Making Tax Digital for Income Tax: The Ultimate Guide for Self-Employed and Landlords (2025/2026 Edition)
Overview
Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) is the biggest shake-up to the self-employed and landlord tax system in decades. From 2026, millions of UK individuals will be required to keep digital records and submit quarterly tax updates to HMRC — replacing the traditional once-a-year Self Assessment return.
This guide breaks down everything you need to know: what it is, who it affects, what changes, when it starts, how to prepare, and the penalties for non-compliance.
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What is MTD for Income Tax?
Making Tax Digital is HMRC's initiative to modernise and digitise the UK tax system. While VAT-registered businesses have already moved under the MTD regime, MTD for Income Tax Self Assessment (MTD ITSA) will be rolled out for individual taxpayers who earn income outside of PAYE.
Instead of filing a single Self Assessment tax return once a year, you’ll be required to:
- Keep digital records of your income and expenses
- Submit quarterly updates to HMRC via approved software
- Submit an end-of-period statement (EOPS)
- Submit a final declaration confirming your total tax liability for the year
That’s five submissions per year, not one.
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Who Will Be Affected?
MTD ITSA applies to UK individuals who:
- Are self-employed sole traders
- Are landlords receiving property income
It does not currently apply to those earning income only through PAYE.
The rollout is being staggered:
- From April 2026: Individuals with total gross income over £50,000 (from combined property and/or self-employment income)
- From April 2027: Threshold drops to £30,000
- From April 2028: Expected to extend to those earning £20,000+ (subject to confirmation)
Note: These thresholds refer to gross income, not profit. So even if your net income is below the threshold, you may still be required to comply if your turnover exceeds it.
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What Changes Under MTD ITSA?
1. Digital Record Keeping
- Paper-based or manual records will no longer be acceptable
- You must keep your records using MTD-compliant software or a digital spreadsheet with approved bridging software
2. Quarterly Submissions
- Every 3 months, you will submit a summary of income and expenses
- These updates do not calculate your tax but inform HMRC of your trading activity
3. End-of-Period Statement (EOPS)
- After the end of the tax year, you finalise each business's or property’s income, making adjustments for allowances or reliefs
4. Final Declaration
- Replaces the Self Assessment tax return
- Confirms all income sources and final tax position
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What Software Do You Need?
You will need MTD-compliant software to:
- Maintain digital records
- Generate quarterly updates
- Submit EOPS and Final Declarations
Spreadsheets alone will not be acceptable unless used with HMRC-approved bridging software.
Examples of MTD-compatible tools include:
- Xero
- QuickBooks
- FreeAgent
- Sage
- And others certified by HMRC
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What Are the Penalties for Non-Compliance?
HMRC is introducing a points-based penalty system:
- Each missed submission earns you a point
- Accumulate too many points, and you'll be fined
- Fines start at £200+ and grow with repeat offences
- Interest will also accrue on late payments
This system mirrors what’s already been rolled out for VAT under MTD.
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Exemptions from MTD ITSA
You may be able to claim an exemption if:
- You are digitally excluded due to age, disability, or location with no internet access
- You are a non-resident (claiming the remittance basis)
- You are covered under Power of Attorney
HMRC will assess these on a case-by-case basis, and you must apply.
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Why Is This Happening?
From HMRC’s perspective:
- Reduces the "tax gap" (errors and underpayments)
- Provides real-time income insights
- Helps taxpayers avoid big year-end surprises
From your perspective:
- Increased admin and risk of errors
- Increased accountant fees (more work = more cost)
- Higher likelihood of penalties if you’re not organised
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What Should You Do Now?
1. Check your 2024/25 income
If you’re close to or over £30k/£50k, prepare early
2. Move to digital record keeping
Get MTD-ready software in place this tax year
3. Speak to your accountant
Ask them about MTD timelines, pricing, and systems they support
4. Don’t wait for HMRC
You’ll get a letter if you’re in scope, but by then it may be too late to prepare without stress
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Final Thoughts
MTD for Income Tax is a massive shift — not just a new form, but a complete overhaul in how the self-employed and landlords manage tax.
The number of submissions is multiplying. So is the margin for error. And so are the costs.
The earlier you prepare, the smoother it will go.
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Need help moving your records online or want us to handle your MTD compliance entirely?
We’re ready when you are.