What is MTD ITSA?
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is HMRC's requirement for self-employed sole traders and landlords to keep digital records and submit quarterly summaries of their income and expenses throughout the tax year — instead of filing one annual Self Assessment return.
MTD ITSA replaces much of the traditional January 31 Self Assessment process. You still file an end-of-year declaration, but your income data reaches HMRC incrementally, four times per year, via MTD-compatible software.
The broader MTD programme has two phases: MTD for VAT (already mandatory since 2019–2022) and MTD for Income Tax. The Income Tax phase — the one affecting sole traders — launched in April 2026.
Who Is Affected?
MTD ITSA applies to you if you are:
- A self-employed sole trader with gross income over £50,000 per year from self-employment
- A UK landlord with gross rental income over £50,000 per year
- Someone whose combined income from self-employment and property exceeds £50,000
The threshold applies to gross income — revenue before deducting expenses. If you turned over £52,000 and had £20,000 of costs, leaving a profit of £32,000, you are still in scope because your gross is above £50,000.
The income figure used is from the most recently-assessed tax year. HMRC will notify you if you need to sign up, but you shouldn't wait for the letter — if you know your income exceeds £50,000, sign up proactively.
Use our free MTD Readiness Checker to find out in 60 seconds whether MTD ITSA applies to you, and what you need to do next.
Phase 2 (£30,000 threshold) is expected in April 2027. Phase 3 (£20,000 threshold) is currently proposed for 2028. If you're below £50,000 now, these later phases may still bring you into scope.
Employees on PAYE only, limited companies, and those below the income threshold are not currently affected.
Key Dates and Deadlines
The MTD tax year runs from 6 April to 5 April — the same as the existing UK tax year. There are four quarterly submission windows per year:
| Quarter | Period covered | Submission deadline | Status (2026/27) |
|---|---|---|---|
| Q1 | 6 April – 5 July 2026 | 7 August 2026 | Due soon |
| Q2 | 6 July – 5 October 2026 | 7 November 2026 | Upcoming |
| Q3 | 6 October 2026 – 5 January 2027 | 7 February 2027 | Upcoming |
| Q4 | 6 January – 5 April 2027 | 7 May 2027 | Upcoming |
| EOPS | Full year 2026/27 | 31 January 2028 | Year-end |
In addition to the four quarterly submissions, you must also file an End of Period Statement (EOPS) and a final declaration by 31 January following the tax year — similar to the existing Self Assessment deadline.
What Software Is Required?
MTD ITSA requires you to use HMRC-recognised MTD-compatible software to keep your records and submit quarterly updates. You cannot use paper records as your primary bookkeeping method, and you cannot submit directly through the HMRC website without a compatible tool.
Compatible software must be able to:
- Store digital records of income and expenses in real time
- Connect directly to HMRC's Making Tax Digital API
- Submit quarterly summaries to HMRC on your behalf
- Receive confirmation receipts from HMRC
Neatly is built specifically for UK sole traders under MTD. It connects to your bank, categorises transactions automatically, and prepares your quarterly submissions — ready to file in minutes. Start free today →
Spreadsheets (Excel, Google Sheets) are technically permissible if you use them in combination with HMRC-approved bridging software that connects the spreadsheet to HMRC's API. However, this approach is error-prone and more complex than using dedicated bookkeeping software. HMRC has also signalled that bridging software may be phased out in future years.
What Do You Need to Submit Each Quarter?
Each quarterly submission is a summary of your income and expenses for that period — not a detailed transaction-by-transaction list. Specifically, you submit:
- Total income from self-employment or property for the quarter
- Total expenses by category (travel, office costs, professional fees, etc.)
- Any allowances you intend to claim
The underlying records — receipts, bank statements, invoices — stay with you. HMRC doesn't see the individual transactions; they receive the categorised totals. You must keep those source records for at least 5 years after the relevant Self Assessment deadline.
Penalties for Non-Compliance
HMRC is implementing a new points-based penalty system for late MTD submissions. Under this system:
- Each late quarterly submission earns 1 penalty point
- Once you reach 4 penalty points, a £200 fine is automatically issued
- Further late submissions beyond 4 points attract an additional £200 fine each
- Points expire after a set period if you maintain a clean compliance record
Additional late payment penalties apply if the tax calculated in your end-of-year declaration is paid late — 2% after 15 days, 4% after 30 days, and 10% annual interest after 6 months.
The points system means one missed deadline feels invisible — but four creates a £200 automatic fine. Sole traders who miss multiple quarters in their first year could face £200–£800 in fines before they realise something is wrong.
How to Sign Up for MTD ITSA
You need to sign up for MTD ITSA before your software can submit on your behalf. The sign-up process:
- Choose HMRC-recognised MTD-compatible software (like Neatly)
- Sign up for MTD ITSA through your HMRC online account, or let your software guide you through the authorisation process
- Authorise your software to connect to HMRC's MTD API on your behalf
- Start keeping digital records from 6 April 2026 (or from your sign-up date, if later)
If you use an accountant, they can sign up on your behalf through HMRC's Agent Services portal.
What This Means in Practice
For most sole traders, MTD ITSA means four things change:
- Monthly bookkeeping becomes non-negotiable. You can't wait until January to reconcile 12 months of transactions. Your records need to be current enough to file quarterly.
- Bank connections matter. Software that connects directly to your bank account and categorises transactions automatically (like Neatly) turns quarterly filing into a 15-minute task instead of a weekend project.
- You need to know your categories. HMRC's expense categories are specific. Misclassifying expenses doesn't just affect accuracy — it can trigger compliance queries.
- Your Self Assessment still exists. The January 31 deadline for your end-of-year declaration doesn't disappear. But instead of filing everything at once, you're confirming totals you've already submitted through the year.
Sole traders who keep up with quarterly filings often report that their January tax return becomes far less stressful — the work has been spread across the year, and HMRC already has most of the data.