Making Tax Digital for Income Tax (MTD for ITSA) will launch on 6^th April 2026 for sole traders and landlords earning over £50,000, with those on lower incomes being brought into the system in subsequent years.

This means that, for the first time, the use of digital tools to report and pay income tax will become mandatory. But what will you need to do from 6^th April to follow the new rules?

You will need to calculate your ‘qualifying income’ from self-employment or from being a landlord in the 2024-25 tax year – the year of your most recent tax return.

In other words, the total turnover (pre-tax income) you generated from a self-employed business(s) and/or property income. If it’s over £50,000, you will need to be ready from 6^th April 2026.

So, if you earned £30,000 from self-employment alongside £30,000 in property income in 2024-25, your total qualifying income would be £60,000 – making you eligible for MTD for ITSA from 6^th April 2026.

Not all forms of income on a tax return count towards your qualifying income. For example, dividends, pension payments and PAYE income do not factor into your MTD eligibility.

However, if you have stopped trading and will not resume in the 2026-27 tax year, you do not need to sign up for MTD.

Now you’ve determined that you need to register for MTD for ITSA, the next question is how to do it.

First, you need to find the right software, which must be approved by HMRC. To find HMRC-approved software, you can use HMRC’s tool for choosing the right software. 

If you work with an accountant or tax agent, speak to them about this too – they will need your permission to perform certain actions on your behalf within the software.

The right software for you will depend on your circumstances, so it’s important to understand how they function.

Software will typically come in the form of a smartphone app or web app for PC. Once installed, you will be able to connect it to your business bank account and set it up to generate reports automatically based on your transactions.

It will also offer the ability to add transactions manually or by scanning photos of receipts or invoices, for logging transactions that take place outside your linked bank account.

Some business banking providers are also offering integrations and automations within their apps that convert banking transactions into MTD reports.

Alternatively, if you’re one of the 66% of sole traders who tracks their sales and expenses on a spreadsheet, you will be able to use ‘bridging software' which generates quarterly reports from the records you’re already keeping.

For those mandated to sign up for MTD for ITSA from 6^th April 2026, the key dates you need to know are:

• Q1 update due – 7^th August 2026
• Q2 update due – 7^th November 2026
• Q3 update due – 7^th February 2027
• Q4 update due – 7^th May 2027
• Self Assessment return due – 31^st January 2028

Remember, an update is more like a summary of your business income and expenses, not a full tax return. Once you have your MTD software connected to your business bank account or spreadsheet, your update report should mostly populate itself automatically. 

The update report won’t be an itemised list of your transactions, but a category level summary (e.g. sales, transport).

When the time comes to submit your end of year tax return, this will also need to be completed via your MTD software. 

If you’re submitting your return yourself without an accountant, it’s important to check that the software you use can send returns, as some are only set up to send quarterly updates.

The first thing to note is that HMRC has confirmed that there will be no penalties for missing a quarterly update deadline in 2026-27.

However, penalties will still apply for late filing of your end of year tax return and for late payment of tax. So, whilst quarterly updates are penalty-free for the first year, it’s important not to ignore them entirely, as you won’t be able to file your tax return until your quarterly updates are submitted.

Once penalties are instated, they will operate on a points system. Points for quarterly updates, annual filing and payment of tax are all counted separately.

Penalties for quarterly updates

Each late quarterly update will incur 1 point. If you incur 4 points within a 24-month period, a £200 fine will be issued. And for every further point beyond this, a £200 fine will be issued for each point.

Points will reset to 0 after a 24-month period of compliance.

Penalties for annual returns

The system for tax returns works similarly to the method for updates, with each late filing incurring 1 point. 

However, the threshold for penalties is lower, at 2 points within a 24-month period. Points will reset to 0 after 24 months of on-time filing.

Penalties for late payment of tax

Penalties for late payments are also changing, but they are not based on points.

The amount of penalty will scale based on how late after the due date you pay. For MTD for ITSA’s first year, the penalties are more lenient.

2026-27

• Payment made up to 15 days after due date: no penalty
• Payment made 16 to 30 days late: 3% of the tax owed at day 15, or no penalty if it’s your first year
• Payment made 31 or more days late: 3% of the tax owed at day 15, and 3% of the tax owed at day 30; plus, an annual rate of 10% per year on the outstanding amount, charged daily from day 31 until the tax is paid, or for up to 2 years.

2027-28

• Payment made up to 15 days after due date: no penalty
• Payment made 16 to 30 days late: 4% of the tax owed at day 15, or no penalty if it’s your first year
• Payment made 31 or more days late: 4% of the tax owed at day 15, and 3% of the tax owed at day 30; plus, an annual rate of 10% per year on the outstanding amount, charged daily from day 31 until the tax is paid, or for up to 2 years