MTD ITSA Explained: What Sole Traders Earning Over £50,000 Must Do Before April 2026

The clock is ticking. From 6 April 2026, sole traders and landlords with gross income over £50,000 must comply with Making Tax Digital for Income Tax Self Assessment (MTD ITSA). If that includes you, this guide explains precisely what changes, what you must do, and how to prepare in the time you have left.

What Is MTD ITSA?

MTD ITSA stands for Making Tax Digital for Income Tax Self Assessment. It is HMRC's programme to digitise how self-employed people and landlords report their income. Instead of filing a single annual tax return, you will need to:

1. Keep digital records of all business income and expenses
2. Submit quarterly updates to HMRC using compatible software
3. File a final declaration after the tax year ends

This is not optional. If your gross self-employment or property income exceeds £50,000, you are legally required to comply from 6 April 2026.

Why £50,000 Matters

The £50,000 figure is your gross income, not your profit. This is a crucial distinction that catches many sole traders off guard.

Gross income is your total business turnover before deducting any expenses. If you are a freelance consultant billing £60,000 per year but your expenses (office rent, travel, equipment, insurance) bring your profit down to £38,000, you still need to comply because your gross income exceeds the threshold.

If you have multiple income streams — say £30,000 from self-employment and £25,000 from rental property — you combine them. The total of £55,000 puts you above the threshold.

HMRC uses the figures from your most recent Self Assessment tax return to determine whether you exceed the threshold. Check boxes 15 to 20 on your return — the self-employment and property income figures.

The Timeline You Need to Know

Here is the critical timeline for the first group of MTD ITSA taxpayers:

• Now to 5 April 2026: Set up compatible software, connect your bank accounts, and familiarise yourself with the system
• 6 April 2026: MTD ITSA goes live. Start keeping digital records from this date
• 7 August 2026: Deadline for your first quarterly update (covering 6 April – 5 July 2026)
• 7 November 2026: Second quarterly update (6 July – 5 October 2026)
• 7 February 2027: Third quarterly update (6 October 2026 – 5 January 2027)
• 7 May 2027: Fourth quarterly update (6 January – 5 April 2027)
• 31 January 2028: Final declaration for the 2026/27 tax year

What You Submit Each Quarter

Each quarterly update contains a summary of your business income and expenses for that three-month period. You do not need to submit individual invoices or receipts — just the totals by category.

A typical quarterly update includes:

• Total income received during the quarter
• Expenses by category: cost of goods, travel, office costs, phone and internet, professional fees, and other standard categories
• Any adjustments for items like personal use percentages

Your MTD software compiles this from your digital records and submits it to HMRC via their API. With Accounted, this is entirely automatic — you review the figures, confirm they look right, and the software handles the submission.

What Changes from Self Assessment

If you have been filing Self Assessment for years, here is what actually changes:

Frequency: Instead of one annual return, you submit four quarterly updates plus a final declaration. That is five submissions per year instead of one.

Record keeping: Your records must be digital. Paper ledgers, manual spreadsheets without digital links, and shoebox accounting are no longer acceptable.

Software requirement: You must use HMRC-recognised MTD-compatible software. You cannot simply log into HMRC's website and type in your figures.

Ongoing visibility: HMRC will have a rolling picture of your income throughout the year, not just a snapshot after the year ends.

What stays the same: The tax calculations themselves do not change. Income Tax rates, National Insurance thresholds, allowable expenses, and capital allowances all remain exactly as they are. MTD is about how you report, not what you pay.

The Five Things You Must Do Before April 2026

1. Choose MTD-Compatible Software

Not all accounting software is MTD-compatible. You need software that appears on HMRC's official list and can submit quarterly updates via their API.

When evaluating options, prioritise:

• Automatic bank feeds that import your transactions without manual entry
• AI-powered categorisation to reduce the time you spend sorting expenses
• Automated quarterly submissions so you do not need to remember deadlines
• Receipt capture through your phone or messaging apps
• Real-time tax estimates so you always know where you stand

Accounted ticks every box. It is built specifically for UK sole traders, with Penny, our AI bookkeeper, handling categorisation and submissions automatically.

2. Connect Your Bank Accounts

Bank feeds are the backbone of efficient MTD compliance. When your business bank account is connected to your software, transactions are imported automatically — no manual data entry, no risk of forgetting something.

Most MTD software uses Open Banking to connect securely to all major UK banks. The connection is read-only — the software can see your transactions but cannot move money.

3. Set Up Your Categories

Your software needs to categorise each transaction into the correct expense type. Spend time at the start to set up rules and review AI suggestions, and the system will learn your patterns over time.

Common categories include:

• Cost of goods sold
• Advertising and marketing
• Travel and subsistence
• Vehicle and mileage costs
• Office supplies and equipment
• Phone, internet, and software subscriptions
• Professional fees (accountant, legal)
• Insurance
• Rent and utilities (including home office proportion)

4. Sign Up on GOV.UK

You must formally sign up for MTD ITSA through the Government Gateway. This links your software to your HMRC account and authorises it to submit on your behalf.

If you have an agent (accountant or bookkeeper), they can sign up on your behalf through their agent services account.

5. Get Into a Routine

MTD works best when you keep on top of your records regularly — ideally weekly. Leaving everything to the end of the quarter defeats the purpose and makes the process stressful.

Set aside 15 minutes each week to:

• Review imported bank transactions
• Confirm or correct AI categorisations
• Snap photos of any paper receipts
• Check your running tax estimate

What Happens If You Do Not Comply

HMRC is introducing a new points-based penalty system:

• Late submission: Each missed deadline earns a penalty point. After accumulating 4 points, every subsequent late submission triggers a £200 fine.
• Late payment: Interest is charged from day one. A 2% penalty applies after 15 days late, with additional penalties at 30 days and 6 months.
• Failure to keep digital records: HMRC can impose penalties for not maintaining proper digital records as required by MTD.

Points can be reset by filing on time for a sustained period, but it is far easier to avoid accumulating them in the first place.

Do You Need an Accountant?

MTD does not change whether you need an accountant — that depends on the complexity of your tax affairs. But it does change how you work with one.

Under MTD, your accountant can:

• Set up and manage your software
• Review your quarterly updates before submission
• Handle the final declaration
• Advise on tax planning based on your real-time figures

What your accountant cannot do is create digital records from paper receipts after the fact. You need to maintain digital records throughout the year, either by using software yourself or by having your bookkeeper do it regularly.

If you use Accounted, your accountant can access your account through our accountant portal, review your records, and manage submissions without you needing to send spreadsheets or documents back and forth.

Voluntary Early Sign-Up

If your income is below £50,000 but above £30,000, you will need to comply from April 2027. However, you can voluntarily sign up from April 2026 to get a head start.

There are good reasons to consider early sign-up:

• You get comfortable with the system before it becomes mandatory
• You benefit from quarterly tax estimates throughout the year
• You avoid the rush when the threshold drops
• Your records are automatically better organised

Common Questions

Can I still use cash basis accounting? Yes. MTD does not change your choice of accounting method. Cash basis remains the default for sole traders with turnover under £150,000.

What about my property income? If your combined self-employment and property income exceeds the threshold, all of it must be reported through MTD. You submit quarterly updates covering all income sources.

I have an accountant who files for me — does anything change? Your accountant can still handle submissions, but the underlying records must be kept digitally throughout the year. You cannot wait until year-end to organise your paperwork.

What if my income drops below £50,000? Once you are in MTD, you remain in it unless your income drops below £30,000 for the tax year. Check GOV.UK for the latest guidance on exiting MTD.

Accounted handles your bookkeeping, tax estimates, and MTD submissions automatically. Start your free trial — no credit card required.