The Biggest Change to Self-Employment Tax in a Decade
On 6 April 2026, HMRC's Making Tax Digital for Income Tax (MTD for ITSA) goes live. If you're a sole trader or landlord with qualifying income above £50,000, you are now legally required to keep digital records and submit quarterly updates to HMRC using compatible software.
This is the single largest change to how self-employed individuals report their income since Self Assessment was introduced in 1996. Here's what you need to know.
Who Is Affected and When?
MTD for Income Tax is being rolled out in three phases:
| Phase | Start Date | Qualifying Income |
|---|---|---|
| 1 | 6 April 2026 | Over £50,000 |
| 2 | 6 April 2027 | Over £30,000 |
| 3 | 6 April 2028 | Over £20,000 |
Around 780,000 self-employed individuals and landlords fall into Phase 1. A further 970,000 will join in Phase 2. If you're unsure whether you're affected, check your eligibility on GOV.UK.
Qualifying income means your gross income from self-employment and/or property - not your profit. Even if your expenses bring your profit below the threshold, you may still be caught.
What Changes in Practice?
Under MTD for ITSA, you must:
- Keep digital records - all income and expenses must be recorded in MTD-compatible software. Spreadsheets alone won't cut it unless they can submit via HMRC's API.
- Submit quarterly updates - instead of one annual tax return, you'll send summary updates to HMRC every three months.
- Submit an End of Period Statement (EOPS) - a finalisation step after the tax year ends, replacing the self-employment pages of your Self Assessment return.
- Submit a Final Declaration - confirming your tax position for the year, equivalent to the current SA100 submission.
Quarterly Update Deadlines
For the 2026-27 tax year, the quarterly deadlines are:
- Q1 (6 Apr - 5 Jul): due 5 August 2026
- Q2 (6 Jul - 5 Oct): due 5 November 2026
- Q3 (6 Oct - 5 Jan): due 5 February 2027
- Q4 (6 Jan - 5 Apr): due 5 May 2027
What Software Do You Need?
You need software that is recognised by HMRC as MTD-compatible. The software must be able to:
- Store digital records of income and expenses
- Submit quarterly updates via HMRC's MTD API
- Submit the End of Period Statement and Final Declaration
TaxMTD is built for exactly this. Our platform connects directly to HMRC's MTD APIs, handles quarterly reporting, and keeps your records in the format HMRC expects. If you're already using TaxMTD for bank feed categorisation and Self Assessment, the transition to MTD will be seamless.
How to Prepare Now
Even though Phase 1 starts in April 2026, preparation should begin immediately:
- Sign up for MTD - you can sign up on GOV.UK now. Early sign-up lets you test the quarterly submission process before it becomes mandatory.
- Connect your bank accounts - automatic bank feeds mean your income and expenses are recorded digitally from day one.
- Review your record-keeping - if you're still using paper receipts and manual spreadsheets, now is the time to go digital. TaxMTD's AI categorisation can classify transactions automatically.
- Understand the cash basis - from 2024-25, the cash basis is the default for sole traders. Make sure your software is configured for the correct accounting method.
Penalties for Non-Compliance
HMRC has confirmed that a light-touch penalty regime will apply during the first year. However, from the second year onwards, standard late-submission and late-payment penalties will apply:
- Late submission: points-based system - accumulate enough points and you receive a £200 penalty
- Late payment: interest charges from day one, with escalating penalties at 15 and 30 days
Don't assume the soft landing means you can ignore the deadlines. Building good habits from day one is far easier than scrambling to catch up.
What About Partnerships and Limited Companies?
MTD for Income Tax currently applies only to sole traders and landlords. General partnerships will be brought in at a later date (no confirmed timeline yet). Limited companies are not affected - they already report under Corporation Tax rules.
If you operate through a limited company, your obligations haven't changed. But if you have additional self-employed income or rental income reported via Self Assessment, you may still be caught.
The Bottom Line
MTD for Income Tax is not optional and it's not going away. The phased rollout gives you time to prepare, but the smartest move is to start now. Get started with TaxMTD and make the transition painless.
Further reading: Complete Self Assessment Guide for Sole Traders · Compare TaxMTD with other accounting software