If you’re a sole trader or landlord in the UK, you’ve likely heard the term Making Tax Digital for Income Tax, or MTD ITSA. It’s part of the government’s plan to make tax easier by asking you to keep digital records and send updates more often.
This might sound like one more thing to worry about, but it doesn’t have to be stressful. In fact, MTD can actually help you feel more in control of your finances.
Let’s break it down step by step.
What is MTD ITSA?
MTD ITSA stands for Making Tax Digital for Income Tax Self Assessment. It’s a new way of managing your business or property income taxes.
Right now, most people complete one tax return a year. Under MTD ITSA, you’ll use compatible software to keep records and send updates to HMRC every three months. Then you’ll confirm everything once a year in a final declaration.
According to HMRC’s MTD campaign
Why is Making Tax Digital happening?
To make tax easier
HMRC says this change is about helping people like you take small steps to manage tax more easily. If you’ve ever rushed to do your tax return in January, this system will feel like a welcome change.
To reduce errors and build confidence
With digital records and regular updates, HMRC expects fewer mistakes and more accurate tax calculations. They also say it gives you more time to budget and less chance of underestimating your tax bill.
To modernise the tax system
MTD is part of a wider push to bring tax into the digital age. VAT returns already follow MTD rules and the system has proven helpful for many small businesses.
Who does MTD ITSA apply to?
Check the income threshold
You’ll need to follow the MTD ITSA rules if you:
- Are registered for Self Assessment
- Earn income from self-employment or property
- Have total income over £50,000 from these sources (dropping to £30,000 in 2027 and £20,000 in 2028)
Here’s a simple table of key dates:
| Start Date | Who It Affects | Income Level |
|---|---|---|
| 6 April 2026 | Sole traders and landlords | Over £50,000 |
| 6 April 2027 | Sole traders and landlords | Over £30,000 |
| 6 April 2028 | Sole traders and landlords | Over £20,000 |
“Income” here means your gross earnings from self-employment and/or property – not after expenses.
Source: MTD for Income Tax Dates
Are there any exceptions?
You may be exempt if:
- You’re unable to use digital tools due to age, disability or location
- Your income comes from other types of work (like PAYE or dividends only)
- You do not have a National Insurance number
If you’re unsure, you can ask HMRC or speak to your accountant.
What do I need to do for MTD ITSA?
You’ll need to:
- Use MTD-compatible software to keep digital records
- Send quarterly updates to HMRC showing your income and expenses
- Submit a final declaration each tax year confirming the full picture
This replaces parts of your current Self Assessment return but not all of it. You’ll still report other income like employment or savings interest if that applies.
What will change for me?
Right now, you might do your accounts once a year – maybe in a panic in January. Under MTD ITSA, you’ll:
- Keep up-to-date records all year
- Use software that talks to HMRC
- Send regular updates (once every three months)
- Confirm your income at the end of the year
As HMRC puts it, this helps you stay on top of things with no more last-minute tax returns. (Source)
Step-by-step: How to get ready
Here’s what to do if MTD applies to you – or will soon.
Step 1: Check if you’re in scope
Visit Check if you need to sign up and answer the simple questions. If your self-employment and/or property income is over £50,000, you’ll need to comply from April 2026.
Step 2: Choose your software
You’ll need software that can:
- Store digital records
- Connect to HMRC
- Submit quarterly updates and a final declaration
Options include full bookkeeping tools or “bridging software” that links your spreadsheets to HMRC. Make sure it says MTD-compatible.
Step 3: Start keeping digital records
This means entering your income and expenses regularly into your software. Many tools link to your bank to save time and reduce manual entry.
The sooner you get into this habit, the easier it’ll be once MTD is mandatory.
Step 4: Plan for quarterly updates
You’ll report four times a year. These aren’t full tax returns – they’re summaries of your business or rental figures.
For example:
| Period Covered | Update Due By |
|---|---|
| 6 April – 5 July | 5 August |
| 6 July – 5 October | 5 November |
| 6 October – 5 January | 5 February |
| 6 January – 5 April | 5 May |
Then you’ll send a final confirmation by 31 January the following year.
Step 5: Speak to your accountant or bookkeeper
At CWABC, we can help you:
- Choose the right MTD software
- Stay compliant with quarterly reminders
- Review your records regularly
- Avoid any HMRC penalties
It’s worth getting support early – it can save you both time and tax stress.
Common mistakes to avoid
1. Waiting too long
If you leave setup until the last minute, you risk missing your first quarterly deadline. It’s best to start practising now, even if MTD ITSA doesn’t apply to you until 2026, 2027 or 2028.
2. Choosing the wrong software
Not all software is fully compatible. Some free tools are useful for basic records, but won’t handle final declarations. Ask your accountant what they recommend.
3. Misunderstanding thresholds
Your income threshold is before expenses, not profit. Many people assume they’re under the limit when they’re actually not.
4. Forgetting to budget for tax
One of the perks of MTD is that you’ll see your estimated tax throughout the year. Use this to set aside money regularly instead of panicking in January.
Frequently Asked Questions (FAQs)
Do I still need to do a tax return?
Yes. MTD ITSA replaces parts of Self Assessment, but not all. You’ll still submit other income details if they apply.
Can I use spreadsheets?
Yes, as long as they’re linked through compatible software. This is called “bridging software”.
What if my income drops below the threshold later?
HMRC usually requires you to stay in the MTD system unless your income stays below the threshold for three consecutive years.
Is this going to cost me more?
There may be software costs, but these are often offset by fewer late fees, reduced stress and better cash flow planning.
Can I sign up early?
Yes, and it’s a good idea if you want to get familiar with the system before it’s mandatory.
What are the benefits of MTD?
Here’s what HMRC says are the key benefits:
- Fewer errors from lost paperwork or manual mistakes
- Less stress at year-end
- Better visibility of what tax you owe
- Improved budgeting and decision-making
- Easier to share records with your accountant or bookkeeper
You can explore more at Benefits of MTD
How CWABC can support you
At CW Licensed Bookkeeper & Accountant, we make it simple.
Whether you’re just getting started or already using software, we’ll help you:MTD ITSA explained for UK sole traders
- Understand your MTD ITSA obligations
- Choose and set up the right tools
- Keep accurate digital records
- Submit quarterly updates on time
- Avoid penalties and reduce stress
We’re here to help you feel confident, not confused.
🎯 Need a printable copy?
Download our free MTD ITSA Readiness Checklist to help you stay on track.
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