MTD for Income Tax Self Assessment: what sole traders and landlords need to know in 2026

What is MTD for Income Tax Self Assessment?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is HMRC's replacement for the once-a-year Self Assessment routine. If you are in scope you must keep business records digitally, send HMRC a running summary of income and expenses four times a year from compatible software, and finalise the year with a Final Declaration instead of the old SA100.

It began on 6 April 2026 for sole traders and landlords with qualifying income above £50,000. The threshold drops to £30,000 in April 2027 and to £20,000 in April 2028. The part that catches people out is not the number — it is the definition. Qualifying income is gross income before expenses, added together across every trade and every property business you have. It is not your taxable profit, and it is not tested one business at a time.

The first quarterly update of the new regime, covering 6 April to 5 July 2026, fell due on 7 August 2026 — and HMRC put the April 2026 population at roughly 864,000 sole traders and landlords.

Who is affected, and from when

The April 2028 tier is confirmed, not proposed. It was announced at Spring Statement 2025 and is government policy, so a landlord with £24,000 of rent and nothing else already has a date in the diary.

Partnerships and limited companies are not in this phase, and a partner's share of partnership profit does not count towards their personal qualifying income either — so a partner with no other trade or rental income stays outside MTD ITSA for now. Partnerships will follow, but no start date has been set.

If you are not sure which side of a threshold you fall on, our free MTD checker works it through from your gross figures.

Qualifying income is gross income, not profit

This is the single most misunderstood rule in MTD ITSA, and it is worth a worked example.

Priya runs a freelance design business and lets two flats. Her 2024/25 figures looked like this.

Her mortgage interest of £5,200 sits outside that expenses column, because residential finance costs are not deductible against rental profit — they give a basic-rate tax reducer instead. So her taxable profit stays £38,300 and the interest reduces her tax bill rather than her income — comfortably inside the basic-rate band, and nowhere near £50,000. She is still mandated from 6 April 2026, because HMRC tests £54,000 — the gross figure, before a single expense.

Two things follow. First, the combination is what does it: on the design business alone (£32,000) she would have waited until April 2027, and on the flats alone (£22,000) until April 2028. Second, profitability is irrelevant in both directions — a consultant turning over £48,000 with almost no costs and a far bigger tax bill is out of scope until April 2027, while a low-margin trader turning over £51,000 and barely breaking even is in scope now.

So add up turnover, not what lands in your bank account after costs. Subcontractors should note that CIS receipts count at their gross value, before the 20% or 30% deduction at source — see our CIS deductions guide.

Which tax year HMRC tests, and what counts

MTD ITSA looks backwards. HMRC does not wait to see what you earn in the year you are mandated — it reads the last return you filed.

So the figure that decides whether you join in April 2027 is one you are reporting this coming January. If you can see it crossing £30,000, you have from now until 6 April 2027 to get your records into shape — and that is a much better position than finding out in the spring.

Two related points. If your trading or property income started recently and you have no filed return showing qualifying income above the threshold, there is nothing for HMRC to test yet, and you will be brought in from the April following the first return that crosses the line. And once you are in, you stay in: you can only opt out if your qualifying income sits below the relevant threshold for three consecutive tax years, at which point HMRC uses the fourth quarterly update of the third year to confirm it.

Not every kind of income is measured:

Also outside the test: capital gains, one-off transactions in UK land, and transition profits arising from basis period reform. If a business ceased during the tested year, its income still counts — HMRC is measuring the year, not your position today.

Jointly owned property has its own rule, and it is a generous one: you count your share, not the whole. A flat owned 50/50 with your sister producing £50,000 of rent contributes £25,000 to your qualifying income. If you only ever receive a net figure — a share of profit after the letting agent has taken costs off — HMRC assesses that net figure. Joint owners also get a record-keeping easement, covered below. Our Making Tax Digital guide for landlords goes further into the property side.

Quarterly updates: what actually goes in one

A quarterly update is a summary, not a return. You send totals of income and expenses by category for one business, and HMRC responds with an estimate of the tax that position implies. Nothing becomes payable on the back of it.

Two mechanics matter more than most guides admit.

Updates are cumulative. Each one covers the period from the start of the tax year to the end of that quarter, not just the three months that have passed — so a mistake in Q1 is fixed simply by sending a corrected Q2, without resubmitting the earlier update.

One update per business. A sole trade and a UK property business are separate sources with separate updates. Someone with a trade, a UK property business and an overseas property business sends twelve updates a year, not four.

You can send an update up to ten days before the period ends if you are confident nothing further will be recorded. Our tax deadline calendar sets these dates out alongside the rest of the UK filing year.

Standard quarters or calendar quarters — an election worth making

Those awkward 6th-to-5th periods are the default, but they are not compulsory. You can elect for calendar update periods instead: 1 April to 30 June, 1 July to 30 September, and so on, ending on the last day of the month. The deadlines are identical either way — 7 August, 7 November, 7 February and 7 May.

For most people this is the easier option, because nearly every other record you hold runs to month end — bank statements, rent schedules, subscription invoices, payroll. Matching them to a period that stops on 5 July means splitting the first week of July out of a statement by hand, four times a year, for no benefit.

Two conditions apply. You choose it in your software, per income source, and you must do so before you send the first quarterly update of the tax year; once an update has gone in, the choice is locked for that year. If you use calendar periods, your accounting date should sensibly be 31 March rather than 5 April.

The year end: the Final Declaration

The old three-step description of MTD ITSA — quarterly updates, an End of Period Statement, then a Final Declaration — is out of date. HMRC removed the End of Period Statement, and its job has been folded into the Final Declaration. There is no separate EOPS to file.

One submission now does everything the SA100 used to do:

• Finalise each business — accounting adjustments, private-use restrictions, capital allowances, stock, accruals and prepayments applied to the quarterly figures.
• Add everything else — employment income, dividends, savings interest, pension contributions, capital gains, student loan repayments, the High Income Child Benefit Charge. None of it appears in a quarterly update.
• Claim your reliefs and declare it complete. The Final Declaration is a legal statement that the information is correct, and it produces the tax calculation.

The deadline has not moved: 31 January after the tax year ends, so 31 January 2028 for 2026/27. The 2025/26 return is unaffected and is filed the old way by 31 January 2027 — see our Self Assessment tax return guide if that is the one in front of you.

Digital record-keeping: what has to be digital

MTD ITSA is a record-keeping obligation first and a filing obligation second. From the start of your first mandated tax year, each transaction has to be captured digitally with its amount, date and category — bank feed, receipt capture, manual entry, or a spreadsheet joined to bridging software all qualify. Typing a quarter's totals into a submission screen does not.

Three easements remove most of the pain for smaller businesses.

• Below the VAT registration threshold of £90,000, you may record each item simply as income or as an expense rather than splitting it across the detailed categories. Residential property finance costs still have to be recorded separately.
• Retailers may keep a single digital record of daily gross takings covering all payment methods, rather than one record per sale.
• Jointly let property can be recorded as one entry per income category per quarter, with expenses added annually.

Keep the records for six years, the same period that applies under MTD for VAT. If you file VAT returns digitally the discipline transfers directly — the difference is that MTD ITSA reaches every transaction in the business, not only the VAT-relevant ones.

More than one business? Each one reports separately

MTD ITSA is organised around income sources, not around people. For the sole trader who also lets a flat, that means two sets of digital records running side by side and eight quarterly submissions a year, plus one Final Declaration pulling the lot together. UK property and foreign property are separate businesses for this purpose, as are two distinct trades. Two flats let in the UK are not: they are one UK property business with one set of updates.

The saving grace is on penalties. HMRC issues one penalty point per missed deadline, however many updates you were late with on that date. Missing 7 November for both your trade and your property business is one point, not two.

Who is exempt, and how to get an exemption

Some people are exempt automatically, with nothing to apply for:

• Anyone with qualifying income of £20,000 or less, once the phasing is complete
• People without a National Insurance number at the start of the tax year
• Trustees, personal representatives of a deceased person, and non-resident companies
• Lloyd's members reporting underwriting business
• Ministers of religion, and recipients of Married Couple's Allowance or Blind Person's Allowance
• Partnerships, until a start date is announced

A temporary deferral to April 2027 also covers people whose last return included averaging relief, qualifying care relief, trust or estate income, or the residence and remittance basis pages.

Everyone else who cannot realistically comply must apply for a digital exclusion exemption. The grounds are age, disability, a health condition or location that prevents you using a computer, tablet or smartphone; or practising membership of a religious society whose beliefs are incompatible with keeping digital records. HMRC aims to decide within 28 days, and explicitly rejects unfamiliarity with software, a habit of filing on paper, and objections to cost. If you are granted one, you carry on filing a Self Assessment return as normal.

Penalties: 2026/27 is a soft-landing year, but only for updates

HMRC is running the first year with the penalty for late quarterly updates switched off. It is narrower than it sounds.

What it excuses: no late-submission penalties and no penalty points for missing a quarterly update deadline in the 2026/27 tax year.

What it does not excuse: the updates still have to be filed. The Final Declaration deadline of 31 January 2028 carries its normal penalties. Late payment penalties and interest apply in full. And the digital record-keeping requirement is not suspended — the easement is on penalties for late updates, nothing else.

From 6 April 2027 the points regime bites. Each missed quarterly update or return deadline earns one point; at four points you are charged £200, plus a further £200 for every subsequent late submission while you remain at the threshold. Below four, each point expires automatically 24 months after the deadline it relates to. Once you have hit four, expiry stops: to clear them you must file on time for 12 months and bring the previous 24 months of outstanding submissions up to date.

Late payment penalties for the 2026/27 tax year work like this:

Late payment interest runs from the due date until the balance is cleared, on top of any penalty. A Time to Pay arrangement can reduce or remove the penalties, and is worth proposing early rather than late.

Payments on account have not changed

Quarterly updates are not quarterly payments, and MTD ITSA does not alter when you pay. The dates remain 31 January — the balancing payment for the tax year just finished, plus the first payment on account for the current year — and 31 July for the second payment on account.

Each payment on account is 50% of the previous year's income tax and Class 4 National Insurance liability, and they are still required if your last bill was £1,000 or more and less than 80% of your tax was collected at source. You can still apply to reduce them if you expect a lower year — and here MTD genuinely helps, because the estimate HMRC returns after each quarterly update is a far better basis for that judgement than guesswork in July.

A practical preparation checklist

Working backwards from your start date:

1. 1Establish which year is tested. Add gross self-employment turnover to gross rental income on the relevant return. Above the threshold, you are in.
2. 2Count your income sources. That tells you how many sets of records and updates you are running.
3. 3Choose compatible software before the tax year starts, not after. Bridging a spreadsheet is legitimate, but it still has to hold transaction-level detail.
4. 4Decide on standard or calendar quarters and set it in the software before the first update of the year.
5. 5Sign up with HMRC and connect the software. This is a separate authorisation from MTD for VAT, and an accountant filing on your behalf needs their own.
6. 6Start from 6 April, not from sign-up day. Digital records are required from the first day of the mandated tax year, so anything earlier in the year has to be reconstructed if you start late.
7. 7Diarise 7 August, 7 November, 7 February, 7 May and 31 January. That is the whole calendar.

Where Marchant fits in

Marchant is a UK accounting platform launching in November 2026, built so that quarterly reporting falls out of the bookkeeping rather than being a separate exercise.

The workflow is the ordinary one: connect a bank account, let transactions come in, categorise income and expenses as they land. Because each transaction is a separate digital record with its date, amount and category, the quarterly update becomes a summary of bookkeeping you did as you went — open the period, check the totals, submit to HMRC through the MTD API. A trade and a property business stay distinct income sources, each with its own records and updates.

Marchant also files MTD for VAT and CIS to HMRC, so a subcontractor with rental income is not running three systems, and every plan includes a free accountant seat so whoever finalises your Final Declaration works in the same data you do. See what each plan includes, the feature overview, the Making Tax Digital hub, or how it compares to FreeAgent.