Making Tax Digital for Income Tax: A Plain English Guide for Sole Traders

If you're a sole trader or landlord in the UK, you've probably heard the phrase "Making Tax Digital for Income Tax" — and possibly filed it under things to worry about later. The good news is that it's not as complicated as it sounds. The less good news is that it almost certainly affects you, and if it hasn't already, it will do soon.

Here's everything you need to know, without the HMRC jargon.

What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax Self Assessment — usually shortened to MTD ITSA — is HMRC's shift from annual Self Assessment tax returns to quarterly digital reporting. Instead of filing one return at the end of the tax year, you'll submit a summary of your income and expenses to HMRC four times a year, plus a final end-of-year declaration.

The aim is to reduce errors, keep tax records more current, and eventually do away with the traditional Self Assessment return altogether.

Who does MTD ITSA apply to?

MTD ITSA is being rolled out in phases based on your total gross income from self-employment and property:

• From April 2026 — sole traders and landlords with combined income over £50,000 must comply

• From April 2027 — the threshold drops to £30,000

• From April 2028 — the threshold drops further to £20,000

If you're not sure which phase applies to you, your total gross income — not profit — is what counts. So if you're turning over £55,000 but your costs bring your profit down significantly, you're still in scope from April 2026.

Partnerships are expected to join at a later date, which HMRC has yet to confirm.

What do you actually have to do?

Under MTD ITSA you'll need to:

1. Use compatible software — spreadsheets alone won't be enough. You'll need HMRC-recognised software that can submit quarterly updates digitally. Most major accounting packages (QuickBooks, Xero, FreeAgent and others) are already MTD ITSA compatible.

2. Keep digital records — income and expenses need to be recorded digitally throughout the year, not summarised at the end.

3. Submit quarterly updates — four times per tax year (roughly every three months), you'll send a summary of your income and expenses to HMRC. These aren't tax returns — they're summaries. No tax is due at the point of submission.

4. File an end-of-year declaration — once a year, you'll finalise your figures, add any adjustments (such as pension contributions or allowances), and confirm your tax position. This replaces the traditional Self Assessment return.

Does it change how much tax I pay?

No. MTD ITSA changes how and when you report your income — not the amount of tax you pay. Your tax liability is still calculated in the same way, based on your profits after allowable expenses.

What if I miss the deadline?

HMRC introduced a new penalty system alongside MTD ITSA. Points are issued for late submissions, and once you reach a certain number of points within a period, a financial penalty applies. It's a change from the old flat £100 fine system, and it's designed to be more lenient for occasional slip-ups but firmer on persistent non-compliance.

Can I still use my accountant or bookkeeper?

Yes — in fact, working with a bookkeeper or accountant becomes more valuable under MTD ITSA, not less. They can manage your quarterly submissions on your behalf, make sure your records are in order throughout the year, and handle your end-of-year declaration. Many clients find that quarterly touchpoints actually give them better visibility of their tax position throughout the year, rather than an unwelcome surprise in January.

What should I do right now?

If your income is over £50,000, you should already be compliant or actively getting there. If you're between £20,000 and £50,000, now is the time to get your records and software in order before the next phase hits.

A few practical steps:

• Check whether your income falls within the current or upcoming thresholds

• Make sure you're using MTD-compatible software

• If you're not already working with a bookkeeper, consider getting one — quarterly reporting with disorganised records is a headache

• Don't wait until the deadline — getting set up takes time

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At Evolve Business, we help sole traders and landlords get MTD ITSA-ready. We can manage your quarterly submissions, keep your records in order throughout the year, and make sure your end-of-year declaration is accurate and on time. Get in touch to find out more, or use our MTD ITSA estimator to check whether you'll be in scope.