February 22, 2026
By Merranti

MTD for Income Tax: What to Expect Ahead of April 2026

After a long and frequently delayed gestation period, Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is now scheduled to commence from 6 April 2026 for the first tranche of taxpayers.

The changes are extensive and represent the most significant reform to personal tax administration since the introduction of self-assessment in the 1990s. While much of the attention has focused on quarterly submissions, MTD ITSA goes far beyond filing frequency and fundamentally alters how affected taxpayers must keep records, use software, and interact with HMRC.

This article outlines the current implementation timetable, who will be affected, available easements and exemptions, and the practical implications for taxpayers and advisers.

What is MTD for Income Tax?

MTD ITSA requires affected taxpayers to:

keep their business and property records in digital form,
use HMRC-compatible software to maintain those records, and
submit quarterly updates of income and expenses to HMRC, followed by an end-of-period statement and final declaration.

Although HMRC has consistently stated that quarterly updates are not “tax returns”, they are nevertheless statutory submissions required under legislation, with penalties for failure to comply.

The stated objective is to ensure that records are kept up to date throughout the year, rather than prepared retrospectively once a year. In practice, MTD ITSA also gives HMRC far greater visibility over taxpayers’ affairs on an ongoing basis.

Implementation timetable

The rollout of MTD ITSA is being phased in based on gross income levels, measured across all relevant sources.

The current timetable is as follows:

From 6 April 2026
Sole traders and landlords with combined gross business and property income exceeding £50,000 per year.
From 6 April 2027
Sole traders and landlords with combined gross income exceeding £30,000 per year.
From 6 April 2028
Sole traders and landlords with combined gross income exceeding £20,000 per year (announced in March 2025).

These thresholds apply to total gross income, not profit, and are calculated across:

all self-employments, and
all UK and overseas property income (subject to certain exceptions).

How HMRC decides who is in scope

The test is based on the most recent tax return information available to HMRC at the point of mandation.

For April 2026:

HMRC will typically look at the figures reported on the 2024/25 tax return, which must be filed by 31 January 2026.
The relevant test uses aggregate income figures drawn from specific boxes on the return.

This means that many taxpayers will already be “locked in” to MTD ITSA before they realise it, unless proactive planning is undertaken well in advance.

Once in, it is very difficult to get out

One of the most significant features of MTD ITSA is how difficult it is to leave the regime once caught.

Key points include:

The income test applies across combined sources, so multiple small businesses can trigger entry.
Switching from one self-employment to another, or from trading to letting, will rarely help.
A taxpayer must fall below the threshold for three consecutive tax years before exiting the regime.

Given that the threshold will reduce to £20,000 from April 2028, the most likely way of leaving MTD ITSA in practice will be cessation of the business or property activity altogether.

Partnerships and companies

Partnerships

There is currently no confirmed start date for MTD ITSA for partnerships. Early attempts to include partnerships encountered significant practical difficulties, particularly around variable profit-sharing arrangements.

However:

Individual partners may still be required to comply with MTD ITSA if they have non-partnership self-employed or property income above the relevant threshold.

Companies

HMRC’s Transformation Roadmap, published on 21 July 2025, confirmed that MTD for corporation tax is no longer a priority.

This reflects, in part, the fact that:

Close company dividend details are now reportable through ITSA returns from 2025/26 onwards, reducing the immediate need for a separate digital regime for companies.

Record-keeping and quarterly updates

The most visible change under MTD ITSA is the requirement to submit quarterly updates.

Originally, HMRC envisaged detailed submissions with auditable corrections. However, following significant pushback, a number of easements have been introduced.

Key points now include:

Quarterly updates may be submitted on a cumulative year-to-date basis.
Earlier quarterly figures do not need to be separately amended.
The purpose of the update is primarily to demonstrate that digital records are being kept.

Three-line accounts

Taxpayers currently eligible to submit three-line accounts (generally where turnover is below the VAT registration threshold) may continue to do so for MTD quarterly updates.

However:

residential finance costs must still be identified separately for landlords.

Jointly owned properties

Recognising practical difficulties, landlords with jointly owned properties may report:

only their share of total income for quarterly updates, rather than
a full expense analysis,

but only in respect of jointly held properties.

Exemptions and exclusions

Certain categories of taxpayers are excluded from MTD ITSA, either permanently or for the time being.

These include:

Lloyd’s names,
partners (until partnership mandation is introduced),
foster carers (in respect of foster care income),
trustees and personal representatives,
individuals without a National Insurance number.

In addition, some taxpayers are deferred until at least April 2027, including:

non-resident landlords and others required to complete SA109 supplementary pages.

Digital exclusion

Perhaps the most practically important exemption is for digital exclusion.

A taxpayer may be exempt from MTD ITSA if they cannot reasonably use digital tools due to:

age,
disability,
remoteness of location,
or religious grounds.

This exemption:

must be applied for, and
cannot be claimed online.

HMRC will expect evidence, and the exemption is not automatic.

New penalty regime

MTD ITSA introduces a points-based penalty system for late submissions, including quarterly updates.

Under this system:

Each late submission attracts a point;
once a threshold is reached, a monetary penalty is triggered. Points expire only after a period of sustained compliance.

A separate penalty regime applies to late payment of tax, operating alongside the existing interest rules.

What this means in practice

For affected taxpayers, MTD ITSA will:

increase compliance frequency,
require the use of commercial software,
increase reliance on real-time bookkeeping, and
significantly change the relationship between taxpayers, agents and HMRC.

For many small businesses and landlords who have historically prepared accounts annually, this represents a substantial cultural and administrative shift.

Key takeaway

MTD for Income Tax is no longer a distant proposal. From April 2026, it becomes a reality for tens of thousands of sole traders and landlords, with the scope widening rapidly thereafter.

Taxpayers who may be affected should:

identify whether they will fall within scope,
review their record-keeping processes,
consider software options early, and
Seek advice well in advance of mandation.

How we can help

If you are a sole trader or landlord and may be affected by MTD ITSA from April 2026 or later, we can help you assess whether you will fall within scope, apply for exemptions where appropriate, and prepare your systems and processes for the new requirements. Please contact us to discuss your position.