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 receiving personal income 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 or MTD for IT: It stands for Making Tax Digital for Income Tax Self Assessment (or Making Tax Digital for Income Tax). 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. 
• 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 software that connects non-MTD compatible systems like spreadsheets to HMRC. It effectively “bridges” the gap so your data can still be submitted digitally.

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Who needs to comply?

MTD for ITSA applies to Sole Traders and individuals with personal income (including Limited Company directors with qualifying self‑employment or rental income) 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. The first phase started on April 6th 2026, where any Sole Traders or private landlords who earned over £50,000 of qualifying income in the 2024/25 tax year needed to comply. That included total income before any tax or expenses were deducted.

From April 6th 2027

The next MTD for Income Tax phase is likely to be a big one as it’ll hit the majority of those self-employed. 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. 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're affected by Making Tax Digital for Income Tax, here's what your first couple of years will typically look like. While MTD is now underway for many of those self-employed, there are still several important deadlines to keep on your radar.

What’s already happened:

• 6 April 2026 - MTD for Income Tax began. If you're affected, you should now be keeping digital records using MTD-compatible software.

Coming up soon:

• 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.

Looking ahead:

• 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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When do I need to join MTD for Income Tax?

Not everyone will need to start complying with Making Tax Digital for Income Tax at the same time. The date you need to join depends on your qualifying income (your total self-employment and property income before expenses) and the tax year it relates to.

To help you understand when you need to get started, here are a few examples:

Example 1: Property landlord earning £65,000

Scenario:

James is a landlord with rental income of £65,000 during the 2024/25 tax year.

When did James need to join MTD?

James needed to start using Making Tax Digital for Income Tax from 6 April 2026, because his qualifying income was above the first threshold of £50,000.

What does James need to do now?

• Keep digital records of his income and expenses using MTD-compatible software.
• Submit his first quarterly update by 7 August 2026.
• Continue submitting quarterly updates throughout the year.
• Submit his Final Declaration for the 2026/27 tax year by 31 January 2028.

Example 2: Freelance graphic designer earning £45,000+

Scenario:

Sophie is a freelance graphic designer who had a self-employment income of £45,000 during the 2024/25 tax year, and £47,500 during the 2025/26 tax year.

When does Sophie need to join MTD?

Sophie doesn’t need to comply with MTD just yet because her qualifying income is below the first threshold of £50,000. However, as her qualifying income for the 2025/26 tax year is above the £30,000 threshold, she will need to comply from April 6th 2027. 

What happens next?

• Sophie can continue submitting her Self Assessment tax return in the usual way for the 2025/26 tax year.
• Before 6 April 2027, she’ll need to choose and set up MTD-compatible software to keep digital records and submit her quarterly updates.
• From 6 April 2027, Sophie will need to start keeping digital records under MTD for Income Tax.
• Her first quarterly update will be due by 7 August 2027.

Example 3: Sole trader earning £28,000 on average

Scenario:

Alex runs a small online shop and had qualifying income of £28,000 during the 2025/26 tax year.

When does Alex need to join MTD?

Alex doesn’t need to join MTD for Income Tax yet because his qualifying income is below the £30,000 threshold. However, he should keep an eye on his income each tax year. If his qualifying income increases above the relevant threshold, he may need to start complying with MTD in a future tax year.

What does Alex need to do?

• Alex can continue submitting his Self Assessment tax return in the usual way.
• He doesn’t need to keep digital records or send quarterly updates under MTD yet.
• If his qualifying income rises above the threshold in a future tax year, he’ll need to prepare to switch to MTD-compatible software.

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 continue to report income and pay tax through Corporation Tax as usual.

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.

However, if you personally receive rental income as a landlord outside of the company, that income falls under the Income Tax rules. If your total qualifying income exceeds the MTD threshold, you would need to follow MTD for ITSA for that personal income.
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MTD for Income Tax and multiple sources of income

If you meet the MTD ITSA threshold from self‑employment or rental income, you must comply with the rules even if you also earn from other sources like PAYE, dividends, pensions, or a limited company directorship. Your Final Declaration will report all income, giving HMRC a complete view while keeping your reporting fully 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

How Crunch can help

‍If you’re affected by MTD for Income Tax, getting organised early makes all the difference. Crunch will offer easy-to-use, MTD-compliant software to track income, record expenses, and submit updates with confidence. So everything stays in one place and you see exactly where you stand and avoid last-minute stress. For extra reassurance, our Sole Trader Pro package gives you access to a dedicated qualified accountant. Clear tools, clear guidance, and no nasty surprises.

What if I have multiple income streams?

We also have a solution for that. Whether you’re a Limited Company director with personal rental income, a Sole Trader landlord, or earn from a mix of self-employment, dividends, or other sources, Crunch keeps everything organised in one place. Want to learn more? Book a free consultation with our advisors.

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.