Tax administration in the UK is undergoing its most significant overhaul in decades. HMRC's Making Tax Digital for Income Tax Self Assessment — commonly shortened to MTD for ITSA — will fundamentally change how millions of sole traders and landlords report their income to HMRC. The first mandatory phase arrives in April 2026, and the businesses that prepare early will find the transition far smoother than those who leave it to the last minute. This guide breaks down exactly what is changing, who it affects, and — crucially — what you should be doing right now.
What Is MTD for ITSA and Who Does It Affect?
MTD for ITSA is HMRC's initiative to move income tax reporting away from an annual paper-based Self Assessment return and towards a system of quarterly digital updates submitted directly to HMRC via compatible software. Think of it as real-time bookkeeping with a direct line to the tax authority.
The rollout follows a phased approach based on qualifying income — that is, the combined gross income from self-employment and UK property:
- April 2026: Sole traders and landlords with qualifying income over £50,000
- April 2027: Those with qualifying income over £30,000
- April 2028 (indicative): Those with qualifying income over £20,000
Partnerships are expected to follow in a later phase. General partnerships with corporate partners, trusts, and certain other entities are currently exempt, but sole traders who also receive PAYE income — say, a plumber who works part-time for a firm and also runs their own business — are still in scope if their self-employment or rental income breaches the threshold.
It is worth checking your last two or three years of Self Assessment returns now. If your qualifying income is hovering near the £50,000 mark, a good trading year could bring you into scope earlier than you expect.
What Will Change Day-to-Day?
Under the current system, you submit one Self Assessment return by 31 January each year covering the previous tax year. Under MTD for ITSA, that single annual event is replaced by a continuous cycle of reporting:
- Quarterly updates: Four times a year you submit a summary of your income and expenses for that quarter directly to HMRC through your software. The deadlines fall one month after the end of each quarter.
- End-of-period statement (EOPS): At the end of the tax year you confirm the figures for each source of income, make any annual adjustments, and claim reliefs.
- Final declaration: This replaces the Self Assessment return. You confirm your overall tax position — including any other income sources such as dividends or savings interest — and crystallise your liability.
The quarterly updates themselves are not tax returns. They are cumulative summaries, and HMRC will use them to give you an in-year tax estimate. The important point is that you need software to do this — there is no HMRC online form equivalent for quarterly updates.
Choosing the Right MTD-Compatible Software
This is where many small business owners get caught out. Not all accounting software is created equal, and a spreadsheet — even a very tidy one — will not be sufficient on its own. HMRC requires a direct API connection between your record-keeping software and their systems, which means you need a product that is specifically recognised as MTD for ITSA compatible.
When evaluating software, look for the following:
- Direct HMRC API submission for quarterly updates, EOPS, and the final declaration
- Automatic categorisation of income and expenses in line with HMRC's reporting categories
- Bank feed integration to reduce manual data entry
- Receipt capture — ideally with AI-assisted scanning to cut down on admin
- Support for multiple income sources if you have both self-employment and rental income
BizHub365 is built specifically for UK sole traders, landlords, and small businesses and includes native MTD for ITSA submission — no bridging software required. Its AI-powered receipt scanning and bank statement import mean that keeping quarterly records up to date becomes a routine task rather than a quarterly headache. You can explore it at bizhub365.co.uk.
Whatever software you choose, do not wait until March 2026 to test it. Pick a solution now, migrate your records, and run a full tax year through it so you are confident before the mandation date.
Getting Your Records Into Shape
MTD for ITSA is ultimately about digital record-keeping. HMRC requires that every transaction — every invoice raised, every business expense incurred — is recorded digitally and that the data flows directly from that digital record into your quarterly submission. There must be no manual re-keying at any stage; this is known as a digital link requirement.
For many sole traders this means a cultural shift. If you currently rely on a shoebox of receipts handed to your accountant in January, you will need to move to real-time recording. Here are some practical steps to start today:
- Separate your business and personal finances. Open a dedicated business bank account if you have not already. This makes it far easier to reconcile transactions and maintain clean records.
- Scan or photograph receipts immediately. Tools with AI receipt capture can extract the supplier name, date, and amount automatically, saving significant time.
- Categorise expenses consistently. HMRC uses specific expense categories for MTD submissions. Familiarise yourself with them — or choose software that maps to them automatically.
- Review your invoicing process. All sales records must be digital. If you still issue handwritten invoices, now is the time to switch to digital invoicing.
A sole trader running a catering business in Manchester, for example, might currently track ingredients and equipment costs in a notebook. Under MTD for ITSA, every one of those purchases needs a digital record with a clear audit trail. The sooner that habit is established, the less painful April 2026 will be.
Advice for Accountants and Bookkeepers
If you look after clients who will fall into scope in April 2026, the responsibility for proactive communication sits firmly with you. Many of your clients will not be aware of MTD for ITSA, or will vaguely know it is "coming" without understanding what it actually demands of them day-to-day.
Consider taking the following steps now:
- Run a review of your client list and flag everyone with qualifying income above £50,000 — or above £30,000 if you want to future-proof.
- Write to affected clients explaining the change in plain terms, including what they need to do differently.
- Agree a new workflow: who will maintain the quarterly records? Will you access their software directly, or will they send you exports? Quarterly deadlines are tight, so clarity is essential.
- Review your own pricing. Quarterly check-ins represent additional work; your fee structure may need to reflect that.
Practices that establish an MTD-ready workflow now will be better placed to take on new clients who are searching for an accountant who understands the new regime.
The Cost of Doing Nothing
HMRC's new points-based penalty system applies to MTD for ITSA from its mandation date. Miss a quarterly submission and you accumulate a penalty point. Reach the threshold — four points for quarterly filers — and a £200 fixed penalty is triggered, with further penalties for continued non-compliance. Late payment penalties and interest charges apply on top of that.
The good news is that these penalties are entirely avoidable. The businesses that will struggle are those that ignore the change until April 2026 and then discover their current software is not compatible, or that their records are too disorganised to produce accurate quarterly summaries in time.
Start now. Choose compatible software, get your records into a digital system, and speak to your accountant about what quarterly reporting will look like in practice. MTD for ITSA is a significant change, but for businesses that prepare methodically, it is also an opportunity to have a much clearer, more real-time view of their financial position throughout the year — something that can only help you make better decisions for your business.