All you need to know
HMRC has changed its Making Tax Digital timeline again. The most recent changes to the Making Tax Digital timeline were announced in the autumn budget. If you’re self-employed or a landlord, this matters to you because the way you report and pay income tax is going to change.
Many business owners will need new ways to keep records and report their income. The good news is you’ve got time to prepare for this significant shift in tax reporting.
Let’s explore what’s changing, when it’s happening, and how to get ready for MTD for ITSA in 2026.
Scope of the new system: Who will be affected?
The new Making Tax Digital (MTD) system for Income Tax Self Assessment (ITSA) is set to transform how many self-employed individuals and landlords manage their tax affairs. If you’re a sole trader, self employed, or receive property income such as from a rental property you’ll need to pay close attention to these changes.
From April 2026, anyone with qualifying income (gross income before expenses) over £50,000 from self employment or property income will be required to join the digital system. In April 2027, the threshold drops to £30,000, and by April 2028, it will include those with gross income over £20,000. This phased approach means more people will gradually be brought into the new tax digital regime.
The rules apply whether your income comes from a single source or is a combination of self employment and property income. Partnerships will be included at a later date, but for now, the focus is on sole traders and individuals with property income. The aim is to make income tax reporting more accurate and efficient for everyone affected.
What does MTD for ITSA 2026 actually mean?
MTD for ITSA stands for Making Tax Digital for Income Tax Self Assessment. From April 2026, if you receive income over £50,000 from self-employment or property, you’ll need to join MTD and use digital software to record income and expenses.
You’ll send updates to HMRC every three months rather than filing one yearly tax return. These quarterly updates are based on tax year quarters, and a taxpayer elects whether to use tax year quarters or calendar year quarters for reporting. This helps you see your tax position throughout the year and avoid unexpected bills.
From April 2027, the threshold drops to £30,000, bringing more people into the system. If a business exceeds the threshold, it must comply with MTD from the third tax year after first exceeding it. General partnerships will join after 2027, with specific dates to be confirmed by HMRC.
For smaller businesses below the VAT threshold, HMRC is creating a simpler reporting system. Additionally, a new points system for late submissions is coming, where you’ll accumulate points for missed deadlines before facing financial penalties.
When should I start getting ready?
Don’t wait until 2026! Start looking at software options about a year before your start date. HMRC will open registration roughly six months before April 2026, so mark this in your calendar. HMRC and the software industry will provide free software products for taxpayers with straightforward affairs to help meet Making Tax Digital requirements.
You’ll need to create digital records from the start of your accounting period that falls into the 2026-27 tax year. Allow time to learn new systems, as digital record-keeping might be new to you.
For a while, you might need to do both your regular tax return and the new quarterly updates. Talk to your accountant early, as they can help create a plan that works for your specific situation.
What software will I need?
HMRC won’t provide free software, but they’ll publish a list of approved providers. Options will range from basic tools that just meet requirements to full accounting packages with extra features. You must keep all business and property records digitally to comply with the new requirements.
If you’re always on the go, look for mobile apps, which are perfect for smaller businesses with straightforward needs. Check if new software will work with your current systems, as this compatibility can save you considerable time.
Some providers will offer “bridging” software that connects non-compatible systems to HMRC. If you have very simple tax affairs, you might find free or low-cost options that do the job effectively.
Record keeping: What are the new digital requirements?
With MTD for ITSA, keeping digital records becomes a must. You’ll need to maintain digital records of all your business and property income, as well as your expenses, using compatible software or spreadsheets. This means every invoice, receipt, and allowable expense related to your self employment or property income should be recorded digitally.
The digital record keeping requirements are designed to help you stay organised and make it easier to submit accurate quarterly updates to HMRC. Your chosen software should be able to capture and store all relevant information, including claims for allowances or reliefs, and prepare your data for submission.
HMRC provides guidance on selecting suitable software, and there are many options available to suit different business sises and needs. Whether you’re new to digital record keeping or already using accounting software, it’s important to ensure your system is MTD-compatible so you can meet all the requirements for mtd for itsa.
Exemptions and thresholds: Do they apply to you?
Not everyone will need to follow the new digital requirements for MTD for ITSA. If your gross income from self employment and property is below the relevant threshold for your start year, you won’t need to join the system. The thresholds are based on your combined income from all self employment and property sources, so if your total is above the limit, you must comply.
Some individuals may be automatically exempt, such as those who are digitally excluded due to age, disability, or location, or those who are already exempt from Self Assessment. If you believe you qualify for an exemption, you can apply through HMRC and find more details on the GOV.UK website.
It’s important to check your income each tax year to see if you cross the relevant threshold. Staying informed about your status will help you avoid any surprises and ensure you’re meeting your tax digital obligations.
What if I miss deadlines or don't comply?
The new points system differs from current penalties. You’ll get points for missed deadline, and once you reach a certain threshold, financial penalties kick in.
Points will expire after two years of meeting your deadlines, giving you a clean slate. If you have a good reason for missing a deadline, HMRC’s “reasonable excuse” rules still apply.
Late payment of tax will also result in penalties under the Making Tax Digital regime. Specific penalty percentages apply if outstanding tax remains unpaid after certain periods following the due date.
HMRC plans a gentler start with fewer penalties in the early days while everyone adjusts. Getting your systems right from the beginning is the best way to avoid any penalties altogether.
How can I make this change work for my business?
See this as a chance to upgrade how you track your finances. Digital records can give you better insights into your business performance and cash flow. Maintaining digital records also ensures your records are accurate and complete for tax purposes.
Start small if you need to. Even basic digital record-keeping now will help you prepare for the full requirements later. Talk to other self-employed people about what software they use and like.
Set reminders for the quarterly submission dates once they’re confirmed. Remember that more regular reporting might actually help you stay on top of your finances throughout the year.
Pie is the UK’s first personal tax app designed specifically for working individuals. It offers integrated bookkeeping, real-time tax calculations, and simplified tax returns with expert advice when you need it.
Support and guidance: Where to find help
Transitioning to digital record keeping and quarterly updates can feel daunting, but there’s plenty of support available. HMRC offers a range of resources, including webinars, step-by-step guidance documents, and a dedicated helpline to answer your questions about mtd for itsa and digital requirements.
You can also turn to your accountant or tax advisor for tailored advice on how to set up your digital record keeping system and choose the right MTD-compatible software. The software industry is actively developing new products to help you meet the quarterly update and record keeping requirements, so you’ll have a variety of options to suit your needs.
For the latest information, visit the HMRC website or speak to your software provider. Taking advantage of these resources will help you make a smooth transition to the new system and keep your tax affairs in good order.
Ready for the Making Tax Digital future?
The MTD for ITSA updates 2026 represent a significant change in how self-employed people handle their taxes. With proper planning and the right tools, you can make this transition smoothly.
Start exploring your options now, even though 2026 seems far away. Being prepared early will save you stress later and might even improve how you run your business.
Why not check out Pie tax today? As the only self assessment solution with built-in bookkeeping and real-time tax figures, it's already helping people prepare for the digital tax future that's just around the corner.
