Making Tax Digital ITSA - Complete 2026 Guide for UK Self-Employed Individuals and Landlords
MTD for Income Tax Self Assessment, commonly known as MTD ITSA, is the biggest change to personal tax reporting in decades. It affects millions of self-employed individuals and landlords across the UK. From April 2026, many taxpayers will be required to keep digital records and submit quarterly updates to HMRC using approved software. This represents a major shift away from the traditional annual Self Assessment tax return.
This comprehensive guide explains everything you need to know about MTD ITSA, including eligibility rules, deadlines, software requirements, digital record-keeping obligations, quarterly submissions, penalties, end-of-year reporting and practical steps to get ready. The article has been written in British English and refined for SEO and AEO. It also explains how Sepera Accounting, with over 30 years of experience in UK taxation, can support all clients through this transition.
What Is MTD ITSA?
Making Tax Digital ITSA is a government initiative designed to modernise the UK tax system. Instead of submitting a single tax return once a year, affected taxpayers must use compatible software to maintain digital accounting records and send updates to HMRC every three months. The system aims to reduce errors, improve accuracy, modernise record-keeping and provide taxpayers with more real-time insights into their tax liabilities.
Under MTD ITSA, annual Self Assessment does not disappear.
Instead, it is replaced by an end-of-year process consisting of:
- Quarterly updates summarising income and expenses.
- End of Period Statement (EOPS) finalising each business or property income source.
- Final Declaration, replacing the traditional tax return.
In practice, taxpayers report figures throughout the year and digitally ‘crystallise’ their final tax bill after year-end.
Why Making Tax Digital Is Being Introduced?
HMRC has long argued that manual bookkeeping & annual reporting contribute:
- Calculation errors
- Missing receipts
- Late filing
- Incorrect figures
- Avoidable penalties
Because of these issues, billions of pounds in tax revenue are lost each year. Small errors build up over time and make accurate reporting difficult. MTD ITSA aims to simplify tax administration by ensuring records are kept digitally and reported more frequently. This reduces mistakes, improves accuracy and creates a system that is easier to manage for both taxpayers and HMRC. The shift follows digital tax models already used across Europe and is designed to make compliance more transparent and less stressful in the long run.
Who Must Comply with Making Tax Digital?
General partnerships are not required to join MTD for ITSA until a later date, which HMRC has not yet determined. The rules currently apply only to individual sole traders and landlords therefore partnerships remain outside the mandatory scheme for now. Earlier plans suggested that partnerships would join the system by 2025 however this stage has been postponed due to ongoing changes in the programme.
As a result partnerships can continue filing Self Assessment returns in the usual way. This means you still submit your annual return online without using MTD-compatible software. HMRC has made it clear that partnerships will eventually join the digital system so the current pause is temporary.
In other words you do not need to change anything yet if you operate as a partnership. You can keep using your existing accounting method during this transition period. It is sensible to stay informed because the government may publish a start date at any time.
Once the timetable is announced partnerships will need to prepare for new digital record-keeping rules and approved software requirements. Early awareness helps avoid last-minute pressure when the change becomes mandatory.
Furthermore it may be helpful to review your internal bookkeeping processes now. Even though the change is not immediate many partnerships will benefit from gradually moving towards digital systems. This approach improves accuracy and makes it easier to share financial information between partners during the year.
Partnerships are temporarily exempt from MTD for ITSA however this exemption will not last indefinitely. Staying prepared ensures a smoother transition when HMRC releases the new deadlines. If you are unsure how MTD will affect your business it is worth following HMRC updates or speaking to a tax adviser who monitors the programme closely.
Self-Employed Individuals & Landlords
The rules apply to two main groups:
- Sole traders (self-employed individuals)
- Landlords with UK property income
The obligation is determined by gross income, not profit. This means you add together your total turnover from all sole-trade businesses and rental income streams.
Making Tax Digital Start Dates
Compliance is introduced in stages:
- From 6 April 2026 – mandatory for taxpayers with income above £50,000
- From 6 April 2027 – mandatory for taxpayers with income above £30,000
A future phase is expected for individuals with income over £20,000, although no date has been confirmed.
Who Is Not Included in Making Tax Digital?
These groups are currently outside the MTD ITSA regime:
- General partnerships
- Limited companies
- Trustees, executors and estates
- Non-resident companies
- Digitally-excluded individuals with HMRC-approved exemptions
Ltd companies are instead affected by MTD for VAT or in the future, MTD for Corporation Tax.
Exemptions
Some individuals may qualify for exemption if they genuinely cannot use digital tools due to:
- Age
- Disability
- Remote location
- Serious religious objections
Applications must be made directly to HMRC and require evidence.
HMRC grants exemptions sparingly.
Making Tax Digital Timeline & Deadlines
Understanding the timeline is essential:
- 6 April 2026 – mandatory digital record-keeping and quarterly reporting for income above £50,000
- 6 April 2027 – mandatory for income above £30,000
- Quarterly update deadlines – typically 7 August, 7 November, 7 February, 7 May
- 31 January – deadline for the annual Final Declaration
Example – MTD in Practice
A sole trader earning £60,000 must:
- Start keeping digital records from 6 April 2026
- Submit the first quarterly update by early August 2026
- Continue quarterly reporting every three months
- Submit the Final Declaration by 31 January 2028 for the 2026/27 tax year
What You Must Do Under Making Tax Digital?
Use MTD-Compatible Software
Taxpayers must use HMRC-recognised software capable of:
- Keeping digital records
- Categorising transactions
- Linking directly to HMRC
- Submitting quarterly updates
- Producing EOPS and Final Declarations
Common compatible software includes:
- Xero
- QuickBooks
- FreeAgent
- Sage
- MTD bridging tools for spreadsheets
Manual entry on HMRC’s website will no longer be possible for those subject to MTD ITSA.
Keep Digital Records Under MTD
Digital records must include:
- Transaction date
- Amount
- Category (such as rent, materials, utilities, advertising etc.)
Paper-based accounting will not satisfy MTD requirements. Even spreadsheets require bridging software to remain compliant. If HMRC inspects and finds that you have not maintained digital records penalties may apply.
Maintaining digital records also helps you stay organised throughout the year. Everything is stored in one place so you can quickly access receipts, invoices or bank entries whenever you need them. This reduces the risk of losing documents and makes your bookkeeping more accurate.
Digital systems also help track business trends. You can see spending patterns, compare different periods and understand where your money goes. As a result you can make better decisions and plan your cash flow with greater confidence.
Most MTD-compatible tools include features such as automatic bank feeds, receipt capture and category suggestions. These functions save time because they reduce manual entry and minimise errors. They also support your quarterly updates by keeping your records consistent and up to date.
Using digital records therefore brings both compliance and practical benefits. It keeps your information secure, reduces administrative pressure and supports smoother reporting under MTD.
Submit Quarterly Updates
Quarterly updates summarise income and expenses for each three-month period. They must be submitted through approved MTD software because HMRC requires digital reporting throughout the year. These submissions give HMRC an in-year view of your tax position therefore you gain an early sense of what you may owe.
Quarterly updates are not final calculations. They work as ongoing snapshots of your trading activity. Adjustments, allowances and year-end corrections are added later in the EOPS however the quarterly figures still help you keep track of your finances during the year.
Submitting updates on time is essential. HMRC now uses a points-based penalty system and missing deadlines generates penalty points. When enough points build up a financial penalty is issued. Because of that many businesses set reminders, use the alert features in their software or create simple routines to avoid delays. This prevents unnecessary penalties and helps maintain consistent reporting habits.
Why Quarterly Updates Benefit Your Business?
Regular submissions offer practical benefits. They help you monitor cash flow and spot changes in income or expenses much earlier. As a result you can prepare for future tax liabilities, plan budgets or react quickly when trading conditions shift.
Quarterly reporting also encourages better record keeping. Digital bookkeeping reduces mistakes and keeps everything organised. You no longer need to chase missing invoices or sort through old paperwork at the end of the year. Everything stays updated as you go which saves time and improves accuracy.
MTD-compatible software offers additional support. Many tools create automatic summaries, estimates and charts. Some include transaction matching, automatic categorisation or receipt scanning which speeds up daily bookkeeping. These features make it easier to stay compliant and give you a clearer picture of performance throughout the year. Quarterly updates are therefore more than a compliance task. They keep your records organised, reduce stress at year end and give you consistent visibility of your figures. With the right software the process becomes quick and straightforward.
End of Period Statement (EOPS)
For each business or property income source, a separate EOPS must be completed.
This is where:
- Adjustments are made
- Allowances and reliefs are applied
- Errors in quarterly updates are corrected
Final Declaration Under MTD
The Final Declaration replaces the traditional Self Assessment tax return. It consolidates all income for the year, including:
- Trading income
- Property income
- Employment income
- Savings and investments
Tax Payments & Making Tax Digital ITSA
Payment deadlines remain the same:
- 31 January – pay balance of tax + first payment on account
- 31 July – second payment on account
Quarterly updates do not change tax payment timings, although taxpayers may choose to make voluntary payments to support cashflow.
Penalties Under MTD ITSA
HMRC has introduced a points-based system.
Late Submission Penalties
- Each missed quarterly update = 1 point
- When you reach 4 points → £200 penalty
- Every additional missed submission → another £200
Points expire only after 12 months of full compliance.
Poor Record-Keeping Penalties
Failing to maintain digital records can lead to fines up to £3,000 per period. This includes:
- Paper-only bookkeeping
- Manual data re-entry between systems
- Missing transactional data
- Reconstructed figures
Late Payment Penalties
Although not unique to MTD, late payments trigger:
- Penalties after 15 days
- Higher penalties after 30 days
- Accruing interest
Common Mistakes
Many taxpayers fall into predictable traps when preparing for Making Tax Digital. In many cases they wait until the very last moment to choose suitable software, which creates unnecessary stress and increases the risk of mistakes. Some assume that spreadsheets alone will remain compliant, even though HMRC clearly moves towards full digital record-keeping.
Others regularly miss quarterly deadlines because they underestimate how quickly reporting periods pass or rely on manual reminders. A common issue is failing to categorise expenses correctly, which leads to inaccurate records and potential discrepancies during the final declaration. Many individuals also forget to store supporting documents in digital form, leaving them without proper evidence if HMRC requests clarification. Misunderstanding the EOPS process continues to cause confusion, especially for those new to MTD requirements. Finally, some taxpayers still treat quarterly updates as optional, even though they are mandatory and directly influence compliance outcomes.
How to Prepare for MTD ITSA
Evaluate Your Current System
If you are still using:
- Paper invoices
- Shoeboxes of receipts
- Basic spreadsheets
- Part-manual processes
Choose & Set Up Compatible Software Early
Do not wait until April 2026 or 2027. Early preparation helps you:
- Avoid last-minute pressure
- Identify gaps in records
- Learn how the software works
- Practise submitting quarterly updates voluntarily
Start Keeping Digital Records Now
Record all 2025 transactions digitally to familiarise yourself with the workflow. You can do this even before you officially join MTD ITSA.
Seek Training or Professional Support
Using new software can feel overwhelming. Training, guided setup and ongoing bookkeeping help make the process manageable.
Stay Updated with HMRC Announcements
HMRC continues refining MTD rules. Software lists, deadlines and detailed requirements may change. Keeping informed helps you stay compliant.
How Sepera Accounting Can Help You Prepare for MTD ITSA
With more than 30 years of experience supporting UK taxpayers, Sepera Accounting offers complete assistance throughout the transition.
Expert Software Setup
We help you select the right HMRC-recognised software for your needs. Whether you need a full cloud accounting system or a bridging solution for spreadsheets, we configure everything professionally and make sure your system meets HMRC’s standards.
Digital Bookkeeping Services
If you prefer not to manage digital records yourself, Sepera Accounting can maintain all compliant records for you. You simply provide your receipts, invoices and bank data. We handle the rest.
Quarterly Filing and Reviews
We keep you on track with deadlines, accuracy checks and timely submissions. This ensures you never miss a quarterly update and avoids penalty points.
Annual EOPS and Final Declaration
We finalise your accounts, claim all relevant allowances and prepare your Final Declaration. You stay compliant without stress.
Peace of Mind
Sepera Accounting monitors HMRC updates and ensures all clients remain compliant. If issues arise, we liaise with HMRC on your behalf.
Personalised Tax Advice
Every business is unique. We offer tailored guidance on:
- Payments on account
- Cashflow planning
- Allowances and reliefs
- Digital tools
- Tax efficiency strategies
Contact Details
To speak with our team:
📞 +44 20 7071 8676
📧 office@seperaaccounting.co.uk
Our accountants are ready to assist all clients who want a smooth transition into the new digital tax era.
FAQ - Making Tax Digital ITSA
What is Making Tax Digital?
A government-mandated digital tax system requiring eligible taxpayers to keep digital records and submit quarterly updates to HMRC.
Who must follow MTD?
Self-employed individuals and landlords earning above £30,000 or £50,000 (depending on start date).
When does Making Tax Digital start?
April 2026 for income above £50,000 and April 2027 for income above £30,000.
Do quarterly updates replace the Self Assessment return?
They replace part of it, but you still complete a Final Declaration each year.
Can I use spreadsheets for Making Tax Digital?
Yes, but only with approved bridging software.
What happens if I do not follow Making Tax Digital rules?
You may receive penalty points, fines and interest charges.
Can an accountant submit updates for me?
Yes. Accountants can manage software, digital records and all submissions on your behalf.
Do companies follow Making Tax Digital?
Not yet. MTD for Corporation Tax will be introduced later.
Do payment deadlines change?
No. Payments are still due on 31 January and 31 July.
Who can help with Making Tax Digital?
Sepera Accounting provides full support with software, bookkeeping and submissions.
