Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is a significant reform that HM Revenue & Customs (HMRC) is implementing for self-employed people and landlords. HMRC has already sent letters to a large number of taxpayers informing them that they would soon be covered by this new scheme.

MTD for Self Assessment is a significant change from annual reporting to continuous digital reporting throughout the tax year, not just a small tweak to the current procedure. Tax payment dates won’t alter, but there will be a big shift in how records are maintained and data is sent to HMRC.

In order to be compliant when the regulations become necessary, this tutorial explains what MTD for ITSA is, who it applies to, how the reporting process operates, what software and records are needed, and how to get ready.

What Is Making Tax Digital for Self Assessment?

The UK government’s larger plan to update the tax system includes Making Tax Digital for Income Tax Self Assessment. Its goals are to guarantee that taxpayers maintain current records, decrease errors, and increase accuracy.

Under MTD for ITSA, eligible taxpayers must:

• Keep digital records of all self-employment and property income and expenses
• Use HMRC-compatible software to maintain those records
• Submit quarterly updates summarising income and expenses
• Submit a final declaration after the end of the tax year

This replaces the current system where a Self Assessment tax return is filed once a year using HMRC’s online service.

Who Will Need to Use MTD for ITSA?

MTD for ITSA applies to individual taxpayers, not companies. You may be affected if you are:

• A sole trader
• A landlord with UK or overseas property income
• Someone with both self-employment and property income

The key factor is whether your income exceeds the qualifying income threshold.

What Is Qualifying Income?

Qualifying income is the total gross income before expenses from:

• Self-employment
• Property rental income

These amounts are added together to determine whether you fall within the MTD thresholds.

Income that does not count toward qualifying income includes:

• Employment income under PAYE
• Dividends
• Pension income
• Savings interest

MTD for ITSA Thresholds and Start Dates

MTD for ITSA is being introduced in stages to give taxpayers time to prepare.

• From 6 April 2026 – qualifying income over £50,000
• From 6 April 2027 – qualifying income over £30,000
• From 6 April 2028 – qualifying income over £20,000

HMRC will assess your income from the previous tax year to decide whether you must use MTD for the following year. If your income exceeds the threshold, HMRC will usually notify you, but responsibility for compliance remains with the taxpayer.

How MTD for Self Assessment Works in Practice

Practically speaking, rather than altering the principles of tax computation, Making Tax Digital for Self Assessment modifies the pace of tax reporting. Taxpayers are required to keep accurate digital records throughout the tax year and communicate with HMRC more frequently rather than compiling records only once a year for Self Assessment. Instead of reconstructing data months later, the technique is intended to mirror how businesses actually work, documenting income and expenses as they emerge.

In actuality, the MTD procedure may be divided into three primary phases: keeping digital records all year long, sending HMRC quarterly updates, and finishing a final statement.

Digital Record Keeping

Once you are within MTD, you must keep your business and property records digitally. This means recording income and expenses in software or spreadsheets that meet HMRC’s digital record-keeping rules.

Each digital record must include:

• The amount
• The date
• The category (income or expense type)

Handwritten notes or manual records will no longer be enough.

Quarterly Updates to HMRC

Instead of submitting one annual return, you will submit four quarterly updates during the tax year.

These updates:

• Are summaries of income and expenses
• Do not include tax calculations or adjustments
• Are submitted through MTD-compatible software

Quarterly updates give HMRC a clearer picture of income as it arises and help taxpayers monitor their financial position throughout the year.

End-of-Year Final Declaration

After the tax year ends, you must submit a final declaration.

This final step:

• Confirms all income and expenses
• Includes any other taxable income (such as employment or dividends)
• Replaces the traditional Self Assessment tax return

Despite quarterly reporting, tax payment deadlines do not change. Any tax due is still payable by 31 January following the end of the tax year.

Software and Bookkeeping Requirements

To comply with MTD for ITSA, you must use HMRC-compatible software. This software must be able to:

• Keep digital records
• Submit quarterly updates to HMRC
• Submit the final declaration

Spreadsheets can still be used, but only if they are digitally linked to HMRC through approved bridging software. Copying and pasting figures manually between systems is not permitted.

Many businesses also find it helpful to:

• Use a separate business bank account
• Keep records updated regularly rather than quarterly
• Work with an accountant or bookkeeper familiar with MTD

How to Prepare for MTD for ITSA

Even if MTD does not apply to you immediately, early preparation is strongly recommended.

Key preparation steps include:

• Reviewing your qualifying income
• Choosing suitable digital software
• Updating your bookkeeping process
• Understanding quarterly submission deadlines
• Seeking professional advice where needed

Being prepared well in advance will help avoid compliance issues and last-minute pressure when MTD becomes mandatory.

Frequently Asked Questions (Additional Guidance)

Do quarterly updates mean I must pay tax every three months?

No. Quarterly updates are for reporting only. Tax is still paid annually after the end of the tax year.

What happens if my income goes above the threshold mid-year?

HMRC looks at your income from the previous tax year to determine whether MTD applies for the next year.

Can I be exempt from MTD for ITSA?

Some taxpayers may qualify for exemptions due to digital exclusion or other specific circumstances. HMRC provides guidance on how to apply.

Will penalties apply if I submit quarterly updates late?

Yes, but not immediately, and not in the traditional automatic fine system. HMRC is introducing a points-based penalty regime for late submissions under MTD for Self Assessment. This system replaces the old automatic fines for missing deadlines with a structure designed to encourage compliance without penalising one-off mistakes.