjustments, and finally a comprehensive Final Declaration for your entire tax position.

## Preparing for Making Tax Digital: A Step-by-Step Guide for Sole Traders

The transition to Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) requires careful preparation. For sole traders, this means more than just understanding the new rules; it involves practical steps to ensure your business is ready for digital record keeping and quarterly reporting. Starting early is key to a smooth transition.

### How Do I Choose MTD-Compatible Software?

Choosing the right MTD-compatible software is perhaps the most critical step in preparing for MTD for ITSA. HMRC mandates the use of 'functional compatible software' to keep digital records and submit updates.

When evaluating software options, consider these key features:

- Automatic bank feed integration
- Categorisation of income and expenses
- Preparation and submission of quarterly updates to HMRC
- Calculation of estimated tax liability
- Generation of End of Period Statements
- Support for cash basis and accruals accounting
- Integration with HMRC systems for MTD compliance
- Secure data storage and backup

AccountsOS, for instance, is designed to meet these requirements, offering an intuitive platform for sole traders to manage their finances, categorise transactions, and directly submit MTD updates to HMRC. Look for software that aligns with your business's size, complexity, and your own level of accounting expertise. Many software providers offer free trials, allowing you to test functionality before committing.

### What Are the Record-Keeping Rules Under MTD for ITSA?

Under MTD for ITSA, the rules for record keeping are specific and robust:

- **Digital Format:** All primary business records, including income and expenditure, must be kept digitally from the start of your first MTD accounting period. This means no more paper ledgers or manual spreadsheets for core data.
- **Types of Records:** You must digitally record the date, amount, and category of all income and expenses. This includes sales invoices, purchase receipts, bank statements, and any other relevant financial documentation.
- **Digital Links:** If you use multiple pieces of software, or spreadsheets alongside software, there must be a 'digital link' between them. This means data cannot be manually re-typed from one system to another. Instead, data must be transferred electronically, for example, via an API, XML import/export, or CSV import.
- **Retention Periods:** You must keep your business records for at least 5 years after the 31 January submission deadline of the relevant tax year. This applies to both the digital records and any supporting physical documentation.

The goal is to ensure data integrity and traceability from the source document through to the final submission to HMRC.

### How to Link Your Software to HMRC

Once you have selected your MTD-compatible software, the next step is to authorise it to communicate with HMRC. This is typically a straightforward process:

1. **Sign Up for MTD for ITSA:** You will need to sign up for MTD for ITSA via the HMRC website. This can be done directly or through your accountant. HMRC will then confirm your eligibility and provide instructions.
2. **Authorise Software:** Within your chosen MTD software, there will be an option to connect or link your HMRC account. This usually involves clicking a button that redirects you to the HMRC website.
3. **HMRC Gateway Authentication:** On the HMRC website, you will be prompted to sign in using your Government Gateway user ID and password. You will then grant permission for your software to interact with your MTD for ITSA account.
4. **Confirmation:** Once authorised, your software will confirm the successful connection, and you will be ready to start submitting your quarterly updates.

It is vital to ensure that the Government Gateway ID you use belongs to the individual or business entity that will be complying with MTD for ITSA. If you use an accountant, they will typically manage this authorisation process on your behalf.

### Should I Use Cash Basis or Accruals Accounting for MTD?

For MTD for ITSA, sole traders can choose between cash basis or accruals accounting, just as they can with traditional Self Assessment. The choice impacts how and when income and expenses are recognised for tax purposes.

- **Cash Basis Accounting:** Pros: Simpler to manage, as income is recorded when received, and expenses when paid. This often aligns closely with bank statements, making record-keeping straightforward. It provides a clear view of your cash flow. Cons: May not accurately reflect the profitability of your business if there are significant outstanding invoices or bills. There are limits on who can use the cash basis (e.g., typically for businesses with turnover below a certain threshold, currently £150,000).
- **Accruals Basis Accounting:** Pros: Provides a more accurate picture of your business's financial performance by matching income to the period it was earned and expenses to the period they were incurred, regardless of when cash changed hands. It is generally required for larger businesses and offers a truer representation of profitability. Cons: More complex to manage, requiring tracking of debtors (money owed to you) and creditors (money you owe). It can lead to a tax liability on income not yet received in cash.

Your MTD-compatible software should support both methods, and you can switch between them if your business circumstances change or if you exceed the cash basis threshold. Most sole traders currently use the cash basis due to its simplicity. For MTD, the choice remains yours, but it is important to be consistent. If unsure, discussing with an accountant can help determine the best accounting method for your specific business.

## A Detailed Look at MTD for ITSA Deadlines and Penalties

One of the most significant changes introduced by Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is the shift in reporting frequency and the associated penalty regime. Missing deadlines under MTD for ITSA can lead to financial penalties, making it crucial for sole traders to be fully aware of their obligations and the consequences of non-compliance.

### What Are the Submission Deadlines for MTD for ITSA?

Unlike the traditional annual Self Assessment deadline, MTD for ITSA introduces multiple submission dates throughout the tax year. For a standard tax year running from 6 April to 5 April, the quarterly reporting periods and their respective deadlines are as follows:

| Quarterly 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 |

In addition to these quarterly updates, there are annual deadlines for the End of Period Statement (EOPS) and the Final Declaration:

- **End of Period Statement (EOPS):** Due by **31 January** following the end of the tax year.
- **Final Declaration:** Also due by **31 January** following the end of the tax year.
- **Tax Payment:** The payment of any tax due for the previous tax year is also by **31 January**, with a second payment on account due on **31 July**.

These deadlines are rigid, and it is essential to have a system in place, such as calendar reminders or accounting software alerts, to ensure timely submissions.

### Understanding the New MTD for ITSA Penalty System

HMRC is introducing a new points-based penalty system for MTD for ITSA, similar to the one already in place for MTD for VAT. This system is designed to be fairer, penalising persistent non-compliance more heavily than occasional, minor slips.

- **Late Submission Penalties:** A points-based system for missing quarterly updates, EOPS, or Final Declarations. Points accumulate, leading to financial penalties.
- **Late Payment Penalties:** Penalties apply if tax due is not paid by the deadline, starting from 15 days late.
- **Interest on Late Payments:** Interest is charged on all unpaid tax from the day after the payment deadline until it's paid.
- **Penalties for Inaccuracy:** Penalties for errors in submissions, ranging from 0% to 100% of the additional tax due, depending on the nature of the error and disclosure.

**Late Submission Penalties:** For each missed submission (quarterly update, EOPS, or Final Declaration), you will accrue penalty points.

- For each missed submission, you receive one point.
- Once you reach a certain threshold of points (e.g., 4 points for annual filers, 5 for quarterly filers), a financial penalty of £200 is issued.
- Additional £200 penalties are issued for every subsequent point accrued after reaching the threshold.
- Points expire after a period of good compliance.

**Late Payment Penalties:** If you do not pay your tax bill on time, a penalty will be charged in addition to interest.

- 15 days late: First penalty of 2% of the unpaid tax.
- 30 days late: Second penalty of 2% of the unpaid tax (total 4%).
- More than 30 days late: Daily penalties of 4% per year on the unpaid amount.

**Interest on Late Payments:** HMRC charges interest on all unpaid tax from the day after the payment deadline until the tax is paid in full. This interest rate is typically the Bank of England base rate plus 2.5%.

**Penalties for Inaccuracy:** If you submit an inaccurate return, HMRC can charge penalties ranging from 0% to 100% of the additional tax due, depending on whether the error was careless, deliberate, or concealed.

**Warning:** The new penalty system is designed to be more stringent for repeated failures. It is essential to engage with MTD for ITSA from the outset and ensure all submissions are accurate and on time to avoid accumulating points and financial penalties.

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

While the transition to Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) presents new obligations, it also brings potential benefits for sole traders. However, it is equally important to acknowledge and prepare for the challenges that may arise during this shift.

### What Are the Potential Benefits of MTD for ITSA?

HMRC promotes MTD for ITSA as a move towards a more efficient and less error-prone tax system. For sole traders, the benefits include:

- **Fewer Errors:** Digital record keeping and automated submissions reduce the likelihood of manual data entry errors, which are a common cause of incorrect tax calculations.
- **Better Cash Flow Management:** By seeing your estimated tax liability update quarterly, you can better plan and set aside funds for your tax bill, avoiding year-end payment shocks.
- **Real-Time Tax View:** MTD-compatible software provides an up-to-date picture of your financial position and estimated tax, enabling more informed business decisions.
- **Easier Financial Planning:** Regular financial reviews for quarterly submissions encourage better financial discipline and foresight, which can benefit overall business health.
- **Reduced Administrative Burden (Long-Term):** Once accustomed to the system, the automation features of MTD software can save time on routine administrative tasks compared to manual methods.

For many, the move to digital platforms will streamline processes that were once cumbersome and manual, allowing more time to focus on core business activities.

### What Are the Common Challenges and How Can They Be Overcome?

Despite the touted benefits, the transition to MTD for ITSA is not without its challenges. Sole traders may encounter:

- **Initial Setup and Learning Curve:** Setting up new software and understanding the new reporting rhythm can be daunting. Overcoming: Start early, utilise free trials, watch tutorials, and consider professional help from accountants or tax advisors.
- **Cost of Software:** While some basic MTD-compatible software may be free, many comprehensive solutions come with a subscription fee. Overcoming: Factor software costs into your business budget. Consider the time savings and accuracy benefits as a return on investment.
- **Digital Literacy:** Some sole traders may have limited experience with digital tools and accounting software. Overcoming: Seek training, leverage user-friendly software designed for non-accountants, or delegate to an accountant.
- **Increased Reporting Frequency:** Moving from one annual submission to quarterly updates plus annual statements can feel like a heavier burden. Overcoming: Integrate record-keeping into your daily or weekly routine, rather than leaving it to the last minute. Automation features in software can greatly assist.
- **Managing Multiple Income Streams:** For those with both self-employment and property income, managing separate records and combining them can add complexity. Overcoming: Choose software that can handle multiple income sources efficiently or work closely with an accountant to consolidate correctly.

The key to mitigating these challenges lies in proactive planning and embracing the digital tools available. By understanding the requirements and leveraging appropriate software and support, sole traders can successfully transition to MTD for ITSA.

## Practical Examples: MTD for ITSA in Action

To illustrate how Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) will work in practice, let's consider a couple of hypothetical scenarios for sole traders. These examples will help clarify the quarterly reporting process, EOPS adjustments, and the final declaration.

### Worked Example 1: A Freelance Designer with Annual Income Over £50,000 (Starting April 2026)

Meet Sarah, a self-employed graphic designer whose gross income consistently exceeds £60,000 per year. Her accounting period aligns with the tax year, running from 6 April to 5 April. She will be mandated for MTD for ITSA from 6 April 2026.

**Tax Year 2026/27 (6 April 2026 to 5 April 2027)**

**Quarterly Updates:**

**Q1: 6 April to 5 July 2026. Deadline: 5 August 2026.** Sarah records all invoices issued and payments received for design projects, along with expenses like software subscriptions, home office costs, and professional development. Her MTD software automatically pulls data from her linked business bank account and categorises it. She submits her first quarterly summary of income and expenses.

**Q2: 6 July to 5 October 2026. Deadline: 5 November 2026.** Another busy quarter. Sarah continues to record her transactions digitally. Her software provides an estimated running total of her taxable profit and potential tax liability, helping her save for tax payments.

**Q3: 6 October to 5 January 2027. Deadline: 5 February 2027.** Sarah purchases a new, expensive design tablet. She records this as a business expense, and her software notes it as a potential asset for capital allowances.

**Q4: 6 January to 5 April 2027. Deadline: 5 May 2027.** Her final quarterly update is submitted. At this point, her software has a full year of digital income and expense records.

**Annual Submissions:**

**End of Period Statement (EOPS). Deadline: 31 January 2028.** Sarah's accountant reviews her records. They make adjustments for the new design tablet, claiming Annual Investment Allowance (AIA) for the full cost. They also adjust for a small amount of private use of her home office. The EOPS is prepared and submitted through the MTD software.

**Final Declaration. Deadline: 31 January 2028.** Sarah has some bank interest and dividends from investments. Her MTD software pulls in her business and property income from the EOPS, and she adds her other income sources. The Final Declaration is completed and submitted, and her total tax bill for 2026/27 is calculated, due for payment by 31 January 2028.

This example shows how MTD for ITSA integrates digital record-keeping with regular reporting, culminating in annual adjustments and a comprehensive final tax declaration. Sarah benefits from a clearer view of her tax position throughout the year, allowing for better financial planning.

### Worked Example 2: A Landlord with Rental Income Over £30,000 (Starting April 2027)

John owns two rental properties, generating a combined gross rental income of £40,000 per year. He will be mandated for MTD for ITSA from 6 April 2027. His accounting period also aligns with the tax year.

**Tax Year 2027/28 (6 April 2027 to 5 April 2028)**

**Quarterly Updates:**

**Q1: 6 April to 5 July 2027. Deadline: 5 August 2027.** John uses MTD-compatible software to record all rental income received and expenses paid, such as agent fees, repairs, insurance, and mortgage interest (though interest relief is restricted for residential property). He submits his first property income quarterly summary.

**Q2: 6 July to 5 October 2027. Deadline: 5 November 2027.** He continues to log all transactions. His software helps him track his expenses accurately, ensuring he claims all allowable deductions.

**Q3: 6 October to 5 January 2028. Deadline: 5 February 2028.** A significant repair is carried out on one of the properties. John ensures the invoice is uploaded to his software and categorised correctly.

**Q4: 6 January to 5 April 2028. Deadline: 5 May 2028.** Final quarterly update for his property income is submitted.

**Annual Submissions:**

**End of Period Statement (EOPS). Deadline: 31 January 2029.** John or his accountant prepares the EOPS. This includes applying specific property tax rules, such as adjustments for restricted finance costs (mortgage interest relief) and any capital allowances for integral features or furniture for furnished holiday lets. The EOPS is then submitted.

**Final Declaration. Deadline: 31 January 2029.** John also has a part-time PAYE job. His property income (from the EOPS) is combined with his employment income, and his personal allowances are applied. The Final Declaration is submitted, and his total tax liability for 2027/28 is calculated, due for payment by 31 January 2029.

These examples highlight the practical application of MTD for ITSA for different types of sole traders. The consistent theme is the requirement for digital record keeping and regular, automated submissions, which fundamentally change the rhythm of tax compliance in the UK.

## How AccountsOS Simplifies MTD for ITSA for Sole Traders

AccountsOS is built to make your Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) compliance effortless, allowing you to focus on your business.

### Real-Time Digital Record Keeping

Easily record income and expenses digitally, ensuring MTD compliance from day one. Connect bank accounts for automatic import.

### Automated Quarterly Updates

Generate and submit your quarterly income and expense summaries directly to HMRC with a few clicks, avoiding manual errors.

### Estimated Tax Liability

See your estimated tax bill update throughout the year, helping you manage cash flow and avoid year-end surprises.

### EOPS & Final Declaration Support

AccountsOS assists in preparing the End of Period Statement and gathers data for your final income tax declaration.

### Proactive Deadline Reminders

Receive timely alerts for all your MTD submission deadlines, ensuring you never miss a report and avoid penalties.

### Accountant Collaboration

Seamlessly share your MTD records with your accountant for review, adjustments, and final submission.

## The Future of MTD for ITSA: What to Expect

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is a long-term programme, and the phased rollout for sole traders and landlords is just the beginning. While the immediate focus is on the 2026 and 2027 mandates, it is important to consider the broader trajectory of HMRC's digital transformation.

### Expansion to Lower Income Thresholds

Currently, sole traders and landlords with gross income below £30,000 are not yet mandated to join MTD for ITSA, with HMRC stating that a future start date for this group will be announced. It is highly probable that eventually, the MTD for ITSA requirements will extend to all self-employed individuals and landlords, regardless of their income level. This aligns with HMRC's overall ambition for a fully digital tax system. Businesses currently below the threshold should still consider adopting MTD-compatible software voluntarily to get ahead of future mandates and benefit from the efficiencies of digital record-keeping.

### Potential for Other Tax Types

The MTD initiative is not limited to VAT and Income Tax. In the future, it is conceivable that other tax types, such as Corporation Tax for smaller limited companies, could also fall under the MTD umbrella. While there are no immediate plans announced for this, the underlying principle of digital record-keeping and direct submission to HMRC could be applied more broadly across the tax system. This would create a more unified and streamlined approach to tax administration across different business structures.

### Continuous Evolution of HMRC's Digital Services

HMRC is committed to continuously improving its digital services. This means that MTD-compatible software and the underlying HMRC systems are likely to evolve, with new features and functionalities being introduced over time. Businesses can expect greater integration, more sophisticated real-time insights, and potentially even more tailored guidance from HMRC through their digital accounts. Staying informed about these developments will be crucial for ongoing compliance and for leveraging the full benefits of a digital tax system. The move to MTD for ITSA is a foundational step in creating a truly modern and interconnected tax environment in the UK.

## Frequently asked questions

### Do all sole traders need to join MTD for ITSA?

No, MTD for ITSA is being phased in. From April 2026, it applies to sole traders and landlords with gross income over £50,000. From April 2027, it extends to those with gross income over £30,000. Those below £30,000 are not yet required to join.

### What is 'gross income' for MTD for ITSA purposes?

Gross income refers to your total business or property income before any expenses or allowances are deducted. If you have both business and property income, these are combined to determine if you meet the threshold.

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

You must use MTD-compatible software that can connect directly to HMRC's systems to submit your quarterly updates and other MTD filings. This software should also allow you to keep digital records of your income and expenses.

### Can I still use my accountant for MTD submissions?

Yes, your accountant can use MTD-compatible software to make submissions on your behalf. Many sole traders choose to work with an accountant to ensure accuracy and compliance, especially during the transition.

### What happens if my income falls below the MTD threshold?

If your income falls below the relevant threshold in a subsequent tax year, you may be able to opt out of MTD for ITSA. However, if you have already joined and find the digital process beneficial, you can choose to continue voluntarily.

### Are landlords also affected by MTD for ITSA?

Yes, landlords with property income above the specified thresholds are also included in the MTD for ITSA rollout, following the same timetable as sole traders. Their property income will be reported digitally alongside any business income.

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

The EOPS is an annual summary of adjustments made to your quarterly figures, such as capital allowances, private use adjustments, and accounting basis changes. It must be submitted by 31 January following the tax year.

### What if I have multiple businesses or properties?

If you have multiple businesses or properties, you will need to keep digital records for each and submit separate quarterly updates for each business or property. These will then be consolidated in your final declaration.

## Related guides

- [HMRC MTD Guidance](https://www.gov.uk/guidance/check-when-you-can-sign-up-for-making-tax-digital-for-income-tax)
- [AccountsOS MTD Features](/features/mtd)
- [Self Assessment Guide](/filing/self-assessment)
- [Business Expense Guide](/guides/business-expenses)