HMRC has a talent for turning straightforward ideas into intimidating acronyms. MTD for ITSA – Making Tax Digital for Income Tax Self Assessment – is a good example. Strip away the jargon and it simply means: from April 2026, sole traders above a certain income threshold will need to keep digital records and report to HMRC more regularly throughout the year. Here’s exactly what that involves.
Who does this affect, and when?
MTD for ITSA is being introduced in stages based on income levels:
- From 6 April 2026: sole traders and landlords with qualifying income over £50,000 must comply.
- From 6 April 2027: the threshold drops to £30,000.
- From 6 April 2028: the government has signalled a further extension to those with income over £20,000, meaning the vast majority of sole traders will eventually be brought into scope.
If your income is currently below £30,000, you are not yet required to sign up – but you can do so voluntarily, and it may be worth getting ahead of the curve.
What counts as ‘qualifying income’?
This is one of the most common points of confusion. Qualifying income refers specifically to your trading income (from self-employment) and property income (from letting). It does not include salary from employment, pension income, dividends, or savings interest.
So if you have a full-time job paying £40,000 and also earn £15,000 from freelance work, only the £15,000 counts towards the MTD threshold – not the combined total. If you have both a sole trader business and rental income, those two figures are added together.
What’s actually changing?
Under the current system, you submit one Self Assessment return per year. Under MTD for ITSA, the process changes to five submissions per year:
- Four quarterly updates – summaries of your income and expenses for each quarter
- One end-of-year finalisation – where you confirm your figures, add any additional information such as other income sources, and make your final tax declaration
It is worth emphasising what the quarterly updates are not: they are not four full tax returns. They are relatively straightforward summaries of your income and allowable expenses for that three-month period. You will not be calculating your tax bill four times a year.
Alongside this, digital record-keeping becomes a legal requirement. You will need to keep your business records electronically using HMRC-recognised software, rather than in a spreadsheet or on paper.
What software will you need?
You will need to use software that is compatible with HMRC’s MTD system. There are a few ways to approach this:
- Dedicated MTD accounting software (such as QuickBooks, Xero, FreeAgent, or Sage) – these connect directly to HMRC and will handle your quarterly submissions automatically.
- Bridging software – if you prefer to continue using a spreadsheet, bridging software sits in between and translates your spreadsheet data into the format HMRC requires. This is a valid option for those who are comfortable with their current setup.
- Free software – HMRC has committed to ensuring free MTD-compatible software is available for businesses with straightforward affairs. This mirrors what happened when MTD for VAT was introduced, when a number of free products appeared on the market.
Already using accounting software? If you are already using a package like QuickBooks or Xero, the chances are it will either already be MTD-compatible or will be updated to be so ahead of the deadline. Check with your software provider, or ask your accountant, to confirm you are covered. You may not need to change a thing.
What will it cost?
The costs involved in moving to MTD will vary from business to business, depending on factors such as how digitally set-up you already are, the software you choose, and whether you use an accountant to manage your submissions.
On the software side, there are free options available for those with straightforward affairs, through to paid subscriptions for more fully featured packages.
If you work with an accountant to manage your MTD obligations – handling your quarterly submissions, end-of-year finalisation, and everything in between – there will be a professional fee to factor in as well. What that looks like in practice depends on your individual circumstances: whether you’re a sole trader or landlord, the volume of transactions you handle, and the level of support you need. Rather than give you a figure that may not reflect your situation, we’d encourage you to get in touch with Monx UK for a personalised quote tailored to your business.
It is also worth knowing that both software and accountancy costs are tax-deductible as business expenses, which takes some of the sting out of both.
Common concerns – answered
“I’m not very tech-savvy.”
HMRC recognises that not everyone can go digital, and exemptions are available for those who genuinely cannot comply – for example, due to age, disability, or lack of internet access in a remote location. These mirror the exemptions that have operated successfully under MTD for VAT since 2019. If you think you may qualify, it is worth discussing this with an accountant.
“Do I have to do the quarterly submissions myself?”
Not at all. Your accountant or tax agent can handle all of this on your behalf, just as they may currently handle your Self Assessment return. Nothing changes in that respect.
“I own a rental property with my spouse. Does this apply to us?”
Joint ownership of property is treated individually for MTD purposes – each person’s share of the property income is assessed against their own threshold separately. Partnerships are a slightly different situation and will be brought into MTD for ITSA at a later stage, which the government has confirmed it remains committed to.
“What if I miss a deadline?”
Penalties will apply for late or missed submissions, so preparation is important. The best way to avoid issues is to start getting your records in order well before your mandatory start date.
What should you do now?
- Work out which cohort you’re in. If your qualifying income exceeds £50,000, your deadline is April 2026. If it’s between £30,000 and £50,000, you have until April 2027.
- Start keeping digital records as soon as possible. Even if your deadline is a year or two away, building good habits now will make the transition far smoother.
- Choose or confirm your software. If you’re already using accounting software, check whether it will be MTD-compatible. If you’re not, now is a good time to explore your options.
- Speak to your accountant. If you have an accountant, they will be able to guide you through the transition and handle your submissions. If you don’t have one yet, this might be the right moment to consider it.
Get MTD-ready with Monx
MTD for ITSA does not have to be stressful – but it does require preparation, and the deadlines are closer than they might appear.
At Monx, we help sole traders and landlords get MTD-ready – from recommending the right software for your circumstances to managing your quarterly submissions and end-of-year finalisation on your behalf.
Whether your deadline is April 2026 or you’re planning ahead for 2027, the sooner you start, the less disruptive the change will be. Get in touch with our team today to find out how we can help you make the transition with confidence.
