MTD for ITSA: A step-by-step guide for UK businesses
There is another shift in tax rules, and it goes beyond simple rate changes. Making Tax Digital for Income Tax (MTD IT) is now part of the routine for landlords and sole traders if their annual income is over £50,000. It changes how income tax is handled during the year.
For many small business owners, that might feel like a big adjustment. The good news is that, with the right support, it can be made simple.
If you are confused about what to do next with MTD for IT, this blog will explain what it involves, who it applies to and how to get organised.
What is MTD for Income Tax, really?
Making Tax Digital is HMRC’s big digital push — a plan to reduce errors and make tax admin easier for everyone. If you have already adapted to MTD for VAT in your own business, you’ll be familiar with the direction things are heading.
MTD for Income Tax is the next step. This means sole traders and landlords will need to:
- Keep digital records of your income and expenses.
- Send quarterly summaries to HMRC through approved software
- Finalise your tax return digitally at year-end
Instead of a once-a-year tax rush, MTD IT spreads things out more evenly across the year. But yes, it also means more frequent updates and that’s where small business owners start to feel uneasy.
Who needs to comply and when?
The new rules don’t apply to everyone right away. HMRC is phasing things in gradually based on qualifying income, which refers to gross earnings before expenses from sole trading and property.
Here’s how it breaks down:
- April 2026 – If you earn over £50,000 from self-employment or property, MTD IT now applies to you.
- April 2027 – Those earning £30,000–£50,000 will be included next year.
- April 2028 (tentative) – The £20,000–£30,000 group may be included, but that’s still under review.
Those earning below £20,000 are not required to comply yet, but HMRC has indicated this could change in the future.
This threshold only includes income from sole trading and/or property. It doesn’t count PAYE income, dividends, or pensions.
Understanding your “qualifying income”
A key source of confusion is what “qualifying income” actually means and how HMRC decides who falls within MTD IT.
Qualifying income refers to your total gross income (before expenses) from sole trading and property combined.
To determine who joined MTD in April 2026, HMRC used the 2024/25 tax return (due 31 January 2026) to check qualifying income.
If you have multiple income sources — for example, a freelance graphic design business and a rental property — HMRC adds them together to see whether the total crosses the threshold.
What will you need to do under MTD IT?
Once you are within the MTD IT system, there are three main obligations you will need to manage:
1. Keep digital records
Paper receipts in shoeboxes are a thing of the past. Under MTD IT, you must record income and expenses using HMRC-compatible software.
These records should track:
- The amount
- The category (e.g. utilities, rent, marketing)
- The date of each transaction
If your turnover is below the VAT threshold (currently £90,000), you can use a simplified three-line method — just tracking totals for income, expenses, and profit/loss.
Even if you are used to spreadsheets, you will now need software that can communicate directly with HMRC.
2. Submit quarterly updates
You will need to send quarterly summaries of your income and expenses to HMRC. These updates are not full tax returns — just snapshots of what happened that quarter.
Here’s how the reporting schedule looks:
| Quarter | Period | Deadline |
| Q1 | 6 April 2026 – 5 July 2026 | 7 August 2026 |
| Q2 | 6 July 2026 – 5 October 2026 | 7 November 2026 |
| Q3 | 6 October 2026 – 5 January 2027 | 7 February 2027 |
| Q4 | 6 January 2027 – 5 April 2027 | 7 May 2027 |
| End of Period Statement and Final Declaration | Financial year 6 April to 5 April 2026-27 | 31 January 2028 |
| Payment of tax | Financial year 6 April to 5 April 2026-27 | 31 January 2028 |
You may choose calendar quarters (April–June, July–September, etc.) instead, but the deadlines don’t change.
Each business or property income stream needs its own update. So if you run a sole trade and rent out a flat, you’ll need to file eight updates a year — four per source.
3. Finalise your tax position
At the end of the year, you will still need to confirm your total income, claim allowable expenses, and declare other sources (like bank interest or dividends).
This final submission — known as the End of Period Statement and Final Declaration — replaces the current Self Assessment return. The deadline remains 31 January after the tax year ends.
This is also the time you need to pay any tax owed, as currently, for the whole of the previous tax year.
This is where professional advice becomes especially valuable — ensuring everything is accurate, allowances are claimed correctly, and no tax-saving opportunity is missed.
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A key change: No more free filing tools
Here’s a big one: HMRC does not provide a free online portal for MTD IT submissions.
This is a major shift. You may currently use HMRC’s online tool to file your annual return. Under MTD, you now need approved third-party software for:
- Record-keeping
- Quarterly submissions
- Year-end finalisation
For landlords and self-employed people, this is both a challenge and an opportunity. You need to choose the right software and learn how to use it properly.
What about joint property owners?
HMRC has introduced some flexibility for joint landlords:
- They can choose to keep either full records of your share of income and expenses, or just report totals.
- They can submit income updates quarterly and report expenses at year-end.
- If under the VAT threshold, they can still use three-line accounting.
This will help avoid duplication or overcomplication.
Penalties – A softer approach (for now)
Worried about missing deadlines? Good news: HMRC is easing the penalties with a points-based system.
- Each missed update earns 1 point
- A £200 penalty only applies once you reach 4 points
- Points expire after 24 months if no further mistakes are made
From April 2025, late payment penalties also increased as follows:
- 3% of tax owed if unpaid after 15 days
- Another 3% after 30 days
- 10% annual interest after that
This is where working closely with your accountant can help — ensuring submissions are handled properly and deadlines are not missed.
Why Affinity?
At Affinity Associates, we’re more than just accountants — we’re your trusted advisors. We support businesses and individuals across the UK in navigating MTD for Income Tax from start to finish:
- Helping you choose and set up the right HMRC-compatible software
- Setting up and managing your digital records.
- Preparing and submitting quarterly updates on time.
- Handling year-end submissions with confidence
- Providing ongoing advice so you stay compliant and in control
We make it easier to handle MTD, stay on track, and move forward with confidence. Contact us today!
Author
Mukund is a founding member of the Affinity Associates Group and has been with the practice for nearly 40 years. After completing his degree in Accounting and Finance, he went on to qualify with both ACCA and ICAEW in 1991. Over the years, he’s built deep expertise in consultancy, tax, business development, and corporate group structures. Mukund is known for helping clients make sense of complex financial challenges and turning them into opportunities for sustainable growth.
