Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) represents one of the most significant changes to the UK tax system in decades. From April 2026, many self-employed individuals and landlords will no longer submit a single annual Self-Assessment tax return. Instead, they will be required to keep digital records, submit quarterly updates to HMRC, and complete a final declaration using HMRC-recognised software.
With the first mandatory deadline approaching, understanding how MTD works and whether it applies to you—is now essential. The new rules introduce income thresholds, exemptions, new penalty structures, and specific software requirements that can feel overwhelming without clear guidance. This guide breaks down the 15 key facts you need to know about Making Tax Digital for Income Tax Self-Assessment, helping you understand who must comply, when to act, and how to prepare confidently to avoid penalties and ensure a smooth transition to digital tax reporting.
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 landlords to keep digital records, submit tax information quarterly and make a final tax return using compatible software.
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)
Submit a final declaration by 31 January following the tax year
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.
Who Must Use Making Tax Digital for Income Tax Self-Assessment?
The rollout follows a phased approach based on your "qualifying income" from self-employment and property:
What Counts as Qualifying Income for MTD Purposes?
Your qualifying income is your gross income (turnover before expenses) from self-employment and property combined during a tax year.
What's included: | What's excluded: |
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HMRC assesses your qualifying income based on the Self-Assessment return you submitted in the previous tax year. Even if a business has ceased, its income still counts toward your qualifying income if you have other continuing sources.
Who Is Exempt from Making Tax Digital for Income Tax Self-Assessment?
Exemptions fall into two categories: permanent and temporary.
Type of exemption | Description |
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Permanent exemptions (mostly automatic) |
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Temporary exemptions until April 2027 |
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Temporary exemptions beyond April 2027 |
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Some exemptions are automatic based on information HMRC already holds, while others require an application with supporting evidence.
What Software Do I Need for Making Tax Digital for Income Tax Self-Assessment?
You'll need HMRC-recognised software that can:
Create and store digital records of self-employment and property income and expenses
Send quarterly updates to HMRC
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 must 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.
When Should I Sign Up for Making Tax Digital 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.
If you sign up voluntarily for the current tax year (2025-26), you'll need software capable of sending any missed quarterly updates for the year so far. You still need to submit a traditional Self-Assessment return for the tax year before you start using making tax digital for income tax self-assessment.
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.
When volunteering, remember:
You can opt out later if you signed up voluntarily (unlike mandatory users)
The new penalty system applies to your annual obligations once you join
You'll still submit traditional Self-Assessment returns for pre-MTD tax years
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 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 |
|---|---|---|---|
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 for Income Tax Self-Assessment?
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 system uses penalty points rather than immediate fixed fines. Points are issued for each missed deadline, and financial penalties only apply once you reach a threshold.
For taxpayers with annual filing obligations (during the 2026-27 year and for voluntary users):
Penalty points are issued for late annual returns
After reaching two points, you receive a £200 fixed penalty
Further £200 penalties apply for subsequent late submissions
Points reset to zero after 24 months of compliant filing
Crucially, during the 2026-27 tax year, no penalty points will be issued for late quarterly updates. This "soft landing" applies to all taxpayers mandated from April 2026, helping them adjust to digital reporting. Volunteers also don't face quarterly penalty points during testing phases (2024-25 and 2025-26).
After 2026-27, when quarterly penalties begin for mandatory users, reaching four points triggers the £200 penalty, with points resetting after 12 months of compliant quarterly submissions.
Late payment penalties
Time after tax due date | Late payment penalty |
|---|---|
Within 15 days | No late payment penalty |
16 to 30 days late | 3% of outstanding tax (4% from April 2027) |
30 days late | Extra 3% of outstanding tax (4% from April 2027) |
From day 31 onwards | 10% per year on unpaid tax, calculated daily |
First-year users get an extra 15 days (30 days total) before late payment penalties apply.
These penalties are harsh but avoidable through time-to-pay arrangements established by the relevant deadlines. Late payment penalties don't apply to payments on account—only to balancing payments and amounts due following amendments or assessments.
Will I Still Need to Submit an Annual Self-Assessment Return?
Yes. Making tax digital for income tax self-assessment doesn't eliminate the annual tax return—it supplements it.
After submitting four quarterly updates covering the tax year, you must still:
Submit a final declaration by 31 January following the tax year
Include all other income sources not covered in quarterly updates (employment, pensions, dividends, partnership income, savings interest)
Declare capital gains
Claim any reliefs or allowances
The government requires this final submission through your MTD software rather than the traditional Self-Assessment online portal. Your quarterly updates pre-populate much of the trading and property information, but you'll review, adjust if necessary, and add other income before finalising.
This final declaration replaces the traditional Self-Assessment return for MTD users, ensuring HMRC has your complete tax picture.
What Digital Records Must I Keep?
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 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 Thinks I Need to Join MTD?
After the MTD for Income Tax mandation date, HMRC will review Self-Assessment returns annually to identify taxpayers whose qualifying income exceeds the relevant threshold. If your income crosses the line, HMRC will write confirming you must start using making tax digital for income tax self-assessment 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 doesn't mean you're exempt. It remains your responsibility to:
HMRC may not always have your latest information, particularly if your circumstances have changed mid-year. Don't wait for HMRC to tell you—proactively assess whether MTD applies 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 Making Tax Digital 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
Making tax digital 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.
