Making Tax Digital for Income Tax. It's live. Are you ready?
Plain English guide to what MTD ITSA is, who it affects, what the deadlines are, and what you actually need to do. No HMRC-speak. No jargon.
4
Quarterly submissions per year
£200
Penalty at 4 missed updates
3
Rollout phases by 2028
Over £50k: mandatory from April 2026
Over £30k: mandatory from April 2027
Over £20k: mandatory from April 2028
Overview
What is Making Tax Digital?
Making Tax Digital (MTD) is HMRC's programme to shift the UK tax system entirely online. The goal is for businesses to keep digital records and send tax information directly to HMRC from compatible software — rather than filling in one annual return months after the year has ended.
The programme has two main strands relevant to small businesses right now:
MTD for VAT — mandatory for all VAT-registered businesses since April 2022. If you're VAT-registered, you must already be keeping digital records and submitting VAT returns through HMRC-compatible software.
MTD for Income Tax Self Assessment (MTD ITSA) — now rolling out for sole traders and landlords. This replaces the annual Self Assessment with quarterly digital submissions.
Corporation Tax MTD is still in development — expected to follow after 2026, but no hard date yet.
The bottom line
If you're a sole trader or landlord earning over £20,000 per year, MTD for Income Tax will apply to you. The only question is when. The earlier you set up properly, the fewer penalties you'll face and the less disruption to how you manage your finances.
Applicability
Does it apply to me?
Use this quick checker to find out where you stand. Answer two questions — we'll tell you whether MTD ITSA applies, and when.
MTD Applicability Checker
Takes 20 seconds. No personal data collected.
Are you self-employed, a landlord, or both?
What is your approximate combined gross income from self-employment and/or property?
MTD applies to you now.
Phase 1 of MTD ITSA is mandatory from April 2026 for sole traders and landlords earning over £50,000. You need compatible software, digital records, and quarterly submissions in place before then.
If you're not already set up, this is urgent. Get a free Health Check and we'll tell you exactly where you stand.
Phase 2 covers those earning over £30,000 — mandatory from April 2027. You have time, but getting set up before the deadline means avoiding last-minute disruption and any early penalties.
A free Health Check takes 30 minutes and tells you exactly what to set up and when.
Phase 3 covers those earning over £20,000 — mandatory from April 2028. You have time to prepare properly, but digital records are good practice regardless and will make the transition seamless.
The current threshold is £20,000 gross income. Below that, MTD for Income Tax isn't mandatory — though HMRC hasn't ruled out extending it further. If you're close to the threshold, it's worth keeping an eye on.
Note: If you're VAT-registered, MTD for VAT is already mandatory regardless of income level.
Three core requirements. All three must be in place before your mandatory start date.
1. Digital records
All your business income and expenses must be recorded digitally using HMRC-recognised software. This means proper accounting software — not a spreadsheet, not a paper cashbook, and not HMRC's own portal. HMRC-compatible options include Xero, QuickBooks, FreeAgent, and Sage. There are others, but these are the main ones used by professional practices.
Important
A spreadsheet alone does not comply — even if you use it meticulously. You need bridging software that links your spreadsheet to HMRC, or you need to move to full-featured accounting software. Most clients find it easier and cheaper to move to Xero than to bolt bridging software onto Excel.
2. Quarterly updates to HMRC
Instead of one annual Self Assessment, you submit a summary of your income and expenses to HMRC at the end of each quarter. There are four per tax year. These are not full tax returns — they're cumulative summaries. But they must be submitted on time, every quarter, or the points-based penalty system kicks in.
3. A digital link from records to submission
There must be a continuous digital link between your records and what you submit to HMRC. You cannot manually re-type figures from one system into another. The software must connect directly to HMRC and file without human reintervention in the numbers. This is the "digital by default" principle at the core of MTD.
4. A final end-of-period statement
At the end of the tax year, you submit a final declaration to HMRC confirming your figures are complete and accurate. This replaces the annual Self Assessment return (SA100). It's not an additional obligation — it's the same annual tax return, reframed as a year-end confirmation after four quarters of digital updates.
Compatible software
HMRC maintains a list of approved MTD-compatible software. We use and recommend Xero for the majority of our clients — it's well-supported, HMRC-connected, and works well as a standalone system or as the foundation for an Odoo ERP integration. All our monthly plans include Xero setup and management.
Submission Dates
Your four quarterly deadlines.
The tax year runs from 6 April to 5 April. MTD ITSA divides this into four quarters, each with its own submission deadline one month after the quarter ends.
Quarter 1
6 April – 5 July
Deadline: 5 August
Quarter 2
6 July – 5 October
Deadline: 5 November
Quarter 3
6 October – 5 January
Deadline: 5 February
Quarter 4
6 January – 5 April
Deadline: 5 May
After the four quarterly updates, a Final Declaration (your year-end tax confirmation) must be submitted by 31 January following the end of the tax year — the same date as the current Self Assessment deadline.
What if I use a calendar-year period?
HMRC allows some businesses to use calendar-year accounting periods (January–December) under certain conditions. This is known as a "non-standard" period. The submission dates will differ slightly. Ask us if this applies to your situation.
Penalties
What happens if you don't comply.
HMRC uses a points-based late submission penalty system for MTD ITSA. Understanding this is important — it's different from the old fixed-fine approach.
Scenario
Points / Fine
Notes
Miss one quarterly update
1 point
No immediate fine — points accumulate silently.
4 points accumulated
£200 fine
Threshold reached. Fine issued automatically.
Each further miss after threshold
£200 per miss
Fines continue until 24 months of clean compliance.
Failure to keep digital records
Up to £3,000/year
Separate from late submission penalties.
Inaccurate submission
30%–100% of unpaid tax
Depends on whether error is careless, deliberate, or concealed.
Key point on points
Points expire after 24 consecutive months of perfect compliance — meaning all four quarterly submissions filed on time, for two full years. There is no other route to clearing them. If you accumulate points early and then miss another submission, you reset the 24-month clock.
Late payment penalties (separate system)
Late payment of the tax itself is charged separately — interest accrues from the day after the payment deadline at HMRC's standard rate. A 5% surcharge applies if the tax is more than 30 days late, with further surcharges at 6 months and 12 months.
Action Plan
What to do before your deadline.
If MTD ITSA applies to you — or will apply — here is the correct preparation sequence. Do these in order.
1
Confirm your income threshold and applicable date
Check your combined self-employment and property income against the three thresholds. Your accountant or a free Health Check can confirm this precisely, including whether any reliefs or exemptions apply to you.
2
Review your current bookkeeping method
Are you on spreadsheets, paper, or already on accounting software? If you're not on HMRC-compatible software, this needs to change. Ideally, make the switch well before the mandatory date so you have time to get comfortable.
3
Set up HMRC-compatible accounting software
We recommend Xero for most sole traders and small businesses. It's MTD-compliant, connects directly to HMRC, and is well-supported by accountants across the UK. Setup typically takes 2–3 hours with a professional doing it properly.
4
Connect your software to HMRC's MTD service
This is a one-time authorisation step through your HMRC online account. Your accounting software will walk you through it, or your accountant can do it on your behalf with the right authorisation.
5
Establish a quarterly bookkeeping routine
MTD requires your records to be current at the end of each quarter, not scrambled together in January. This is the biggest behavioural change for most people — and the biggest reason to have a professional doing it for you monthly.
6
File your first quarterly update on time
The first submission is the most important — it proves compliance from day one and avoids the first penalty point. Your accountant should handle this as part of their service.
Want us to handle all of this for you?
Our Accountancy Essential plan covers your bookkeeping, quarterly MTD submissions, and Self Assessment — on a fixed monthly fee. No surprises.
MTD for Income Tax isn't just a compliance change — it fundamentally changes the economics of managing your own tax. Most sole traders currently deal with tax once a year: receipts in a box, a call to an accountant in January, a Self Assessment filed under pressure, an unexpected tax bill.
MTD replaces that with four submissions per year, each requiring your records to be current and accurate at the end of every quarter. That's a quarterly obligation, not an annual one.
The DIY calculation changes
If you currently do your own Self Assessment annually, the maths of continuing to DIY changes significantly under MTD. Four quarterly updates plus a final declaration equals five submissions per year — each requiring current, accurate digital records. Getting that wrong costs you points and fines. Getting a professional to do it properly on a fixed monthly fee starts to look like very good value.
There are also real tax planning advantages to quarterly engagement. With your income summarised every three months, your accountant can:
Give you an accurate tax estimate mid-year, not a shock figure in January
Advise on pension contributions, timing of expenses, or capital purchases before the year ends
Flag if you're approaching the VAT threshold in time to plan
Identify overpaid tax on account and request adjustments before it compounds
For most sole traders, MTD is the forcing function that turns once-a-year tax panic into ongoing financial visibility. That's a good thing — once you're set up properly.
Questions & Answers
Common questions about MTD.
Not automatically, no. MTD for VAT and MTD for Income Tax are separate obligations that use the same software infrastructure but require different setups. Being connected to HMRC for VAT doesn't mean you're authorised for income tax submissions. You'll need to authorise your software for MTD ITSA separately, and ensure your bookkeeping covers all self-employment income (not just VAT-related transactions). The good news is that if you're already on Xero, the additional setup is minimal.
Yes. HMRC requires separate digital records for each income source under MTD ITSA. If you have a self-employed business and rental properties, each must be tracked separately in your accounting software. This affects how Xero (or your chosen software) needs to be configured. It's worth getting this set up correctly from the start rather than trying to untangle mixed records later.
Technically yes, but only if you also use HMRC-approved bridging software that creates a digital link between your spreadsheet and HMRC's systems. You cannot manually re-enter figures from a spreadsheet into the HMRC portal. In practice, most people who need bridging software find it easier and cheaper to move to proper accounting software like Xero — which handles everything in one place without the bridging step.
Largely, yes — but not completely. The four quarterly updates replace the main body of the SA return. However, you still submit a Final Declaration (previously called the Final Return) by 31 January each year, confirming your annual figures are complete and accurate, and declaring any additional income not covered by the quarterly updates (investments, other income, etc.). Think of it as Self Assessment becoming five submissions instead of one — four interim, one final.
Not yet — but track your income carefully. The threshold is based on your gross income, not your profit. If you're close to the threshold in any given year and your income fluctuates, you could cross it without realising. Getting on digital bookkeeping now is a sensible precaution, and means you're ready if you do cross the threshold — rather than scrambling to get compliant at the last minute.
If you have more than one self-employed trade or business, you must report each one separately under MTD ITSA. All your combined self-employment income counts toward the threshold, but each business stream must have its own digital records. This is one of the more complex scenarios under MTD — it's worth speaking to an accountant to ensure your setup is correct from the outset.
HMRC does allow exemptions in limited circumstances — primarily for individuals who genuinely cannot use digital tools due to age, disability, or remote location without internet access, and for certain religious groups. Exemptions must be applied for and approved. Most businesses will not qualify. There is no general exemption for being "too small" (below £20k is simply outside scope, not exempt).
That depends on your arrangement. Some accountants who have historically filed annual returns will extend their service to cover quarterly MTD submissions — but often at an additional cost. Others won't. It's worth having a clear conversation with your current accountant about what they're prepared to do and at what price. If the answer doesn't work for you, our Accountancy Essential plan covers bookkeeping, quarterly MTD submissions, and your annual Self Assessment on a single fixed monthly fee.
How We Help
The Digiledger approach to MTD compliance.
We've set up MTD-compliant bookkeeping for businesses across Birmingham and the Midlands. Here's how our services map to what MTD requires.
The free Health Check answers that question. We assess your current situation — income level, current software, VAT status, and any compliance gaps — and give you a written recommendation. 30 minutes. No obligation. Most clients book a plan on the same call.
Don't leave MTD until the deadline.
The businesses that struggle are the ones that wait. A free 30-minute Health Check tells you exactly where you stand — and gives you a written plan with no obligation attached.