The income tax arm of Making Tax Digital — replacing the once-a-year Self Assessment return with digital records, four quarterly updates and a final declaration.
MTD for ITSA is where Making Tax Digital stops being an abstract VAT-era policy and starts affecting ordinary sole traders and landlords. From April 2026 it replaces the familiar single annual return with a year-round rhythm of digital updates. The amount of tax does not change — but the workflow, the software and the deadlines do.
Under the current system you keep records however you like and file one Self Assessment return after the tax year. MTD for ITSA changes both halves of that. You must keep your income and expense records in digital form, and you must submit information through compatible software at four points during the year plus a year-end declaration.
It is the income tax sibling of MTD for VAT, which has applied to VAT-registered businesses for some years. The principles are the same; only the tax and the timetable differ.
Consider Marcus, who runs a self-employed photography business and also lets out one flat. In 2024/25 his gross photography income was £40,000 and his gross rental income was £14,000.
HMRC adds the two together: £40,000 + £14,000 = £54,000 of qualifying income. Because this exceeds £50,000, Marcus must use MTD for ITSA from 6 April 2026, even though neither business alone reaches the threshold.
He will keep digital records for both the trade and the property, sending a quarterly update for each — eight updates a year in total — followed by a single final declaration that pulls everything together. Confirm your own start date with the MTD checker before April 2026.
It is worth stressing what MTD for ITSA does not change. Income tax rates and bands (20% basic, 40% higher, 45% additional in England, Wales and Northern Ireland; the Scottish bands and S-prefixed codes for Scottish taxpayers) are untouched. The £12,570 Personal Allowance, the trading and property allowances, capital allowances, and reliefs all continue exactly as before. Your payment deadlines stay on 31 January and 31 July. The reform is about administration — when and how you report — not about policy.
MTD for ITSA turns one big annual scramble into a steadier quarterly habit; the tax you owe is identical, but you should always know roughly where you stand.
MTD for ITSA uses the points-based penalty system. Each late quarterly update or final declaration earns a point; accumulate four points as a quarterly filer and a £200 penalty applies, repeating for each further lapse. Late payment carries separate interest and percentage charges. The practical advice is to adopt MTD-compatible software well before your start date, get into the habit of recording transactions as they happen, and reconcile each quarter so the final declaration is a formality rather than a year-end crisis.
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