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From April 2026, the annual Self-Assessment tax return is being replaced for millions of self-employed individuals and landlords. Making Tax Digital for Income Tax (MTD for ITSA) requires digital record-keeping, quarterly reporting and new software and if you meet the income threshold, compliance is mandatory.
Getting it wrong means penalties under an entirely new points-based system. This guide covers the 15 key facts you need to know thresholds, exemptions, software and deadlines so you can prepare with confidence before the clock runs out.
KEY TAKEAWAYS
MTD for ITSA Launch: Starts in April 2026 for taxpayers with qualifying income over £50,000
Quarterly Updates: Submit digital updates four times a year using HMRC-recognised software
Qualifying Income: Includes self-employment income, UK rental, and foreign property income (excluding employment income, dividends, and pensions)
Exemptions: Exemptions apply to those with income under £20,000, those digitally excluded, or certain other categories
MTD Software: Choose HMRC-approved software for record-keeping and submitting updates
Voluntary Early Adoption: You can voluntarily join MTD before mandatory deadlines to prepare for the transition
Final Tax Return: You still need to submit a final declaration by 31 January after the tax year, which includes all income sources
Opting Out: You cannot opt out of MTD once mandated, but you can voluntarily leave if your income falls below the threshold for three consecutive years
What Exactly Is Making Tax Digital for Income Tax Self Assessment?
Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) is HMRC's initiative to modernise tax reporting by requiring sole traders and landlordsto keep digital records and report their income digitally throughout the year, rather than through a single annual Self-Assessment return.
This fundamental shift moves tax reporting from an annual event to an ongoing digital process, giving HMRC greater visibility of your income and helping you budget effectively for your expected tax bill throughout the year.
Instead of completing one annual Self-Assessment tax return, you'll need to:
Maintain digital business records throughout the year
Submit quarterly updates to HMRC (four times annually) through MTD compatible software
Submit a final declaration by 31 January following the tax year through MTD compatible software
Who Must Use MTD for Income Tax Self Assessment?
HMRC assesses your gross qualifying income to determine whether MTD applies to you. If this figure exceeds the relevant threshold for your relevant tax year, MTD compliance becomes mandatory.
The tax year used to assess your qualifying income is the one two years before the year you're required to join. For example, if you're being assessed for mandation from 6 April 2026, HMRC will look at your income from the 2024-25 tax year. This gives HMRC a confirmed figure from a completed Self-Assessment return rather than an estimate.
The rollout follows a phased approach, with thresholds reducing over time to bring more taxpayers into the system:
What Counts as Qualifying Income for MTD for Income Tax Self Assessment?
Your qualifying income is the gross income meaning your turnover before any expenses or deductions are applied earned from self-employment and property during a tax year. It is not your profit figure; HMRC looks at the total income coming in, not what remains after costs.
If you have multiple sources of income, such as running a business alongside renting out a property, these figures are combined into a single total to determine whether you cross the relevant threshold
What's included: | What's excluded: |
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Who Is Exempt from MTD for Income Tax Self Assessment?
Not everyone who meets the qualifying income threshold will be required to use MTD. HMRC recognises a range of exemptions based on your personal circumstances, the type of income you report, or the claims made in your Self Assessment return. If exempt, you don't need to use MTD-compatible software, but you must continue filing a standard Self Assessment return as normal.
Exemptions work in two ways: automatic ones, where HMRC applies the exemption without you needing to do anything, and those you must apply for. Both can be permanent or temporary.
Permanent Automatic Exemptions
No application is needed for any of the following:
Your qualifying income is £20,000 or less
You do not hold a National Insurance number before the start of the relevant tax year
You submit returns on behalf of non-resident companies (SA700) or trusts including charitable trusts (SA900)
You are a personal representative of a deceased person (though your own personal income may still fall within MTD)
You are a Lloyd's member reporting solely in relation to your underwriting business via SA103L
You are not physically or mentally capable of managing your financial affairs and have a power of attorney or legally appointed deputy in place
Temporary Automatic Exemptions
These are granted based on your 2024-25 tax return and require no application. If that return included a claim for averaging relief, qualifying care relief, the SA107 (trusts or estates income) or the SA109 (complex international tax situations including non-UK residency), you are automatically exempt for 2026-27.
if these claims didn't appear in your 2024-25 return but you reasonably expect them in a future return, you'll need to apply for the exemption rather than receiving it automatically.
Applying for an Exemption: Digital Exclusion
If it is not reasonably practicable for you to use compatible software, you can apply for a digital exclusion exemption. HMRC may accept this if your age, health condition or disability prevents computer use, your religious beliefs are incompatible with digital record-keeping, or you genuinely cannot access the internet at your location.
HMRC will not accept applications based on unfamiliarity with software, having previously filed on paper, or the cost and inconvenience of signing up. Applications are assessed individually.
What Software Do I Need for MTD for Income Tax Self Assessment?
You'll need HMRC-recognised software that can create and store digital records of your self-employment and property income and expenses, send your quarterly updates directly to HMRC, and submit your final tax return by 31 January.
Two main software types exist:
Record-creation software:
Creates digital records by linking to bank accounts, scanning receipts, or manual entry. Most also handle quarterly updates and final submissions.
Bridging software:
Connects existing records (like spreadsheets) to HMRC's systems for submissions while you continue using your current tools.
You can use one comprehensive software product or multiple products working together. Your software should support all your income sources (self-employment, UK property, foreign property) and allow reporting of other income types for your complete tax return. Many products offer different pricing tiers, including some free options with usage restrictions.
Not sure which software is right for you? Use the RentalBux MTD Software Finder to find HMRC-recognised software that fits your specific circumstances and income type.
When Should I Sign Up for MTD for Income Tax Self Assessment?
If you're required to start from 6 April 2026, you should sign up beforehand to ensure you're prepared. HMRC will review your Self-Assessment return and write to you if your qualifying income exceeds the threshold, but it remains your responsibility to check and sign up even without receiving a letter.
To sign up, you must:
Be registered for Self-Assessment
Have submitted a tax return in the last two years
Not qualify for an exemption
You can sign up voluntarily before you are mandated to join, allowing you to become comfortable with quarterly reporting, test different software solutions, and smooth your transition when Making Tax Digital becomes mandatory.
Can I Voluntarily Join Making Tax Digital Before I'm Required To?
Yes, and there are compelling reasons to consider early adoption.
You can voluntarily sign up for making tax digital for income tax self-assessment even if your income is below the mandatory thresholds or your mandatory date hasn't arrived yet. This allows you to:
Test the system: Gain hands-on experience with digital record-keeping and quarterly submissions before they become compulsory.
Benefit from penalty relief: Volunteers joining during the 2024-25 and 2025-26 testing periods don't face penalty points for late quarterly updates—only the delay in annual final declaration attracts penalties.
Prepare your business: Identify any issues with your record-keeping, software choices, or processes while the stakes are lower.
Choose your start point: You can volunteer for the current tax year (catching up on missed quarters) or from the start of the next tax year.
If you sign up voluntarily, it's worth keeping in mind that unlike mandatory users, you retain the option to opt out later if MTD doesn't suit you. Once you join, the new MTD penalty system will apply to your annual obligations, and you'll still need to submit traditional Self Assessment returns for any tax years that predate your MTD start date.
Voluntary adoption makes particular sense if you're close to the mandatory threshold or expect your income to increase, allowing you to build competence gradually.
What Are Quarterly Updates of MTD and When Are They Due?
Quarterly updates are submissions to HMRC reporting summary of your income and expenses for a three-month period. Unlike the final tax return, these are simplified reports providing HMRC with regular visibility of your financial position.
Under Making Tax Digital, there are two options for quarterly reporting periods; standard quarterly period and calendar quarter period. The standard quarterly periods under MTD align with the tax year, meaning updates are based on HMRC’s tax year dates rather than calendar months.
You can also choose calendar quarters if this better suits your business cycle or existing accounting processes. This option can be helpful if you already prepare management accounts or bank reconciliations on a monthly or calendar-quarter basis.
Update | Standard Quarter Period | Calendar Quarter Period | Submission Deadline |
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Q1 | 6 April – 5 July | 1 April – 30 June | 7 August |
Q2 | 6 July – 5 October | 1 July – 30 September | 7 November |
Q3 | 6 October – 5 January | 1 October – 31 December | 7 February |
Q4 | 6 January – 5 April | 1 January – 31 March | 7 May |
Updates must be submitted within one month of each period end. Your software will track these deadlines and help you submit on time. Whichever the options you choose, the submission deadlines are same.
Importantly, quarterly updates during the first mandatory year (2026-27) won't attract penalties if submitted late, giving new users breathing room to adapt.
Quarterly updates don't replace your annual tax return—they supplement it by providing HMRC with interim information throughout the year.
What Penalties Apply Under Making Tax Digital?
A completely new penalty system launches alongside MTD, replacing the current Self-Assessment penalty regime with a points-based approach for late submissions and a percentage-based system for late payments.
Late Submission Penalties
The new late submission system is points-based. You receive one penalty point for each missed quarterly update or tax return deadline.
Importantly, no penalty points will be issued for missed quarterly update deadlines during 2026-27 — this soft landing gives taxpayers time to adjust to the new regime, though you still need to submit your quarterly updates before you can file your final return.
From the 2027-28 tax year onwards, points will be issued for missed quarterly deadlines as well. Once you accumulate 4 points, a £200 fixed penalty is triggered, with a further £200 penalty for every subsequent missed deadline.
Points are removed automatically 24 months after the missed deadline, provided you remain below the 4-point threshold. If you reach the threshold, automatic removal stops. To clear all your points at that stage you must file all quarterly updates and your tax return on time for 12 consecutive months, and also clear any outstanding submissions from the previous 24 months.
Late Payment Penalties
Late payment penalties are not points-based and apply separately to each late payment. They apply to balancing payments and amounts due following amendments or assessments, but do not apply to payments on account.
In your first year under the new system, you have 30 days from the payment due date to either pay in full or contact HMRC to set up a payment plan before penalties begin. After the first year, this window reduces to 15 days.
2026-27 tax year | 2027-28 tax year onwards | |
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Up to 15 days late | No penalty | No penalty |
16–30 days late | 3% of tax owed at day 15 (no penalty in first year) | 4% of tax owed at day 15 (no penalty in first year) |
31+ days late | 3% at day 15 + 3% at day 30, then 10% per year charged daily from day 31 | 4% at day 15 + 4% at day 30, then 10% per year charged daily from day 31 |
Late payment interest also runs from day one regardless of whether a penalty applies.
Will I Still Need to Submit an Annual Self Assessment Return?
Yes — but in a different form. MTD doesn't eliminate the annual return; instead, the traditional Self Assessment return is replaced by a final declaration, submitted through your MTD-compatible software by 31 January following the tax year.
Your quarterly updates will have already covered your self-employment and property income, so much of that information carries forward automatically. The final declaration is where you add any remaining income sources not captured quarterly — such as employment, pensions, dividends, savings interest, partnership income and capital gains — and make any adjustments, claim reliefs or allowances, before confirming your complete tax position to HMRC.
What Digital Records Must I Keep Under MTD for Income Tax Self Assessment?
Making tax digital for income tax self-assessment requires maintaining digital records of your self-employment and property income and expenses.
Your software must digitally record:
All business income (sales, receipts, invoices)
All allowable business expenses
Purchase and sale of business assets
Rental property income and expenses
Records must be created and preserved in digital format using MTD-recognised software, retained for at least five years after the 31 January submission deadline, and connected through approved “digital links” if you use more than one software product.
You can still use paper receipts and invoices for source documents, then enter or scan them into digital records. The requirement is that your records are stored digitally and linked to HMRC through compatible software, not that every original document is digital.
Can My Agent Handle MTD for Income Tax Self Assessment for Me?
Absolutely. Many taxpayers will continue working with tax agents who can manage making tax digital for income tax self-assessment obligations on their behalf. However, you must formally authorise your agent to act for you, and you remain legally responsible for your tax compliance, even when an agent handles the process.
What Your Agent Can Do | What You Remain Responsible For |
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The key is ensuring clear agreement about responsibilities who maintains records, who makes submissions, who owns the software subscriptions. If you have multiple agents for different purposes, your software must allow multiple agent access.
Most importantly, even where an agent submits information for you, the taxpayer remains liable for the accuracy of submissions and compliance with MTD requirements.
What Happens If HMRC Sends Letter to Join MTD for Income Tax Self Assessment?
After the MTD mandation dates, HMRC will review Self Assessment returns annually to identify taxpayers whose qualifying income exceeds the relevant threshold. If your income crosses the threshold, HMRC will write to confirm that you must start using MTD for Income Tax by the start of the upcoming tax year.
For example, if your 2024-25 return shows qualifying income over £50,000, HMRC will write confirming you must use MTD from 6 April 2026.
However, not receiving a letter does not mean you are exempt. It remains your responsibility to assess your own position and prepare accordingly. If you think MTD may apply to you, here's what you should do:
Step 1 — Work out your qualifying income Add together your gross income from self-employment and property before expenses for the relevant tax year. Remember, it's the combined total that determines whether you cross the threshold, not each source individually. |
Step 2 — Check whether any exemptions apply to you Before signing up, review whether you qualify for any automatic or applied exemptions. If an exemption applies, you may not need to join at all, or may be able to delay until a later date. |
Step 3 — Speak with your accountant or tax agent If you have a tax agent or accountant, involve them early. They can confirm your qualifying income, advise on exemptions, help you choose the right MTD-compatible software, and in many cases manage the sign-up process and quarterly submissions on your behalf. |
Step 4 — Choose your MTD-compatible software and sign up Once you've confirmed you need to join, select HMRC-recognised software that suits your needs and complete the sign-up process before your mandation date. Don't wait for a letter — if the threshold applies to you, the obligation stands regardless of whether HMRC has written to you. |
Can I Opt Out of Making Tax Digital for Income Tax Self Assessment?
If you're mandated to join (your income exceeds the threshold), you cannot opt out unless you qualify for an exemption.
However, if you voluntarily sign up before being mandated, you can later choose to opt out by notifying HMRC.
Once you start using MTD and your qualifying income drops below the relevant threshold for three consecutive tax years, you can choose to leave the system. This recognises that businesses fluctuate and prevents trapping lower-income taxpayers in MTD indefinitely.
If you qualify for an exemption permanent or temporary you're not required to use MTD regardless of income level. Digital exclusion is the most commonly applicable exemption, available if it's not reasonably practicable for you to maintain digital records or submit information electronically due to age, disability, remoteness, or other circumstances.
How Should I Prepare for MTD for Income Tax Self Assessment?
Whether you're joining in 2026 or later, preparation is essential:
Immediate actions:
Calculate your qualifying income using HMRC's guidance to confirm when you'll need to join
Research compatible software using HMRC's finder tool—compare features, pricing, and user reviews
Assess your record-keeping to identify what needs digitising
Speak with your agent if you have one, to clarify their MTD support
Before your start date:
Select and purchase software allowing time to learn the system
Set up your digital records by importing or entering opening balances
Establish quarterly update reminders in your calendar
Understand the penalties to know what triggers them and how to avoid issues
Consider voluntary early adoption if your mandatory date is 2027 or 2028, gaining experience under the soft penalty regime
Ongoing practices:
Maintain regular digital record updates rather than leaving everything until quarter-end
Review quarterly updates before submission to catch errors early
Keep evidence that you've met deadlines (confirmation emails, submission receipts)
Stay informed about MTD developments through HMRC updates or your professional body
Conclusion
MTD for income tax self-assessment represents a significant administrative change, but with proper preparation and the right software, most taxpayers find the transition manageable. The first-year penalty relief for quarterly updates provides valuable breathing room, so use it wisely to establish solid processes that will serve you for years to come.
The digital future of tax reporting is here understanding these 15 key facts ensures you're ready to meet it with confidence.
