Tax compliance guide: 2026/27

Making Tax Digital for Income Tax: 6 April 2026 Start

Phased mandation schedule (£50,000 from April 2026, £30,000 from April 2027, £20,000 from April 2028), how the combined-income threshold catches consultant-plus-landlord profiles, the four quarterly updates plus the Final Declaration that replaces your annual SA return, the new points-based penalty regime, compatible software selection, and the five-step preparation roadmap for the year before mandation.

Overview - the biggest UK personal-tax compliance change since Self Assessment

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is the single largest change to UK personal-tax compliance since the introduction of Self Assessment in 1996/97. From 6 April 2026 it becomes mandatory for self-employed sole traders and landlords whose combined gross income from self-employment plus property exceeds £50,000 a year. The threshold drops to £30,000 on 6 April 2027 and to £20,000 on 6 April 2028 - the third phase was confirmed at the Autumn Budget 2024 alongside the rest of the phased schedule. Around 2.65 million taxpayers will eventually be inside MTD ITSA across the three phases per HMRC impact assessment.

MTD ITSA does not change the tax you pay - the Income Tax bands, Class 4 NIC rates, Personal Allowance, dividend rates, savings allowance and reliefs remain the same. What changes is the compliance cadence and infrastructure. The annual Self Assessment return is replaced by five submissions: four quarterly updates plus a Final Declaration. Quarterly updates capture cumulative income and expense totals from MTD-compatible software using HMRC-prescribed expense categories. The Final Declaration, due 31 January following the end of the tax year, aggregates the quarterly updates with year-end adjustments and other income (employment, pensions, dividends) to produce the final tax position - this is the legal return that replaces the SA form for MTD-mandated taxpayers.

The practical impact on a typical small business or landlord is threefold. First, software cost: paper records and spreadsheet-only workflow no longer satisfy compliance; expect £100 to £600 / year for compatible software depending on business complexity. Second, accountant fees: quarterly cadence pushes typical accountancy fees up from the £400 to £900 / year range for annual SA preparation to the £600 to £2,400 / year range for combined quarterly compliance plus Final Declaration. Third, operational discipline: weekly or fortnightly bookkeeping becomes practically essential rather than an annual end-of-year scramble - the four quarterly deadlines force a steady cadence that many sole traders and landlords have historically avoided. The HMRC pitch is that the discipline reduces year-end error and improves cash-flow visibility; the practitioner complaint is that the burden falls heavily on the smallest-scale taxpayers in the £20,000 to £50,000 band where the original threshold-setting analysis may have understated proportional cost.

Mandation schedule - the three phases

MTD ITSA rolls out in three phases over 6 April 2026 to 6 April 2028, capturing taxpayers progressively as the gross-income threshold drops. The threshold tests combined self-employment plus property turnover against the 2024/25 (or relevant prior-year) SA return - so a taxpayer who is in scope for the £50,000 phase remains in scope at the £30,000 and £20,000 phases unless they exit self-employment / property income entirely.

Date	Threshold	Scope	Notes
6 April 2026	£50,000+	Self-employed and landlords (combined turnover)	First phase. Around 780,000 taxpayers per HMRC impact assessment. Mandatory; cannot opt out except in narrow exempt categories.
6 April 2027	£30,000+	Self-employed and landlords (combined turnover)	Second phase. Brings in around 970,000 additional taxpayers. Combined £30k+ from self-employment plus rental triggers mandation even if neither source alone exceeds the threshold.
6 April 2028	£20,000+	Self-employed and landlords (combined turnover)	Third phase (announced Autumn Budget 2024). Sweeps in another ~900,000 small sole traders and accidental landlords. The £20k figure is gross turnover not net profit - a part-time consultant on £25k of fee income is in scope even with £24k of expenses.
TBC (after 2028)	Partnerships, trusts and estates	Special legal forms	Partnerships were originally scheduled for April 2025 but have been deferred indefinitely. Trusts and estates excluded from the current schedule. Companies remain on Corporation Tax MTD (separate timetable).

Combined-income trap. The £50,000 threshold is combined gross income from self-employment plus property rental - not the standalone figure for either source. A consultant with £40,000 of self-employed fees plus £15,000 of rental income is in scope from April 2026 even though neither alone would trigger mandation. This catches a meaningful sub-population of "accidental landlord" professionals who have a buy-to-let alongside a primary business or job and would not historically have associated themselves with full MTD discipline.

Pure-employment income excluded. Employees on PAYE only with no self-employment or rental income are not in MTD ITSA scope under the current schedule. Pension income, dividend income, savings interest above PSA, and most other investment income similarly do not trigger mandation. The scope is specifically self-employment Schedule D Case I/II profits plus property business profits.

The four quarterly updates plus Final Declaration

MTD ITSA replaces the single annual Self Assessment return with five separate submissions per business income source. The four quarterly updates capture cumulative income and expense totals throughout the tax year; the Final Declaration on 31 January after year-end is the legal return that calculates Income Tax and Class 4 NIC liability. Standard tax-year quarters are below; you can alternatively elect calendar-quarter periods (30 June / 30 Sept / 31 Dec / 31 March year-ends) which most modern accounting software defaults to.

Quarter	Period	Submission deadline	Notes
Q1	6 April - 5 July	7 August	Covers the first three months of the tax year. The submission contains cumulative income and expenses since 6 April.
Q2	6 July - 5 October	7 November	Covers months 4 to 6. The submission shows cumulative figures for the half-year-to-date - HMRC computes the period change automatically.
Q3	6 October - 5 January	7 February	Covers months 7 to 9. Submission must be made even if no income or expenses fall in the quarter - a nil return is required.
Q4	6 January - 5 April	7 May	Covers months 10 to 12 of the tax year. The Q4 submission closes out the cumulative position for the year. The Final Declaration (replacing the SA return) is separately due by 31 January following the end of the tax year.

What goes into a quarterly update. The submission contains cumulative year-to-date income and expense totals categorised against the HMRC-prescribed schema (broadly aligned with the existing SA self-employment supplementary pages: turnover, cost of goods sold, payments to subcontractors, wages and salaries, motor expenses, travel and subsistence, rent rates power and insurance, repairs and renewals, professional fees, interest on loans, irrecoverable debts, accountancy and legal, depreciation, other expenses). Quarterly updates are data feeds - they do not calculate Income Tax or NIC liability. HMRC may issue an indicative tax estimate after each quarterly update but this is informational only.

Separate streams per business. Each self-employment business and each property rental business is a separate income source requiring its own four-quarter cycle. A taxpayer with one self-employed consultancy business and one rental property files eight quarterly updates per year (4 + 4) plus one Final Declaration. The Final Declaration aggregates all income sources into one return. This is the structural reason MTD ITSA roughly doubles the compliance burden for combined sole-trader-plus-landlord profiles relative to the current single SA return.

The Final Declaration. Submitted by 31 January following the end of the tax year - the same deadline as the existing SA return. The Final Declaration includes year-end adjustments (capital allowances, stock movements, accruals and prepayments), other income (employment via PAYE, pensions, dividends, savings interest above PSA, rental from properties below the £1,000 property allowance), reliefs (pension contributions outside salary sacrifice, Gift Aid, EIS / SEIS, Marriage Allowance), and any allowable losses. This is the document that calculates the final Income Tax + Class 4 NIC liability. Tax is payable as currently on 31 January (balance for the prior year) and 31 July (payment on account for the current year).

Points-based penalty regime

MTD ITSA brings the points-based penalty regime that has applied to VAT since January 2023. Each late submission earns a penalty point; once you reach the threshold for your submission frequency (4 points for quarterly filers) the next late submission triggers a £200 financial penalty. Each subsequent late submission triggers a further £200 until you achieve a 24-month period of full compliance to reset the points. The system is intentionally lenient on first-time and infrequent late submissions but progressively painful for habitual late filers.

Trigger	Consequence	Notes
1st late quarterly update	1 penalty point. No financial penalty.	Points accrue cumulatively. The threshold for a £200 penalty depends on submission frequency.
2nd-3rd late quarterly update	1 point each. No financial penalty yet.	Points reset after a 24-month clean period of full compliance.
4th late quarterly update (4-point threshold)	£200 penalty + 1 point.	Each subsequent late submission triggers a further £200 penalty until the points clock has been reset by 24 months of clean compliance.
Late Final Declaration (31 January)	£100 initial + daily penalties + tax-geared.	Same regime as current SA late-return penalties: £100 fixed, plus £10 / day after 3 months, plus tax-geared after 6 and 12 months.
Late tax payment (31 January)	New 2 / 3 / 4% schedule.	Late-payment penalty regime under FA 2021 sch 26: 2% at day 15, further 2% at day 30, then 4% / year daily from day 31. Replaces the old 5%-at-30-days schedule.

Late Final Declaration retains the current SA late-return regime: £100 initial fixed penalty, £10 / day daily penalty after 3 months, tax-geared penalties at 6 and 12 months. The points-based regime applies to the quarterly updates not the Final Declaration.

Late tax payment uses the FA 2021 schedule 26 regime: 2% at day 15 (of the overdue tax outstanding), further 2% at day 30, then 4% annualised daily charge accruing from day 31. This replaces the historical 5%-at-day-30 schedule and is less punitive on short delays but more expensive on longer delays. Standard late-payment interest also applies on top, at the HMRC official rate (currently 7.75%).

Choosing MTD-compatible software

Paper records and spreadsheet-only workflow do not satisfy MTD ITSA. HMRC maintains a list of compatible software at gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax. The list covers full-feature cloud accounting packages (Xero, QuickBooks, FreeAgent, Sage Accounting), simpler sole-trader-focused options (Crunch, Pandle, Cash Tracker), and "bridging software" that lets you keep records in a spreadsheet with the bridging tool handling the API call to HMRC. The HMRC free option does not exist for ITSA (unlike VAT, where the gov.uk service handled small submissions for free up to certain thresholds). Expect annual software cost of £100 to £600 per business depending on complexity.

The main full-feature options:

Xero (£15-£60 / month). Market leader for small-business accounting in the UK, full bank-feed integration, expense capture via Hubdoc (bundled), comprehensive accountant ecosystem.
QuickBooks Self-Employed and QuickBooks Online (£10-£50 / month). QB Self-Employed is the simpler entry-level product for sole traders; QB Online is the full-feature equivalent for growing businesses with employees.
FreeAgent (free with NatWest / Mettle / Royal Bank of Scotland business banking; otherwise £29 / month). Strong UK focus, built specifically for UK sole traders and contractors, includes IR35 deemed-payment computation. NatWest business bundle makes it the default zero-cost option for many small sole traders.
Sage Accounting (£14-£45 / month). Strong audit trail and accountant integration, common in trades and construction sub-sectors.
FreshBooks, Crunch, Pandle, Cash Tracker. Mid-market and smaller-scale options with varying focus on invoicing, project tracking and IR35.

Bridging software options include Easy MTD ITSA, BTC Software, and several specialist tools. The bridging route is attractive for taxpayers with existing spreadsheet workflows who do not want to migrate to a full cloud accounting package, but it does require manual upload of cumulative totals each quarter and does not deliver the bank-feed automation or expense-capture features of the full-feature options. Many practitioners recommend full-feature software for any taxpayer with more than ~50 transactions a month and bridging software for low-transaction landlords or part-time consultants.

Five-step preparation roadmap

The first MTD ITSA year starts on 6 April 2026. Practitioners broadly recommend the following preparation timeline for taxpayers in scope for the first phase:

October to December 2025: confirm in-scope status. Compute combined gross self-employed and rental income for 2024/25 (the year HMRC uses to test the threshold). If combined turnover is >£50,000 you are in scope from 6 April 2026. If between £30,000 and £50,000 you are in scope from 6 April 2027.
January to March 2026: choose and set up software. Sign up to a compatible package at least one month before the start date. Migrate from spreadsheets, set up bank-feed integration with your business current account, configure expense categories against the HMRC-prescribed schema, and run a parallel test month if you can.
March 2026: sign up via the HMRC MTD ITSA Government Gateway. Separate registration step from existing SA registration. Your software will then connect via API to HMRC. Allow 2-3 weeks for the registration to clear.
April 2026 onwards: establish weekly bookkeeping cadence. The Q1 deadline is 7 August 2026 - a steady weekly discipline of categorising transactions and capturing receipts is materially less painful than a quarter-end scramble.
July 2026: first quarterly submission. Use Q1 as the learning quarter - quarterly updates are forgiving on small errors (corrections can be made in subsequent quarters or in the Final Declaration). Most accountants will offer a quarterly review service priced at £150 to £600 per business per year.

Practitioners with combined sole-trader and landlord scope should budget roughly double the software and accountancy costs because each business income source requires its own quarterly stream. Speak to your accountant about the cadence change well in advance - capacity for quarterly review services is constrained around the four submission deadlines.

Frequently asked questions

When does MTD for Income Tax start and who is affected?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) becomes mandatory on 6 April 2026 for self-employed sole traders and landlords whose combined gross income from self-employment plus property exceeds £50,000 a year (assessed against the 2024/25 SA return). The threshold drops to £30,000 on 6 April 2027 and to £20,000 on 6 April 2028 - the £20k figure was confirmed at the Autumn Budget 2024 along with the rest of the phased schedule. Around 2.65 million taxpayers will eventually be inside MTD ITSA across the three phases per HMRC impact assessment. Companies (Corporation Tax), partnerships, trusts, estates and most-other-income-only taxpayers are not in the current schedule.

How is the £50,000 threshold calculated?

The threshold tests combined gross income (turnover, NOT profit) from self-employment plus property rental for the 2024/25 tax year as filed on the SA return. A consultant with £40,000 of self-employed fees plus £15,000 of rental income from a buy-to-let is mandated because £55,000 combined exceeds the threshold, even though neither source alone would. A landlord with £35,000 of gross rental income and no other self-employment is below the threshold for the April 2026 start but enters MTD on 6 April 2027 when the threshold drops to £30,000. Pure-employment income, dividend income, savings interest and pension income do NOT count towards the threshold and are not in MTD scope under the current schedule.

What do I have to submit and when?

Five submissions per tax year per business or property income source. Four quarterly updates covering the standard tax-year quarters (6 April-5 July, 6 July-5 October, 6 October-5 January, 6 January-5 April), each due by the 7th of the second month after the quarter ends (so 7 August / 7 November / 7 February / 7 May). The quarterly updates contain cumulative income and expense totals from MTD-compatible software using categorisation by HMRC-prescribed expense categories. The fifth submission is the Final Declaration, due 31 January following the end of the tax year - this replaces the annual Self Assessment return for MTD-mandated taxpayers and includes year-end adjustments, accruals, capital allowances, and reliefs that fall outside the quarterly process.

Do I need accounting software to comply?

Yes - paper records and spreadsheet-only workflow do not satisfy MTD ITSA. HMRC maintains a list of compatible software at gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax. The main options are Xero (£15-£60 / month), QuickBooks Self-Employed and QuickBooks Online (£10-£50), FreeAgent (free with NatWest / Mettle / Royal Bank business banking, otherwise £29 / month), Sage Accounting (£14-£45), Crunch, Pandle, Cash Tracker, Easy MTD ITSA. Many also offer "bridging software" that lets you keep records in a spreadsheet and the bridging software handles the API call to HMRC. The HMRC free option does not exist for ITSA (unlike VAT where the gov.uk free service handled small submissions). Expect annual software cost of £100-£600 per business.

How does MTD ITSA differ from the current Self Assessment return?

Three structural differences. First, quarterly cadence: the annual single SA return is replaced by four quarterly updates plus a Final Declaration. The quarterly updates capture cumulative income and expense totals - they are not tax computations but data-feed submissions to HMRC. Second, digital record-keeping: you must keep digital records of each business transaction (income receipt, expense payment) categorised against HMRC schema. Paper receipts kept in a shoebox no longer satisfy compliance, although HMRC permits digital capture via photo or PDF. Third, software-mediated submission: data flows from your records to HMRC via API call from compatible software, not via the gov.uk Government Gateway form. The Final Declaration is similar to the old SA return in scope (year-end adjustments, capital allowances, reliefs) but submitted through the software rather than the gov.uk SA service.

What are the penalties for late submissions under MTD ITSA?

New points-based regime extends from VAT to ITSA at the same date as MTD ITSA mandation. Each late quarterly update earns 1 penalty point. Once you reach 4 points (for quarterly filers) the next late submission triggers a £200 penalty. Each subsequent late submission triggers a further £200 until you achieve a 24-month clean compliance period to reset the points. Late Final Declaration on 31 January follows the existing SA late-return regime (£100 initial, £10 / day after 3 months, tax-geared at 6 and 12 months). Late payment penalties are now on the FA 2021 schedule 26 schedule: 2% at day 15, further 2% at day 30, then 4% / year daily charge from day 31 - replacing the old 5%-at-30-days regime.

Can I opt out of MTD if I am close to the threshold?

No - mandation is automatic once you exceed the threshold and no opt-out exists for taxpayers in scope. There are five narrow exemption categories: (1) digital exclusion (genuinely unable to use digital services because of age, disability, location or religious belief - HMRC applies a strict test), (2) bankruptcy or formal insolvency arrangements where MTD would be operationally impossible, (3) accommodation in a remote area without functional broadband (rare given satellite broadband coverage), (4) the taxpayer is in scope only because of one-off or transitional rental income (e.g. inherited then quickly sold), and (5) certain pre-existing voluntary pilot exemptions. The standard route for taxpayers who consistently fall below the threshold is to monitor turnover annually and notify HMRC if the threshold is again crossed - you do not re-enter MTD until the next mandation review cycle if you remain below.

How does the quarterly update work in practice?

Your accounting software maintains digital records of business income receipts and expense payments throughout the quarter, categorised against the HMRC-prescribed expense categories (broadly aligned with the existing SA short / full self-employment supplementary pages - office costs, motor expenses, travel, rent rates and insurance, repairs, professional fees, etc). At the end of the quarter, the software calculates cumulative income and expense totals for the year-to-date, formats them per the MTD ITSA API specification, and sends them to HMRC via the secure API. HMRC computes the period change automatically (Q2 cumulative minus Q1 cumulative = Q2 in-quarter activity). Quarterly updates are NOT tax computations - they do not calculate Income Tax or NIC liability. HMRC may issue an indicative tax estimate after each quarterly update but this is informational only and not a tax demand.

What about Class 2 / Class 4 NI and Income Tax computation?

The actual tax computation - Income Tax bands, Class 4 NIC at 6% / 2%, Class 2 voluntary, Personal Allowance, basic / higher / additional rates, dividend tax, savings allowance - all happens at the Final Declaration stage on 31 January following the end of the tax year, not in the quarterly updates. The Final Declaration aggregates the four quarterly updates, applies year-end adjustments (capital allowances, stock movements, accruals and prepayments), incorporates other income (employment, pensions, dividends, savings interest), and produces the final tax position. The tax payable date remains 31 January with payments-on-account for the next year due 31 January and 31 July as currently. Class 2 voluntary contributions are paid alongside the Final Declaration as currently. The Final Declaration is a return - it is the legal tax document - whereas the quarterly updates are data feeds.

How should I prepare for MTD ITSA before 6 April 2026?

Five-step preparation. (1) Check whether you are in scope: compute combined gross self-employed and rental income for 2024/25. (2) Choose MTD-compatible software at least 3 months before start date - aim to be live by January 2026 so the system handles Q1 from April 2026 cleanly. Migrating from spreadsheets mid-year is operationally messy. (3) Set up digital expense capture - photo-capture apps (Receipt Bank, Hubdoc, the software-bundled equivalent), bank-feed integration with your business current account, and routine weekly bookkeeping discipline. (4) Sign up via the HMRC MTD ITSA Government Gateway service - this is a separate registration step from existing SA registration. (5) Speak to your accountant about the cadence change - many accountants will offer quarterly review services priced higher than the existing annual SA preparation, typically £600-£1,500 / year for sole traders and £900-£2,400 for combined sole-trader-plus-landlord. Compare quotes; the cadence change is operational rather than substantive.

Will I have to file separate quarterly updates for self-employment and rental income?

Yes - each business and each rental property business is a separate "business income source" requiring its own quarterly update. A sole trader with a single self-employment business and a single buy-to-let portfolio files two streams of quarterly updates (eight quarterly updates per year total) plus one Final Declaration. A consultant running two distinct service lines may need to file separately if they are treated as separate businesses for SA purposes. The Final Declaration aggregates everything into one return. The administrative load doubles for combined sole-trader + landlord taxpayers compared to the current single annual SA return, which is one of the main practitioner complaints about the regime.

What if I have a tax year accounting period that does not align with 6 April-5 April?

You can elect to use calendar quarters (period ends 30 June / 30 September / 31 December / 31 March) instead of the standard tax-year quarters (5 July / 5 October / 5 January / 5 April). The calendar-quarter election simplifies the alignment with standard bookkeeping period-ends and many software packages default to it. Once elected, the calendar-quarter basis applies for the full tax year and cannot be changed mid-year. The Final Declaration is still due 31 January regardless of which quarter basis you use. Most sole traders default to calendar quarters; landlords often default to tax-year quarters because rent receipts often follow the calendar month. The election is made in the software at the start of the year.

Self-employed calculator - profit and Class 4 NIC computation for any sole-trader profit level.
UK landlord tax guide - rental property profit, Section 24 mortgage interest restriction, allowable expenses.
Sole trader vs Limited Company guide - structural choice that is unaffected by MTD but interacts with quarterly compliance burden.
UK tax deadlines 2026 - all key dates including the new MTD ITSA quarterly deadlines.
UK tax calendar - month-by-month tax compliance calendar.
UK side hustle tax guide - threshold for entering MTD scope and the trading allowance.
Voluntary NI Class 3 contributions guide - Class 2 voluntary route for self-employed below the SPT and its interaction with MTD compliance.