Making Tax Digital Income Tax Self Assessment (or MTD ITSA) is one of the biggest changes to how Income Tax is reported in the UK in decades. 

It’s not just a minor tweak, it changes the rhythm of how data gets sent to HMRC and what records you must keep. 

So if you’re a Sole Trader or landlord trying to decode MTD ITSA, you’re not alone! Thankfully, you’ve come to the right place, because in this guide we’ll break down everything you need to know about Making Tax Digital for Income Tax.

What is Making Tax Digital for Income Tax (MTD ITSA)?

First let’s break down Making Tax Digital (MTD), HMRC’s digital-first approach to tax reporting. Starting with VAT back in 2019, HMRC’s plan is to bring other tax types into the digital system. And you guessed it, Income Tax is next. 

Under MTD for Income Tax Self Assessment (ITSA), people who are Sole Traders and/or receive personal rental income must:

• Keep digital records of income and expenses, and
• submit quarterly updates electronically to HMRC using MTD-compatible software (like Crunch!).

You’ll still need to file an annual tax declaration, but instead of scraping together everything once a year, you’ll confirm your income expenses throughout the year in quarterly digital updates. The idea is to give HMRC (and you) a more up-to-date picture of your tax position, helping reduce surprises at the end of the year. Meaning it will be even easier to stay on top of what you owe.

ITSA key terms you should know

Some of the words mentioned in regards to ITSA might make you do a double-take. After all “MTD ITSA” itself looks like some kind of NASA acronym rather than the name of a new HMRC initiative. So let’s break them down so they actually make sense.

• MTD ITSA: It stands for Making Tax Digital for Income Tax Self Assessment. It’s the name given to HMRC’s new digital reporting system for individuals with qualifying income. 
• Final Declaration: An end of year submission that confirms your overall tax position, replacing the traditional Self Assessment for those who fall under MTD ITSA. 
• End of Period Statement (EOPS): Quarterly summaries of your income and expenses, sent to HMRC throughout the year using MTD-compatible software.
• Digital record keeping: Storing all your income and expense records electronically using HMRC-compatible software (like Crunch), instead of paper books or standalone spreadsheets.
• Digital link: A secure, direct connection between your digital records and HMRC’s system. This means the numbers flow straight from your software to HMRC without needing manual re-entry. No copy and paste, and no printed PDFs.
• Bridging software: A piece of software that connects non-MTD compatible systems like spreadsheets to HMRC. It effectively “bridges” the gap so your data can still be submitted digitally. While it’ll keep you compliant, it’ll be a lot more fiddly and less seamless than using fully MTD-compatible software. So many businesses are favouring the fully digital approach. 

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Who needs to comply?

MTD for ITSA applies to Sole Traders and landlords, but only once certain income thresholds are met.

HMRC mandatory compliance dates:

To make this easier and more manageable, HMRC plans to roll this out in phases.

From April 6th 2026

You must follow MTD for Income Tax if your total gross income from being a Sole Trader and/or retinal income was over £50,000 in the 2024/25 tax year. That’s your total income before any tax or expenses are deducted.

From April 6th 2027

If you’re a Sole Trader or landlord earning over £30,000 in the tax year 2025/26 you’ll need to start complying with MTD ITSA rules from April 6 2027.

From April 6th 2028

Government plans indicate the threshold will drop to £20,000, based on income earned in the 2026/27 tax year. HMRC has confirmed this intention, but the final details are still subject to legislation.

Important: These thresholds are based on your gross qualifying income from self-employment and/or property. Other income sources, such as PAYE salaries, pensions, dividends or investment income, do not currently count towards the MTD for Income Tax threshold.

If you do not meet the threshold yet, you are not required to use MTD for Income Tax at this stage. That said, HMRC has confirmed a soft-landing period when the rules first apply, with penalties for late quarterly submissions waived during the initial rollout.

Moving to digital record-keeping sooner rather than later can also make a real difference. It helps small businesses stay organised, track income and expenses more accurately, and avoid a last-minute scramble when MTD becomes mandatory.
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How MTD ITSA actually works

Making Tax Digital for Income Tax Self Assessment might sound wordy, but it’s not as scary as it sounds. Here’s how it functions in daily practice:

1. Digital records only

You must keep all your business income and expense records digitally using software that connects to HMRC’s systems (like Crunch!). Paper books, PDFs, spreadsheets on their own won’t cut it. 

2. Quarterly updates

Instead of filing just one annual tax return, you’ll send summaries of your income and expenses every quarter. These don’t replace your end-of-year calculation, but they give HMRC a rolling picture of what’s happening. As long as your invoices and expenses are up to date in our software, all you need to do is a quick review and a click to submit. Easy as that.

3. End of Period Statement

At the end of your accounting year, you’ll send an End of Period Statement (EOPS) which finalises your income and expenses. 

4. Final Declaration

Finally, you’ll submit a Final Declaration using MTD-compatible software. This confirms your overall tax position for the year, including your self-employment and property income.

Important: If you meet the MTD for Income Tax threshold, the Final Declaration replaces the traditional Self Assessment for that year. Any other income you have, such as PAYE, dividends, or pensions, is included in this declaration. So you don’t need to submit a separate Self Assessment return. 
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Deadlines you can’t ignore

If you fall under Making Tax Digital for Income Tax, here’s what your first couple of years will typically look like in practice:

Key MTD ITSA dates (example timeline)

2026-2027:

• 6 April 2026 - You must start keeping digital records using MTD-compatible software.
• 7 August 2026 - Deadline to send your first quarterly update.
• 7 November 2026 - Deadline to send your second quarterly update.
• 31 January 2027 - Deadline to submit your Self Assessment the usual way for 2025/26 tax year. 
• 7 February 2027 - Deadline to send your third quarterly update.
• 7 May 2027 - Deadline to send your fourth quarterly update.

2027-2028:

• 7 August 2027 - Deadline to send your first quarterly update for 2027/28.
• 7 November 2027 - Deadline to send your second quarterly update.
• 31 January 2028 - Deadline to submit your Final Declaration through MTD software for the 2026/27 tax year. 
• 7 February 2028 - Deadline to send your third quarterly update.
• 7 May 2028 - Deadline to send your fourth quarterly update.

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Payment deadlines

Although Making Tax Digital for Income Tax changes how you report tax once you meet the thresholds, the dates you pay remain the same. 

If your Self Assessment bill for the previous year is over £1,000 and less than 80% was collected at source (for example through PAYE), you must make Payments on Account. These are advance payments towards your next tax bill.

What are the Payment on Account dates?

The first Payment on Account is due on January 31st. Which means that if this is your first year completing your Self Assessment, you may need to cover both your Income Tax for this year (2024/25) and your first Payment on Account for next year. The second Payment on Account is on July 31st. Check out our ultimate guide on Payment on Account for more information. 

What if your Self Assessment bill is under £1,000?

If your tax bill is £1,000 or less, or more than 80% of your tax has already been collected at source, you do not need to make Payments on Account. You only pay what Income Tax is due for the tax year.

Quarterly submission penalties

Under MTD ITSA, HMRC is introducing a new points-based penalty regime for regular submission deadlines. Taxpayers will receive one penalty point for each missed submission deadline. Once they reach a certain number of points, a financial penalty applies. 

In the case of Making Tax Digital for Income Tax, a penalty comes into force after four penalty points are reached. As of current confirmations, this is a £200 charge. 

The good news is that points reduce over time if you meet deadlines. Meaning that one missed quarterly submission won’t hurt your pocket, but non-compliance will.
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Does MTD ITSA affect Limited Companies?

MTD for ITSA only affects individuals earning income above the threshold as a sole trader or as a landlord. Limited companies are not affected in this way.

What if the property is owned by a Limited Company?

If a property generates rental income for a Limited Company, MTD ITSA does not apply. The company continues to report rental income through Corporation Tax as usual. Any salary or dividends you receive through the company are treated separately and do not trigger MTD ITSA.
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MTD ITSA and multiple sources of income

If you meet the threshold for MTD ITSA (earning above the limits from Sole Trader income or retinal income), you must still comply with ITSA rules. This is the case even if you earn income from other sources such as PAYE, dividends, or pensions. 

Your Final Declaration will then report all of your income. Not just the income that triggered MTD for Income Tax. This means HMRC can see your full tax position in one place, while keeping your reporting digital and compliant. 

How to prepare ahead of time

Here’s what you should do now to make your life easier. 

1. Pick how you want to manage MTD ITSA

You’ll need software that talks to HMRC, but how much support you have is up to you. At Crunch, we give you full control on how you handle Making Tax Digital for Income Tax Self Assessment. 

You can take it all on yourself with compatible software, or if you’d rather not have to worry about HMRC compliance solo, you can go with our full-service ITSA package.This means you’ll get the best of both worlds. Easy-to-use MTD compatible software plus a dedicated accountant in your corner every step of the way. 

So whether you do it all or relax and let us handle it, you know you’re sorted. 

2. Start early

If you aren’t already, start using digital record keeping now rather than later. It means that when the mandatory dates hit, you’re already in the rhythm. Which means when it comes time to meet the ITSA requirements, it’ll be far easier to manage. 

3. Keep your business and personal banking separate

Separating your personal and business bank accounts will save you a tonne of admin time. It makes it easier to categorise income and expenses properly, so that when it comes time for tax reporting, it’s a breeze.

4. Talk to an accountant

Reaching out to a professional helps you avoid mistakes, understand exemptions, and plan your tax strategy properly. Especially if the idea of digital accounting is new to you. Getting the right accounting partner, like Crunch, can make all the difference. A good accountant acts as a safety net, guiding you through deadlines and tricky submissions so you can focus on running your business with confidence

The bottom line

MTD ITSA might sound scary, but in reality it’s just a new way of sharing the same information you already report. Now it’s just spread out across the year and done digitally. With the right tools, a good accounting partner, and a bit of structure, it’s completely manageable. 

Start early, take it step by step, and make sure you’ve got the right support behind you. Once you’re in the rhythm, quarterly updates and digital records quickly become part of your normal routine.

If you’re unsure where to begin or want help choosing the right approach, you can book a call with our expert advisors. They’ll talk you through what applies to you, and how Crunch can make Making Tax Digital for Income Tax a breeze. However you choose to manage MTD, you don’t have to figure it out alone.