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Beginner’s guide to Making Tax Digital for sole traders and landlords

As accountants, we’re used to HMRC throwing acronyms at us. One that you may have heard mentioned more recently is – MTD ITSA, short for Making Tax Digital for Income Tax Self Assessment. The reason this one is grabbing the headlines is that it’s predicted to affect 2.75 million people over the next few years!

The good news is that we’re here to walk you through everything you need to know about the changes.

What is MTD ITSA?

In simple terms, Making Tax Digital for Income Tax Self Assessment (MTD ITSA) means sole traders and landlords will need to keep digital records and file quarterly updates to HMRC using approved software, instead of the traditional annual self assessment tax return.

Quick check: will MTD ITSA affect me?

If you’re our client with a limited company: You’re generally fine unless you also have sole trader income or rental properties above the thresholds we cover below. If you think you might be affected, just get in touch and we’ll check for you.

Although this won’t affect you personally, keep reading because you might have a friend, family member, neighbour, colleague, work bestie from your co-working space… who needs to know about this.

If you’re a sole trader or landlord: Keep reading. This is definitely important for you to know.

Who is affected by MTD ITSA?

From 6 April 2026, HMRC’s Making Tax Digital for Income Tax Self Assessment becomes mandatory for sole traders and landlords. The roll out is split into three phases, based on your gross qualifying income*

Here are the dates and threshold amounts for MTD ITSA:

Phase 1: 6 April 2026 – threshold: £50,000 gross qualifying income*

Phase 2: 6 April 2027 – threshold £30,000 gross qualifying income*

Phase 3: 6 April 2028 – threshold of £20,000 gross qualifying income*

*gross qualifying income means your total turnover before expenses, not your profit. This includes both trading income and rental income. If you jointly own a property, count each partner’s share proportionately.

Do I need to join from April 2026?

Not necessarily. You’ll need to join MTD from 6 April 2026 if:

You’re a sole trader or unincorporated landlord (not a limited company)
Your combined gross income from self-employment and/or property exceeded £50,000 in 2024-25

HMRC have said they will identify who needs to join using your most recent tax return (the one due by 31 January 2026). You should receive a letter from them explaining your new obligations.

If you’re below the threshold, you don’t have to join yet, but you can choose to opt in early and get ahead of the game. Also, there are some exemptions available in certain circumstances. Check HMRC’s detailed guidance for the full list.

What does Making Tax Digital require?

Think of MTD as moving from an annual tax conversation with HMRC to regular check-ins throughout the year. Here’s what’s changing:

1. Digital record keeping

Every transaction needs to be recorded digitally using HMRC-approved software. You can still keep paper receipts, but everything needs to be stored digitally too.

This means no more shoeboxes full of receipts or spreadsheets that only you understand. The software needs to be HMRC-approved, so your current setup might need an upgrade.

2. Quarterly updates to HMRC

Every three months, you’ll send HMRC a summary of your income and expenses through your HMRC-approved software. Think of these as simplified progress reports rather than full accounts.

You can choose between standard tax year quarters:

6 April to 5 July
6 July to 5 October
6 October to 5 January
6 January to 5 April

Or calendar quarters (which give you an extra five days):

1 April to 30 June
1 July to 30 September
1 October to 31 December
1 January to 31 March

The deadlines are 7 August, 7 November, 7 February, and 7 May following each quarter end.

If you’re already doing quarterly VAT returns, this should feel familiar; just a different form to fill in.

3. End of period statement and final declaration

At year-end, you’ll submit an End of Period Statement (EOPS) and then make a final declaration by 31 January following the tax year. This is where you’ll include any adjustments and other income like savings or investments.

4. No more traditional tax returns

For most people, the final declaration replaces your traditional self assessment tax return.

The new penalty system

HMRC has introduced stricter penalties for MTD, so getting your submissions right and on time is more important than ever.

Late payment penalties

3% penalty if your balancing payment is 15 days overdue
Another 3% at 30 days overdue
Plus 10% per year after 31 days

Late submission penalties

1 penalty point for each late quarterly submission
£200 penalty once you hit 4 points

The points reset to zero if you get all your submissions in on time for either 24 months (if you file annually) or 12 months (if you file quarterly).

Here’s an example

This scenario is based on the following:

A trader has a tax liability of £10,000
They haven’t paid the tax for a full year since the day it became due

Penalties are as follows:

Day 15 (15 days late): Penalty of 3% of £10,000 = £300

Balance is now £10,300

Day 30 (30 days late): Additional penalty of 3% of £10,000 = £300

Total penalties charged at this stage are £600

Balance is now £10,600

Day 31 onwards (10% interest per annum/ £2.74 per day):

Daily interest penalty applies to the £10,000 tax due (HMRC usually charges on the tax, not on the penalties).

If paid 365 days late (335 days after daily interest starts) the fixed penalties total remains £600 but the daily interest to be added is £918 (330 × £2.74 = £917.90)

Total due = £11,518.00

You can see how quickly the costs of late payment stacks up!

Key dates for your diary

31 January 2026: Deadline for your 2024-25 Self Assessment (this determines if you need MTD for 2026-27)

6 April 2026: MTD becomes mandatory if your gross income exceeds £50,000

7 August 2026: Your first quarterly update is due

31 January 2028: Final declaration deadline for your first MTD year (2026/27)

6 April 2027: Threshold drops to £30,000

6 April 2028: Final planned threshold drop to £20,000

What should you do now?

If you think MTD might affect you, don’t wait until 2026 to start thinking about it. The transition will be much smoother if you:

Check if you’re affected: Look at your 2024-25 income to see if you’ll hit the £50,000 threshold
Start thinking about software: Research HMRC-approved software options that work for your business
Get your records in order: If your current bookkeeping is a bit… unorthodox… now’s the time to tidy it up
Talk to an accountant: Even if you usually do your own tax return, it might be worth getting a bit of extra professional help to make sure you’re MTD compliant.