With the April 2026 start date for MTD ITSA for many, it is a critical time for landlords and sole traders. This month’s blog post will recap who is affected by the changes, outline the core requirements (quarterly updates and year-end submission), demonstrate how to check HMRC for your mandation date, and provide a clear action plan for the final months of preparation.
It’s Happening. The time is now.
MTD ITSA, or Making Tax Digital for Income Tax and Self Assessment, is no longer an idea that “might” happen in the future. It takes effect in April 2026, and we are now in the final countdown to that start date. This blog post aims to provide a no-nonsense, practical checklist to help sole traders and landlords to be prepared to follow the legal requirements of MTD ITSA.
Who does this affect from April 2026?
When MTD ITSA starts in April 2026, not every sole trader or landlord will have to follow it. They are staggering the start dates, and when you start will be based on your income from your previous tax return. It is very important to note that when you have to start following MTD, ITSA is not based on the profit or loss you make, but on the total sales (turnover/income) you have before any deductions have been made.
From April 2026, sole traders and landlords with a total qualifying income of over £50,000 must comply with MTD ITSA.
- If you are a sole trader with no property income, this means your total business income.
- If you are a landlord with no business income, this means your total property income.
- If you have both business and property income, this means the combined total of both
The threshold for those with a qualifying income over £30,000 will be mandatory from April 2027. It is currently planned that those with qualifying income over £20,000 will need to follow MTD ITSA from April 2028, though this has not yet been fully confirmed.
Even if you do not have to start following MTD ITSA from April 2026, it is a good idea to start putting things in place so that you are ready to comply as soon as you need to.
The Core Requirements (The “What”)
There are several very strict requirements that must be followed when it comes to MTD ITSA.
- Digital Records: You must keep all business records digitally. This refers to using software to keep your accounts. You don’t necessarily need to keep digital copies of your invoices and receipts. However, it is good practice to ensure your invoices and receipts are able to be accessed easily, just in case HMRC do an inspection on your accounts. The easiest way to ensure you have the information to hand is to attach a digital copy of the invoice or receipt to the transaction in your accounts software, if that’s possible.
- Compatible Software: The software you use to keep your accounts must be MTD ITSA compatible and able to send the quarterly reports and final submission to HMRC. This does not mean you cannot use spreadsheets to prepare your accounts. If you do use spreadsheets, or if your accounts software cannot communicate directly with HMRC, you can use special bridging software to complete the submissions, but that software must be MTD ITSA compatible.
What software have you chosen for MTD? Share in the comments to help others.
- Quarterly Updates: At the end of each quarter, you will be required to submit a quarterly update to HMRC using MTD Compatible software. The information included in the update will relate to your income and expenses. At this point, it has been stated that this will not have an impact on the final amount of tax you will owe to HMRC, as that calculation will be done after your final year-end submission has been submitted, which is the same way it has been. The purpose of the quarterly submissions is to help reduce errors in people’s tax returns, provide real-time information so that you are better able to plan for the amount of tax you might owe at the end of the tax year, and it helps to ensure business owners and landlords are compliant with their tax obligations.
- Final Declaration: At the end of the tax year, you would submit a final declaration to HMRC which will include any other income you may have (savings, pensions, dividends), the final year-end adjustments made to your accounts (for example, depreciation, profit/loss on the disposal of assets), as well as any other information you need to provide to HMRC for your tax liability to be calculated. After you have submitted the final declaration, you will be provided with your final tax bill, which will outline what tax you owe to HMRC based on the information submitted, and the deadlines for making those payments.
Your Final 2-Month Checklist (The “How”)
The April 2026 start date is fast approaching for sole traders and landlords with qualifying income over £50,000. HMRC estimate that approximately 864.000 people will be required to follow MTD ITSA from April 2026. The following 4 things will help you to ensure you are ready from day 1.
- Confirm your start date: You can confirm whether you need to start following MTD ITSA from the 6th of April 2026 by checking your qualifying income (business and/or property income) from your 2024/2025 self-assessment tax return. If your income was over £50,000, then you know you must follow MTD ITSA. You may also receive a letter from HMRC sometime in February or March 2026 notifying you. However, it is your responsibility to know if you have to comply with MTD ITSA, so do not rely on being notified by HMRC. The government website has a tool that you can use to check if you need to follow MTD ITSA, and you can find it here.
- Choose your software: If you haven’t already chosen what software you will use for MTD ITSA, I strongly recommend that you start looking at the different software that is available and choose now. You will want to have time to familiarise yourself with the software and to ensure your accounts are all set up on it. If you do not have any experience with keeping accounts digitally, it is a good idea to contact a bookkeeper who understands the software that you would like to use and ask them to help provide training, etc. Sadly, using accounting software is not as simple as the software companies make it out to be. You need to understand where the information needs to go to ensure you are not over- or underpaying your taxes. Categorising information incorrectly, for example, a loan as income, could be a very costly mistake. There are a lot of options out there for accounts software – QuickBooks Online, Xero, FreeAgent, Sage, and spreadsheets. Try some of them out, check the pricing, what is included in the subscription, does it provide everything you will need for your business (i.e., stock tracking, payroll, multicurrency, VAT), and does it come with support. You need to make sure the software you are using is right for you and your business.
- Get your records in order: Ensure that your bookkeeping is up to date before April. You can’t start with a backlog. You will want to get into the habit of keeping your accounts up to date on a monthly basis, before you need to follow MTD ITSA, as that will take a lot of the pressure and stress away of making sure you meet the quarterly submission deadlines.
- Sign up for MTD ITSA: If you have a tax agent, you can get them to sign you up or help you sign up for MTD ITSA, or you can do this yourself. You will need to have your accounts software in place first before you sign up. You will need to have your Government Gateway details, which would have been provided to you by HMRC when you first became self-employed or a landlord. You will also need your National Insurance number. If you do not know your Government Gateway login details, you will need to click on the “problems signing in” link to recover them. You can access the Government Gateway page here. If you need to sign up for MTD ITSA, you can do so here. If you have a bookkeeper who doesn’t currently act as your tax agent because you have an accountant who submits your self-assessment tax return, but you would like your bookkeeper to submit your quarterly returns, you can appoint them to be a secondary tax agent. Speak to your bookkeeper about whether they can help you with the quarterly submissions.
Penalties for Non-Compliance
If you do not comply with MTD ITSA, you will be subject to penalties. HMRC have developed a points-based system where you will be given a set number of points for each late submission. Once you have received the maximum penalty points allowed, you will face a fine. There will be a separate penalty system for late payments and non-compliance with the software.
The point threshold is 4 points for quarterly submissions and 2 points for the annual submission. For every late submission, you will receive 1 penalty point. If you reach the maximum threshold of 4 points for late quarterly submissions, you will receive a £200 fine. If you reach the maximum threshold of 2 points for late annual submissions, you will receive a £200 fine. Any points earned will expire after 24 months, but only if the threshold has not been reached. If you have met the threshold of penalty points, the points will only expire after a period of compliance has been met. For quarterly submissions, you would have to file all returns on time for 12 months. For annual submissions, you would have to file all returns on time for 24 months.
The penalty system for late payments will involve interest and monetary fines.
- If your payment is 0 to 15 days late, you won’t receive a penalty, but interest will accrue.
- If your payment is 16-30 days late, a 3% penalty will be charged on the tax outstanding as of day 15.
- If your payment is 31+ days late, an additional 3% penalty will be added (making it a total of 6% of the original outstanding amount), plus a second, daily penalty at an annual rate of 10%
It is important to note that HMRC charges interest on day 1 for any unpaid amounts.
If you are using software that is not MTD ITSA-compliant to keep your accounts, you could receive a penalty of up to £400 per return.
If your income is over £50,000, you must be ready by April 2026. If you are not yet set up with compliant software and a plan, you are at risk of penalties. Contact me urgently for an MTD setup and support package.