10 key things you need to know about MTD for ITSA

When the introduction of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) was first announced way back in 2015, the response was less than enthusiastic.

Life’s busy enough when you’re running your own business, so the very last thing sole traders need is a major change to how they must report their self-employed income. The same is true of small private landlords and their rental income. More tax admin, more often. Who wants that?

The first phase of MTD for ITSA’s introduction now looks likely to go ahead in April 2026. So, if you’re a freelancer, sole trader or private landlord who currently reports their taxable income via Self Assessment, what 10 key things do you need to know about MTD for ITSA?

When will MTD for ITSA be introduced?

1. From 6 April 2026, sole traders, freelancers and landlords with a gross trading or gross rental income of more than £50,000 must comply with MTD for ITSA accounting and reporting requirements. Otherwise they face having to pay a fine.

2. From 6 April 2027, sole traders, freelancers and landlords with a gross trading/rental income of £30,000-£50,000 will need to comply with MTD for ITSA accounting and reporting rules.

3. One of the least reported announcements in the Autumn Budget 2024 was the government’s plan to introduce MTD for ITSA for sole traders and landlords with gross trading/rental income of £20,000-£30,000 before the end of this parliament. Barring any issues with previous phases of introduction, it’s likely to be in place from 6 April 2028.  

How will reporting change under MTD for ITSA?

4. MTD for ITSA will require most sole traders and many landlords to maintain accurate, regularly updated digital financial records of their taxable income and costs, so they can report them each quarter to HMRC, and not just once following the end of the tax year.

5. To comply with MTD for ITSA requirements, sole traders, freelancers and landlords will either need to use MTD-compatible accounting software or “bridging software” that enables MTD reporting using their existing accounting software.

6. Once introduced, each quarter (ie every three months), the software will create quarterly updates, summarising total taxable income and expenses for the sole trader, freelancer or landlord.

7. After a summary update has been sent to HMRC each quarter, people will be able to view an estimate of how much tax they owe, which will better enable them to budget for paying their annual tax bill. According to HMRC, this is a key reason why MTD for ITSA will be introduced.

8. After the fourth quarterly update, income and expense figures for the whole tax year will be shown within the software. Adjustments can then be made and once the figures have been totalled, an updated tax bill estimate will be shown.

9. To finalise their Income Tax position, where applicable, sole traders, freelancers and landlords must report other taxable income to HMRC via their MTD for ITSA software. A final declaration can then be made, confirming that the information provided is accurate and thorough.

10. The final declaration must be made by 31 January following the end of the tax year during which the taxable income was earned or received. HMRC will then work out the final final tax bill. There will be penalties for failing to meet MTD for ITSA requirements and deadlines.

How worried should you be about MTD for ITSA?

If you’re already using good accounting software and updating it regularly with accurate income and costs figures, complying with MTD for ITSA requirements shouldn’t prove too painful. To be compliant, that software must allow you to report figures to HMRC each quarter and at the end of the year, as well as receive information from HMRC.

If your current accounting software isn’t MTD for ITSA compliant and won’t be before you’re impacted by the new reporting rules, you’ll need to buy a subscription to one that is fully MTD for ITSA compliant or buy bridging software that gets you around the problem.    

If you don’t use accounting software at the moment – there’s no way around it – you’re going to have to start using it (or pay someone to do your book electronically). Even if you’re new to it, using accounting software regularly really needn’t be difficult or time-consuming, and the best accounting software for sole traders, freelancers and small private landlords is remarkably easy to use – you really don’t need to be a bookkeeper or accountant.

It won’t take up lots of your time, either. If you keep all of your spending to a card linked to one account, that account can be linked up to your MTD for ITSA-compliant software. Then, your income and costs will automatically be summarised within your software and sent to HMRC as required.

While protecting you from the considerable shock of receiving a tax bill that’s unexpectedly high and seemingly impossible to pay, having to update your financial records more regularly will give you a far more current and reliable idea of how well or otherwise your business is performing. You may gain far greater control over your business finances and your cash flow, because you’ll be working with much more reliable data. And your Januarys may become much less stressful, because you’ll no longer need to work yourself into a frenzy gathering together all of the information you need to complete your annual Self Assessment tax return. Who’s going to miss that?

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.