Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) is the most significant change to UK tax reporting in decades. From April 2026, sole traders and landlords with qualifying income over £50,000 will be required to keep digital records and submit quarterly updates to HMRC using MTD-compatible software.
What Is Making Tax Digital?
MTD is HMRC's programme to modernise the UK tax system. It requires businesses and individuals to maintain digital records of their income and expenses, and to submit tax information to HMRC through MTD-compatible software rather than traditional Self Assessment tax returns.
The programme has already been rolled out for VAT-registered businesses since April 2019. Now, it's expanding to cover Income Tax Self Assessment, which affects millions of sole traders, freelancers, and landlords across the UK.
Key Principle of MTD
HMRC wants a "tax system that is more effective, more efficient, and easier for taxpayers." The core idea is real-time visibility into your tax position throughout the year, rather than a single annual return filed months after the tax year ends.
MTD Timeline: Who Is Affected and When?
HMRC is rolling out MTD for ITSA in phases based on income thresholds:
April 2026 — Phase 1
Sole traders and landlords with gross income over £50,000 must comply. Estimated 600,000+ taxpayers affected.
April 2027 — Phase 2
Threshold drops to £30,000. Approximately 900,000 additional taxpayers brought into scope.
April 2028 — Phase 3 (Proposed)
Threshold expected to drop further to £20,000, covering the majority of self-employed individuals.
Future Phases
Partnerships and potentially lower income thresholds. HMRC has indicated an ambition to eventually cover all self-employed taxpayers.
MTD Readiness Across UK Businesses
What You Need to Do: The 5 Quarterly Requirements
Under MTD for ITSA, you'll need to submit information to HMRC five times a year:
- Quarter 1 (Apr–Jun): Submit by 7 August
- Quarter 2 (Jul–Sep): Submit by 7 November
- Quarter 3 (Oct–Dec): Submit by 7 February
- Quarter 4 (Jan–Mar): Submit by 7 May
- End of Period Statement (EOPS): Final declaration by 31 January following the tax year
Digital Record-Keeping Requirements
MTD requires you to maintain digital records of all business transactions. This means:
- Income records: Date, amount, and category of every sale or income receipt
- Expense records: Date, amount, and category of every business expense
- Digital links: No manual re-typing of data between systems — all data must flow digitally
- Preservation: Records must be kept for at least 5 years after the 31 January submission deadline
"Spreadsheets alone won't be enough for most people. You'll need MTD-compatible software that can submit directly to HMRC via their API." — HMRC Guidance
Cost of MTD Compliance
Penalties for Non-Compliance
HMRC is introducing a new points-based penalty system for MTD for ITSA:
- Late submission: 1 penalty point per late quarterly update. After reaching the threshold (4 points for quarterly filers), a £200 penalty is triggered
- Late payment: Interest charged from day 1 on unpaid tax. After 15 days, a penalty of 2% of the outstanding amount. After 30 days, an additional 2%
- Deliberate non-compliance: HMRC can charge penalties of up to 100% of the tax due
How DIY Tax Return Makes MTD Simple
DIY Tax Return is designed from the ground up for MTD compliance. Here's how we help:
- Automatic quarterly submissions — we remind you and pre-fill your quarterly updates
- AI-powered categorisation — transactions are automatically sorted into HMRC categories
- Real-time tax position — always know what you owe with live dashboards
- Direct HMRC submission — submit quarterly updates and EOPS directly via the HMRC API
- Digital record keeping — all records stored securely and accessible for 7+ years
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