Who Needs to Comply with MTD ITSA and When?
Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is being introduced in stages, targeting specific groups of taxpayers based on their income levels. While the concept of MTD may seem universally applicable at first glance, the government has adopted a phased rollout to allow both taxpayers and HMRC to adjust and refine systems before full-scale implementation. This article outlines who must comply, when the rules take effect, and how income thresholds are applied.
Key Groups Affected
The MTD ITSA requirements apply to individuals who earn income from either or both of the following sources:
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Self-employment (as a sole trader)
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Property income (including both UK and overseas properties)
The rules apply regardless of whether the individual is running a full-time business or earning income on the side—for example, through Airbnb, buy-to-let property, or freelance work.
Crucially, MTD ITSA does not currently apply to:
- Partnerships
- Limited companies
- Directors receiving income through PAYE or dividends only
- People whose income is below the relevant thresholds
- Those already exempted from digital reporting for legitimate reasons (e.g., due to age, disability, or remoteness)
However, these exclusions are likely to be temporary. Partnerships, in particular, are expected to be brought into the regime later under a separate timeline, and limited companies will eventually come under Making Tax Digital for Corporation Tax. As such, it is wise for all business structures to start preparing for future digital compliance.
Income Thresholds: Who Is Mandated and When?
The threshold for entering MTD ITSA is based not on profits, but on gross income. That is, the total income before any allowable expenses or deductions.
The rollout schedule is as follows:
- From 6 April 2026: All individuals with a combined gross income from self-employment and property over £50,000 per year will be required to comply with MTD ITSA.
- From 6 April 2027: The threshold reduces to include individuals with a combined gross income between £30,000 and £50,000.
- From April 2028 (subject to final legislation): The threshold may further reduce to £20,000, capturing a wider pool of small businesses and landlords.
- Below £20,000: Individuals earning less than £20,000 from combined self-employment and property income are not currently mandated to join MTD ITSA. However, HMRC has indicated its interest in exploring digitalisation for this group in the future.
It’s important to note that the thresholds relate to the combined income from all qualifying activities. If an individual earns £25,000 from self-employment and £30,000 from property, their total qualifying income is £55,000—so they fall above the threshold for 2026 and must comply from that date.
How is Income Assessed?
One of the most critical aspects of the MTD ITSA compliance rules is how and when HMRC assesses a taxpayer’s income to determine whether they need to join.
HMRC evaluates qualifying income based on tax returns submitted two years before the relevant mandation date. For example:
- A taxpayer’s 2024/25 tax return (submitted in January 2026) will determine whether they must enter MTD ITSA in April 2026.
- A taxpayer’s 2025/26 tax return will determine their eligibility for mandation in April 2027, and so on.
This lead time is intended to give taxpayers adequate notice and time to prepare. HMRC will write to affected individuals whose returns suggest that their income crosses the relevant threshold, but it remains the taxpayer’s responsibility to register and ensure compliance.
Examples
Let’s look at a few practical scenarios:
Scenario 1 – Maria is a freelance graphic designer who earns £40,000 per year and also earns £15,000 from letting out a property. Her combined income is £55,000. Since this exceeds the £50,000 threshold, she will be mandated into MTD ITSA from April 2026, assuming this income level is reflected in her 2024/25 tax return.
Scenario 2 – James earns £27,000 from his self-employment as a plumber and £6,000 from renting out a garage. His combined gross income is £33,000. He will not be required to join MTD ITSA until April 2027. Provided this is reflected in his 2025/26 tax return.
Scenario 3 – Sophie earns £14,000 from part-time freelance work and £5,000 in rental income from a flat she owns. Her total qualifying income is £19,000. She is under the £20,000 threshold and, as it stands, is not currently required to join MTD ITSA.
These examples underline the importance of monitoring income levels annually. Even a modest increase in rent or an extra freelance contract could move someone into the MTD ITSA regime.
Responsibility Lies with the Taxpayer
While HMRC will issue notifications to individuals who appear to be within scope, these letters do not constitute automatic enrolment. Individuals must proactively register for MTD ITSA through their Government Gateway account or via an accountant or tax agent using agent services. Waiting for HMRC to make the first move is not a reliable strategy, and non-compliance could result in penalties when the regime is fully operational.
If your income is near the threshold, it’s advisable to monitor it closely each tax year and seek professional advice to understand your obligations.
What About Jointly Owned Property?
Income from jointly owned property counts in full towards each co-owner’s qualifying income. For instance, if you and your partner each receive £15,000 in rental income from a jointly owned property, both amounts count independently. That means the individual threshold still applies—your £15,000 share could combine with other business income and push you over the threshold, even if your share of the rental income is modest.
Should You Join Early?
Even if you are not yet mandated to join, HMRC offers the option to register voluntarily and take part in the MTD ITSA pilot scheme. This can be beneficial for several reasons:
- You have more time to get used to the system before penalties apply.
- You can begin refining your digital processes now, which may improve your overall financial management.
- Early adoption avoids last-minute disruption when the mandatory deadline arrives.
This is particularly valuable for those already using MTD-compliant software for VAT or other purposes. You may be able to integrate MTD ITSA into your existing systems with minimal disruption.
Conclusion
MTD ITSA is being introduced gradually, but its reach will expand significantly over the next few years. From April 2026, it will affect all individuals with gross self-employment and property income over £50,000. This scope widens to those earning over £30,000 in April 2027, with a possible future extension to £20,000 in 2028.
If you are a sole trader, a landlord, or both. It is essential to understand your qualifying income and the timelines involved. Although HMRC will provide notices, the responsibility to monitor income, register, and comply remains with the individual taxpayer. Preparing early, adopting digital tools, and seeking professional support where needed will ensure a smoother transition into the MTD regime and avoid last-minute challenges when your mandate date arrives.
