Making Tax Digital for Income Tax (MTD For ITSA) is about to change how individuals report tax more than any reform in recent memory. From April 2026, many landlords and self employed people will move from a single annual tax return to quarterly submission along with annual final tax return.
For anyone with trading or property income, that means new deadlines, new software and a different way of keeping on top of figures throughout the year. The aim of this article is to explain clearly what is changing, when it affects you and how the right tools can make the new regime manageable rather than overwhelming.
Key Takeaways
MTD for individuals applies to self employed people and landlords once their combined gross trading and property income exceeds the relevant threshold
Qualifying income is gross turnover, not profit, and excludes employment income, dividends, savings and pensions
You must keep digital records, send four quarterly updates and file an annual Final Declaration using MTD compatible software or spreadsheets plus bridging software
Exemptions are limited; digital exclusion must be agreed with HMRC and an MTD for VAT exemption does not automatically carry across to Income Tax
Once in MTD, you generally stay in until you have had three consecutive tax years below the threshold and choose to leave
A new points based penalty system applies to late submissions and a separate regime applies to late payment, with a limited soft landing for late quarterly updates in 2026/27 only
What Is Making Tax Digital for Individuals?
Making Tax Digital for individuals is a government initiative designed to modernise the UK tax system by requiring landlords and self-employed individuals to keep digital records and submit tax information online using MTD compatible software.
The system introduces three fundamental requirements:
Keep Digital Records – All your income and expenses must be recorded using MTD-compatible software rather than paper receipts.
Submit Quarterly Updates – You'll send HMRC four updates throughout the year, summarising your income and expenses for each quarter.
File a Final Declaration – By 31 January, you'll submit a Final Declaration through your software, bringing together all income to determine your final tax liability.
Key Difference from Current Self Assessment
Under the current system, you submit one annual tax return by 31 January. With MTD for individuals, you'll submit quarterly digital updates plus an annual Final Declaration. However, payment dates remain unchanged, you'll still make payments on account and a balancing payment by 31 January.
MTD Rollout Timeline: When Individuals Are Affected
Making Tax Digital for individuals is being introduced in three phases based on your qualifying income level.
Critical Planning Point: The Two-Year Lookback Rule
HMRC determines whether you need to comply by checking your tax return from two years prior:
For 2026/27 compliance, HMRC reviews your 2024/25 tax return
For 2027/28 compliance, HMRC checks your 2025/26 tax return
Action required: Check your 2024/25 tax return NOW to determine whether you're affected by Phase 1; £50,000 threshold.
Understanding "Qualifying Income" : Determine If You're Affected
One of the most misunderstood aspects of MTD for individuals is what counts as "qualifying income."
The Fundamental Principle: Gross Income, Not Profit
Qualifying income means your gross income (turnover), NOT your taxable profit. This is total income before deducting any expenses. You might have modest profit after expenses but still be required to comply because your gross income exceeds the threshold.
Income Sources That Count
Income Sources That Count | Income Sources That Doesn't Count |
|---|---|
Both these sources are added together to determine your total qualifying income. |
|
Multiple Income Streams: How They Combine?
Lets Learn WIth Example:
Example 1: Individual landlord with multiple properties
Sarah owns three rental properties:
Property 1: £20,000
Property 2: £18,000
Property 3: £15,000
Total qualifying income: £53,000
Sarah must comply from April 2026 under Phase 1(£50,000 threshold).
Lets Learn WIth Example:
Example 2: Mixed income individual
James has:
Self-employed consulting: £28,000
Rental property: £25,000
Total qualifying income: £53,000
James must comply from 6 April 2026.
Lets Learn WIth Example:
Example 3: Below Phase 1 but caught by Phase 2
Maria has:
Self-employed income: £35,000
Rental income: £12,000
Total: £47,000
Maria isn't required in Phase 1 but must comply from 6 April 2027 (exceeds £30,000).
How Individuals Must Report Under MTD?
Quarterly Updates: What You Must Submit?
You'll submit four updates to HMRC each year according to a fixed schedule. You have two options to submit quarterly updates.
Standard Quarter Period
This option uses quarters based on your specific accounting period, so your updates align with your own business year.
Calendar Quarter Period
This option uses fixed calendar quarters (April–June, July–September, etc.), so your updates always follow standard calendar dates.
Whichever quarter option you choose, submission deadline remains same.
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 |
Quarterly Submission Are Cumulative
Quarterly submission are cumulative for the tax year. Your Q2 update includes all income/expenses from 6 April onwards. If you miss something in Q1, add it to Q2, no need to amend previous submissions.
You don't need complex tax adjustments in quarterly updates—they're simply summaries of income and expenses.
The Final Declaration (31 January)
By 31 January each year, you'll submit a Final Declaration that:
Brings together ALL income sources (MTD and non-MTD)
Finalises your trading and property figures reported through quarterly updates
Adds income not reported through MTD (such as dividends, interest and employment income)
Claims relevant reliefs and allowances
Calculates and Finalises total tax liability
Each taxpayer submits one Final Declaration per year, regardless of number or type of income sources.
Digital Record-Keeping Requirements for Individuals
What "Digital" Actually Means?
You cannot rely solely on paper receipts or handwritten notebooks. Under MTD, records must be maintained digitally using MTD-compatible software or spreadsheets with bridging software that connects to HMRC's systems.
Minimum Digital Records Required
Your digital records must include:
Date of each transaction
Amount of income/expense
Category/description
Software Options
MTD-Compatible Software:
MTD-compatible software is any digital tool that can keep your income and expense records in a compliant digital format and send quarterly updates and the Final Declaration straight to HMRC. It must support digital links, so figures flow from records to submissions without manual retyping or copy and paste.
Bridging Software:
For spreadsheet users, bridging software connects Excel/Google Sheets to HMRC systems.
Exemptions: Who Doesn't Need to Follow MTD?
While most individuals will be required to comply with Making Tax Digital (MTD), there are certain exemptions available. Below, we outline the types of exemptions, including automatic exemptions and those that can be applied for due to digital exclusion.
Automatic Exemptions
You don't need to comply if:
You're a non-resident company
You're a trustee (including a charity trustee)
You don't have a National Insurance Number
You are a personal representative of someone who has died (for example an executor or administrator of an estate)
Apply-For Exemptions: Digital Exclusion
You can apply to HMRC for exemption if compliance is not reasonably practicable due to:
Age
Disability
Remoteness of location
Religious beliefs incompatible with electronic records
Other reasonable grounds
Remember:
Being exempt from MTD for VAT due to digital exclusion does not automatically mean you are exempt from MTD for income tax (ITSA). You need to contact HMRC to confirm that your circumstances remain the same and request the exemption for income tax as well
The Three-Year Exit Rule
Once you are within MTD, you must keep using it until your qualifying income stays below the relevant threshold for three consecutive tax years. After three low-income years, you can ask to leave the MTD regime, which is designed to prevent repeated movements in and out as income fluctuates
Penalties
The penalty system under MTD follows a point-based structure. Each late submission accumulates penalty points, and once you reach a certain threshold, a fixed monetary penalty is triggered. This system encourages timely submissions and ensures ongoing compliance throughout the year.
Late submission penalties (Quarterly and Annual)
Each late MTD submission (a quarterly update or the annual Final Declaration) normally gives 1 penalty point
For quarterly filers, 4 points triggers a £200 fixed penalty; for the annual Final Declaration, 2 points triggers a £200 penalty
Once you are at the threshold (4 or 2 points), every further late submission gives another £200 penalty, but no extra points
Points can be reset, but only after you have filed all outstanding submissions for the last 24 months and then met a “clean” compliance period (12 months on time for quarterly obligations, 24 months for annual)
Late Payment Penalties
Late payment penalties are handled separately from late submission 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 |
Soft-Landing Period (Latest Update under MTD)
For the first year mandation (2026/27), no penalty points will be charged for late quarterly updates for those who join MTD ITSA in April 2026.
Current announcements indicate this soft landing only applies to the first cohort (from April 2026), not to those brought in from April 2027 or 2028
The Final Declaration (annual MTD ITSA return) still carries late submission penalty points from the start of the regime.
Conclusion
Making Tax Digital for Income Tax is a major change for self employed individuals and landlords, starting in April 2026 for those with qualifying income over £50,000 and then extending to lower thresholds in later years. Because qualifying income is based on gross self employment and property income across all relevant sources, it is important to review your recent tax returns and understand when you will fall within scope.
If you are caught by MTD, using the 2026/27 soft landing year to put workable digital records and quarterly routines in place will make compliance far less stressful. Early planning and choosing software that fits how you already run your business will turn MTD into a manageable, predictable part of your annual tax cycle rather than a last minute problem.
