Making Tax Digital for Income Tax (MTD ITSA) is no longer a distant policy. After several delays, the regime begins its phased introduction in April 2026, reshaping how self-employment and property income is reported to HMRC.
The first group affected will be individuals with combined annual income from these sources exceeding £50,000, followed by those above £30,000 in April 2027.
While the fundamentals of the policy have been known for some time, recent guidance from HMRC and the ICAEW adds clarity on where the challenges lie and how to address them.
Unlike MTD for VAT, which was largely a change in filing mechanics, MTD ITSA requires a more significant operational shift.
Quarterly digital reporting, final declarations, and mandatory use of compatible software are at its core. Yet the impact extends beyond compliance, particularly as firms reconsider their processes, client segmentation, and technology stack.
Thresholds, Scope and Exemptions
Eligibility is determined by gross income from sole trades and property, aggregated across sources.
Unlike VAT, where turnover monitoring is an ongoing exercise, HMRC assesses scope using self-assessment return data and notifies taxpayers directly. ICAEW stresses, however, that practices should not rely exclusively on HMRC’s letters.
Basis period reform has caused anomalies in some 2023–24 figures, inflating reported turnover and leading to possible misidentification of clients.
The groups affected and exemptions are clearly defined:
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Thresholds:
- £50,000+ income → MTD ITSA applies from April 2026
- £30,000+ income → MTD ITSA applies from April 2027
- Below £20,000 → Currently exempt
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Other exemptions include:
- Digital exclusion (age, disability, or lack of internet access)
- Religious objections to using electronic records
- Absence of a National Insurance number
- Qualifying care receipts (such as foster care)
For non-residents, those completing the SA109 section will not be required to join before 2027, under a temporary measure announced at the Spring Statement.
Jointly let property remains in scope, except where it falls within HMRC’s narrow definition of a partnership.
Key Dates & Quarterly Updates
The new reporting cycle introduces four quarterly submissions for every trade or property business, alongside an end-of-year final declaration.
Quarterly updates contain income and expense figures only, with year-end adjustments deferred to the final declaration.
This approach mirrors real-time reporting models in other jurisdictions and spreads compliance across the year.
Key filing dates for the 2026–27 tax year include:
- 7 August 2026 – Q1 update (covering 6 April–5 July)
- 7 November 2026 – Q2 update (6 July–5 October)
- 7 February 2027 – Q3 update (6 October–5 January)
- 7 May 2027 – Q4 update (6 January–5 April)
- 31 January 2028 – Final declaration
The option to align to calendar quarters remains, but deadlines do not shift. Importantly, while reporting frequency increases, the timing of tax payments remains unchanged.
For practices, this new rhythm replaces the traditional year-end peak with multiple reporting deadlines, demanding more continuous oversight and proactive management of client data.
Technology Choices
Software sits at the heart of MTD, but choosing the right tools is not straightforward.
Many firms initially assumed that existing VAT solutions would extend to income tax; ICAEW cautions against that assumption.
Not all products are MTD ITSA-compatible, and those that are may not serve every purpose. In many cases, a combination of tools will be necessary—one for quarterly updates and another for the final declaration, with digital links ensuring data continuity between them.
Three categories of technology dominate the market:
- App-based systems – effective for very small businesses with simple transactions and reliable connectivity.
- Spreadsheet solutions with bridging software – suitable for those preferring manual entry while remaining compliant.
- Full accounting platforms – ideal for businesses willing to embrace automation, with benefits including bank feeds, real-time data, and integration across services.
Cloud-based solutions provide additional advantages in security and scalability, but cost and learning curves remain considerations.
Whatever the choice, integration with existing practice management systems is critical to avoid bottlenecks when the new regime takes effect.
Discover: 10+1 software tools to help you survive MTD
Building Readiness
Preparation involves more than technology. ICAEW’s guidance underscores the need for early identification of affected clients and the creation of provisional lists based on current returns. Practices that leave this exercise until late 2025 risk a backlog of onboarding and training as deadlines approach.
Internal capability is equally critical. Staff need to be confident in both the mechanics of the software and the broader compliance landscape. This extends to linking the ASA, understanding how quarterly data flows into final declarations, and managing exceptions. HMRC’s pilot programme provides a valuable testing ground for processes, and firms are encouraged to participate to refine their approach before mandatory deadlines.
Professional standards remain in focus throughout the transition. The PCRT bodies have issued interim guidance covering the application of ethical standards to MTD services, particularly in relation to the accuracy of quarterly updates. This will be a recurring theme as more firms begin submitting live data.
The New Compliance Environment
MTD ITSA introduces a points-based penalty regime. Each missed quarterly submission earns a point, with penalties triggered once a threshold is reached.
HMRC retains the power to cancel or reset points under certain conditions. Late payment interest continues to apply, and penalties remain for inaccuracies.
Key facts:
- No late submission penalties apply during the pilot testing phase.
- The new system is designed to encourage continuous compliance rather than tolerate occasional filings.
- Existing penalties for errors and late payments remain unchanged.
This change creates a stronger incentive to build resilient processes from the outset. Firms unable to keep pace risk accumulating points and exposing clients to avoidable costs.
Efficiency, Insight, and Opportunity
While the compliance burden is real, MTD ITSA also offers the profession an opportunity to rethink its approach. Digital record-keeping reduces manual errors and offers real-time visibility into financial data.
Quarterly submissions encourage more frequent client interaction, enabling accountants to deliver proactive advice rather than retrospective reporting.
Firms that fully leverage the digital shift can expect:
- Improved efficiency through automation and error reduction.
- Better financial oversight for clients via real-time data access.
- Enhanced advisory services driven by analytics and ongoing engagement.
- A stronger competitive position for early adopters demonstrating digital capability.
This is not merely a compliance project; it is an inflection point for how practices interact with clients and structure their service delivery.
The Road to April 2026
With the start date fixed, the profession faces a narrow window to prepare. The next few months will be decisive. Early investment in software, training, and client communication will mitigate disruption and create opportunities for differentiation.
For practices that plan ahead, the transition need not be disruptive. It is a chance to modernise processes, reinforce compliance, and deepen client relationships. For those that delay, the compressed timelines and increased filing frequency may prove more challenging.
