Key Information About MTD ITSA Who It Affects and When It Takes Effect
- Evolve Business Assist
- Nov 10
- 4 min read
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is changing how many individuals and businesses manage their tax affairs. This new system requires digital record-keeping and online submission of tax returns, aiming to make tax reporting more accurate and efficient. Understanding who MTD ITSA affects and when it takes effect is essential for sole traders and landlords to stay compliant and avoid penalties.
Digital bookkeeping software helps sole traders and landlords comply with MTD ITSA requirements.
What is MTD ITSA?
MTD ITSA stands for Making Tax Digital for Income Tax Self Assessment. It is part of the UK government’s wider Making Tax Digital initiative, which aims to modernise the tax system by requiring taxpayers to keep digital records and submit tax information online.
The key features of MTD ITSA include:
Digital record-keeping: Taxpayers must keep their income and expense records digitally using compatible software.
Quarterly updates: Instead of submitting one annual tax return, taxpayers send updates every three months.
Final declaration: At the end of the tax year, a final declaration confirms the figures submitted.
This system is designed to reduce errors, improve tax collection, and make it easier for taxpayers to manage their finances.
Who Does MTD ITSA Affect?
MTD ITSA primarily affects sole traders and landlords with income above a certain threshold. The government has set clear rules on who must comply.
Sole Traders & Landlords
Individuals & Landlords with income exceeding the specified thresholds must also comply with MTD ITSA regulations. The thresholds are:
Over £50,000 from April 2026
Over £30,000 from April 2027
Over £20,000 from April 2028
Keeping digital records of rental income and allowable expenses.
Submitting quarterly updates via compatible software.
Making a final declaration at the end of the tax year.
Combined Income Threshold
This means that if an individual’s total income from self-employment and rental sources exceeds the specified threshold, they are required to comply with MTD ITSA regulations. This approach ensures that all relevant income streams are considered, promoting transparency and efficiency in tax reporting.
Who is Exempt?
Some groups are exempt from MTD ITSA, including:
Those with income below £20,000 per year (for now)
Trusts and estates.
Partnerships (currently excluded but may be included in future).
Individuals with certain disabilities or those who cannot use digital tools.
If you believe you qualify for an exemption, you must notify HMRC and provide evidence.
When Does MTD ITSA Take Effect?
The rollout of MTD ITSA is phased to give taxpayers time to prepare.
April 2026: MTD ITSA becomes mandatory for sole traders and landlords with income over £50,000.
April 2027: MTD ITSA becomes mandatory for sole traders and landlords with income over £30,000.
April 2028: MTD ITSA becomes mandatory for sole traders and landlords with income over £20,000.
Next steps: HMRC expects all affected taxpayers to start submitting quarterly updates for the 2026/27 tax year.
This means that if you meet the income threshold, you must already be using MTD ITSA-compliant software and submitting digital updates.
What About Existing Tax Returns?
For the 2025/26 tax year and earlier, taxpayers can still file returns using the traditional system. However, from April 2026, all new tax reporting must follow MTD ITSA rules.
Preparing for MTD ITSA
To prepare, sole traders and landlords should:
Choose MTD ITSA-compatible bookkeeping software.
Start keeping digital records immediately.
Understand how to submit quarterly updates.
This preparation helps avoid last-minute issues and penalties.
Using digital tools to keep tax records up to date supports MTD ITSA compliance.
How MTD ITSA Affects Bookkeeping
MTD ITSA changes the way bookkeeping is done for many taxpayers. Traditional paper records or spreadsheets may no longer be enough.
Digital Record-Keeping
You must keep records digitally using software that can connect to HMRC. This includes:
Sales and income records.
Business expenses.
Capital allowances.
Quarterly Updates
Instead of one annual tax return, you send updates every three months. This means bookkeeping must be more regular and accurate.
Benefits of MTD ITSA Bookkeeping
Better financial control: Regular updates help you track income and expenses closely.
Reduced errors: Digital systems reduce mistakes in calculations.
Simplified tax filing: Software can automate parts of the process.
For example, a sole trader using MTD ITSA bookkeeping software can upload receipts and invoices as they occur, making quarterly updates straightforward.
Practical Tips for Sole Traders and Landlords
To meet MTD ITSA requirements smoothly, consider these tips:
Select the right software: Look for HMRC-recognised MTD ITSA bookkeeping software that suits your business size and needs.
Keep records up to date: Enter income and expenses regularly to avoid backlog.
Understand allowable expenses: Know what you can claim to reduce your tax bill.
Seek professional advice: Accountants familiar with MTD ITSA can help you set up systems correctly.
Final Thoughts
MTD ITSA represents a significant change for sole traders and landlords with income over £20,000. It requires digital record-keeping and quarterly reporting, starting from April 2026. Adopting MTD ITSA bookkeeping practices early will help you stay compliant and manage your tax affairs more efficiently.
If you have not yet started using compatible software or are unsure about your obligations, now is the time to act. Staying informed and organised will make the transition smoother and reduce the risk of penalties.