What is MTD for Income Tax Self Assessment?
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HMRC’s programme requiring sole traders and landlords to keep digital records and submit quarterly income and expense updates via software, replacing the single annual Self Assessment tax return.
Official HMRC ITSA guidance →
When does MTD for Income Tax start?
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April 2026 for taxpayers with gross qualifying income over £50,000. April 2027 for those over £30,000. General partnerships are expected from April 2028.
Who must join MTD for ITSA from April 2026?
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Sole traders and landlords with total gross qualifying income exceeding £50,000 per year. HMRC will use your Self Assessment history to identify you.
Who must join from April 2027?
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Those with gross qualifying income between £30,000 and £50,000. If your income drops below £30,000 before 2027, you may avoid the second wave.
What is qualifying income for MTD ITSA?
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Gross income from self-employment, trades, professions, vocations, and property letting. It does not include employment, dividends, savings, pensions, or capital gains.
Do I use gross or net profit for the MTD threshold?
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Gross. Always use turnover and rents before any expenses. HMRC does not deduct costs when testing the £50,000 or £30,000 threshold.
Does employment income count toward the MTD threshold?
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No. PAYE employment income, dividends, interest, and pension income are excluded from the ITSA threshold calculation.
Is MTD for Income Tax the same as Self Assessment?
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No. The annual SA100 is replaced by four quarterly updates, an End of Period Statement, and a Final Declaration. The underlying tax rates remain the same.
Will MTD for ITSA change how much tax I pay?
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No. The calculation of taxable profit and tax rates is unchanged. MTD only changes the reporting frequency and method.
What is the MTD for Income Tax pilot?
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A live HMRC testing programme that allows eligible taxpayers to use ITSA early. It lets you test quarterly reporting and software integration before the 2026 mandate.
Can I volunteer for MTD ITSA early?
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Yes. HMRC allows voluntary sign-up ahead of your mandatory date. This lets you test software and workflow without penalty pressure.
Do I have to use an accountant for MTD ITSA?
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What if I have multiple businesses?
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HMRC aggregates gross turnover from all self-employments and property income. You must report each business separately within your software.
Does rental income from overseas count?
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Yes. Overseas property income is included in the gross qualifying income test and must be reported through MTD ITSA.
How does joint property ownership affect MTD?
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Your share of gross rental income counts toward your personal threshold. A 50% share of £40,000 rents adds £20,000 to your qualifying income.
Does my spouse’s income affect my MTD threshold?
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No. MTD is assessed individually. Your spouse could be below the threshold while you are above it, even for the same jointly owned property.
What if my income drops below £30,000?
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If your qualifying income falls below £30,000 consistently, you may not be mandated into ITSA. However, if you are already in MTD, you generally cannot leave.
Do furnished holiday lettings count differently?
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From April 2025 the FHL regime is abolished. All property income is treated uniformly for ITSA threshold testing and reporting.
Does Airbnb income count for MTD?
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Yes. Short-term and holiday letting income counts as property income toward your gross qualifying total.
Do I include VAT in my gross turnover test?
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If you are VAT-registered, use your VAT-exclusive turnover for the ITSA income test. If not VAT-registered, your gross sales figure is used as-is.
What if I only have property income?
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Landlords with gross rental income over £50,000 (or £30,000 from 2027) must join ITSA. There is no exemption for passive property investors.
Does CIS income count gross or net?
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Gross. The full invoice amount counts toward the threshold. CIS deductions are claimed later but do not reduce your qualifying income.
What if I start a business in 2026?
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If your first-year gross income exceeds £50,000, you must join ITSA immediately. If below, you may remain on standard Self Assessment until you cross the line.
Do foster carers need MTD ITSA?
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Yes, if gross qualifying income exceeds the threshold. HMRC’s foster care relief applies to tax, not the MTD mandate test.
What are the quarterly deadlines for ITSA?
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Quarter 1: 5 August; Quarter 2: 5 November; Quarter 3: 5 February; Quarter 4: 5 May.
What is the End of Period Statement?
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An annual statement due by 31 January where you confirm adjustments, capital allowances, and final taxable profit. It replaces the old SA100 calculation.
What is the Final Declaration?
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A confirmation of your total tax liability across all income sources, due by 31 January. It is the digital equivalent of submitting your tax return.
Do I pay tax every quarter under MTD?
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No. Quarterly updates are reports, not payments. Tax is still due by 31 January and 31 July under Payments on Account.
What if I miss a quarterly deadline?
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You receive one penalty point. Once you reach four points, HMRC issues a £200 penalty. Further points while at threshold trigger more fines.
Can I amend a quarterly update?
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Yes, but the process depends on your software. Corrections are usually made in the following quarter or at the EOPS stage.
What is the last date to join the ITSA pilot?
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HMRC has not set a final pilot closure date, but spaces and eligibility criteria can change. Apply via HMRC or through your accountant.
When is the first ITSA quarterly update due?
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For the 2026/27 tax year, the first quarterly update covers 6 April to 5 July 2026 and is due by 5 August 2026.
Does the 31 January deadline still exist?
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Yes. The EOPS and Final Declaration are both due by 31 January after the tax year ends. The annual rush is not eliminated, just front-loaded with quarterly reporting.
What happens if I cease trading mid-year?
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You must still submit quarterly updates up to the cessation date and complete the EOPS and Final Declaration by the following 31 January.
Are quarterly updates the same as VAT returns?
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No. ITSA quarterly updates are income/expense summaries. VAT returns deal with output and input tax. If you are in both, you file separately.
Can my accountant file quarterly updates for me?
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Yes. If you authorise them as your agent, they can submit updates, the EOPS, and the Final Declaration on your behalf.
What is functional compatible software?
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Software that keeps digital records, preserves digital links, and communicates directly with HMRC via API. It is the legal minimum for MTD compliance.
HMRC recognised software list →
Is there free MTD software for ITSA?
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Yes.
FreeAgent is free with certain bank accounts.
Pandle and
Coconut offer free starter tiers for simple businesses.
Which is the best MTD software for sole traders?
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Which software is best for landlords?
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Xero and
Sage offer strong property income tracking. FreeAgent works well for smaller portfolios. All are HMRC-recognised for ITSA.
Can I use Excel for MTD ITSA?
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Only with bridging software that extracts totals and submits via API. Manual re-typing into HMRC is non-compliant.
What is bridging software?
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A tool that sits between your records (often spreadsheets) and HMRC. It automates the API submission. It is cheaper than full cloud software but requires strict data discipline.
Does VAT-approved software mean ITSA-approved?
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No. Many tools support MTD for VAT but not yet ITSA. Always check the provider explicitly lists ITSA or Income Tax updates before buying.
Can I switch MTD software mid-year?
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Yes, but migrating historical data and re-establishing digital links is complex. It is better to select the right software before April 2026.
Is there HMRC-recognised software for partnerships?
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Several providers are building partnership modules, but ITSA for partnerships is not mandatory until around April 2028. Check with
Xero or
Sage for partnership roadmap updates.
Does MTD software work on mobile?
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Yes. Most major providers including
QuickBooks,
Xero, and
Coconut offer mobile apps for receipt capture and expense logging.
What is the cheapest ITSA-compliant software?
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Pandle and
FreeAgent (with a qualifying bank account) are the lowest-cost entry points. Bridging tools for Excel start from a few pounds per month.
Can my accountant choose my software?
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Yes. Many accountants have preferred software stacks and can set up your account, configure bank feeds, and manage quarterly submissions for you.
What records must I keep digitally for ITSA?
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Dates, amounts, and categories for all business income and expenses. You must record these in functional compatible software at the time of transaction or shortly after.
Can I photograph receipts for MTD?
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Yes. HMRC accepts photographed or scanned receipts attached to digital transactions. You do not need to keep paper originals if the digital copy is legible.
How long must I keep MTD records?
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Five years after the submission deadline. If you are also VAT-registered, keep them for six years.
What is the digital links rule?
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Data must transfer electronically between software and HMRC without manual re-keying. Copy-paste, manual CSV uploads, and re-typing break the chain and are non-compliant.
Do I need a business bank account?
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While not legally required for sole traders, a dedicated business account with a digital feed into your software is strongly recommended. It prevents mixed personal spending and missed transactions.
What if I lose a receipt?
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You should still record the expense digitally with a note explaining the missing evidence. HMRC may disallow the deduction if queried, but the record itself must remain digital.
Can I use cash basis accounting under MTD?
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Yes. MTD is compatible with both cash basis and traditional accruals accounting. Your software must support your chosen method.
Do I need to digitise old records?
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Only records from the date you enter MTD need to be digital. Historical records kept under old rules do not need retroactive digitisation.
What are the MTD record keeping penalties?
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Failure to keep digital records can result in penalty points for missed submissions and potential scrutiny enquiries. There is no specific “bad records” fine, but it undermines your ability to file.
Can I use Google Sheets for MTD?
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Only if combined with bridging software that has an HMRC API. Google Sheets alone cannot submit directly to HMRC.
Are till receipts enough evidence?
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Yes, if they show the date, amount, supplier, and description of the expense. Photograph them and attach to the digital transaction in your software.
What if my software crashes before a deadline?
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You may have a reasonable excuse for appeal if you can prove system failure. However, HMRC expects you to maintain backups and not leave submissions to the last day.
What is the points-based penalty system?
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Each missed quarterly update, EOPS, or Final Declaration earns one point. At four points, a £200 penalty is issued. Further points at threshold trigger further £200 fines.
Do penalty points expire?
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Yes. If you stay compliant, points decay after a set period. The exact timeline depends on your filing frequency and compliance history.
What is a reasonable excuse for MTD penalties?
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Serious illness, bereavement, HMRC system outage, or software failure with evidence. “I forgot” or “I did not understand” are generally rejected.
How much is the ITSA late payment penalty?
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Interest accrues daily from the due date. A 2% surcharge applies at 30 days and a further 4% at 6 months. A Time to Pay plan stops surcharges.
Can I appeal an MTD penalty online?
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Yes, through your HMRC online account or by post. You must explain your reasonable excuse and provide supporting evidence.
Is there a first-time penalty relief for ITSA?
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HMRC may exercise discretion for first-time filers who make a genuine effort to comply, but this is not guaranteed. The points system is designed to be objective.
How do I check my MTD penalty points?
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Log in to your HMRC personal tax account or ask your authorised accountant to check your compliance record via their agent dashboard.
What if I file late but owe no tax?
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You still receive a penalty point. The points-based system is triggered by missed deadlines, not by tax owed.
Does HMRC send reminder emails for quarterly updates?
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HMRC may send reminders, but the legal responsibility remains yours. Good software will alert you as deadlines approach.
Can I arrange Time to Pay under MTD?
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Yes. If you cannot pay by 31 January, contact HMRC to set up a Time to Pay plan. This stops late payment surcharges but interest continues.
What is the interest rate on late ITSA payments?
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Can I be fined for inaccurate quarterly data?
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There is no separate “inaccuracy” fine for quarterly updates, but deliberate errors may trigger an HMRC enquiry, penalties for careless or deliberate behavior, and loss of credibility.
Do retirees with rental income need MTD?
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Yes, if gross rental income pushes their qualifying income over the threshold. Age is not an exemption.
Do ministers of religion need MTD?
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If they have self-employment or property income over the threshold, yes. Religious status does not exempt them from ITSA.
Do non-resident landlords need MTD?
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Non-resident landlords with UK property income over the threshold must join ITSA. The NRL scheme and ITSA operate in parallel.
Do trusts need MTD for ITSA?
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Trusts are not currently in scope for ITSA. Trustees should monitor HMRC announcements for future trust-specific digital rules.
Do charities need MTD for ITSA?
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Charities with trading subsidiaries or property income may fall under ITSA if the subsidiary exceeds the threshold. Pure charitable income is generally exempt.
What about peer-to-peer lending income?
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P2P interest counts toward your total income for tax but does not count as qualifying income for the ITSA threshold test.
I am a student with a side hustle. Do I need MTD?
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Only if your gross side-hustle income exceeds £50,000 (or £30,000 from 2027). Most student side incomes are below the threshold.
Do Uber and Deliveroo drivers need MTD?
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Yes, if gross earnings exceed the threshold. Platform fees do not reduce your gross turnover for the ITSA test.
Do eBay and Etsy sellers need MTD?
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Yes, if gross sales exceed the threshold. Cost of goods sold are expenses; your gross revenue is what counts toward ITSA.
What if I am both employed and self-employed?
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Your employment income is ignored for the ITSA threshold, but your self-employment turnover still counts. If that alone exceeds £50,000, you must join.
Do CIS subcontractors need MTD?
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Yes, if gross CIS income exceeds the threshold. Your software must handle CIS deductions suffered and match them to HMRC records.
Does crypto trading count for MTD?
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Crypto is generally taxed under Capital Gains Tax, which does not currently count toward the ITSA income threshold. However, frequent trading may constitute a trade.
When should I buy MTD software?
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Ideally by mid-2025. This gives time to migrate data, connect bank feeds, and submit a test quarterly update before the April 2026 mandate.
Can I defer my MTD start date?
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Generally no. Exemptions are extremely limited and usually require disability, insolvency, or remote location with no internet access.
What if my accountant is not MTD-ready?
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How do I authorise an accountant for MTD?
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Use your HMRC personal tax account to authorise them as your agent, or ask them to send an agent authorisation request. They then access your MTD dashboard.
Will MTD ITSA affect my mortgage applications?
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Not directly. Lenders still ask for SA302s or tax year overviews. HMRC is working on digital equivalents. Your accountant can produce reports from MTD software.
Can I use one software for multiple businesses?
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Yes. Most cloud platforms allow multiple business schedules or tracking categories within one subscription. Check the plan limits before subscribing.
What if I sell my rental property?
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Record the disposal in your software and report any capital gain separately. Property income up to the sale date still goes through ITSA quarterly updates.
Do I need to tell HMRC I have joined MTD?
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Yes. You must sign up through HMRC online or via your software. Simply buying software does not automatically enrol you.
What is the difference between EOPS and Final Declaration?
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The EOPS finalises your business profit. The Final Declaration confirms your total income tax position across all sources, including employment and dividends.
Can I claim SEISS grants under MTD?
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SEISS grants are taxable income and must be recorded digitally. Future support schemes will also need to flow through your MTD records.
Does MTD ITSA include Class 4 NIC?
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Yes. Your final taxable profit declared via EOPS and Final Declaration feeds into your Class 4 National Insurance calculation as before.
Will HMRC provide free software?
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No. HMRC does not provide free accounting software. It publishes a list of commercial and free third-party providers.
View the HMRC list →
Is Xero good for MTD ITSA?
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Yes.
Xero is HMRC-recognised for ITSA, offers excellent bank feeds, and handles multi-trade reporting. Plans start around £14-£28/month.
Is QuickBooks Online MTD-compliant?
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Yes.
QuickBooks supports MTD for VAT and ITSA, with automated categorisation and direct HMRC filing.
Does Sage support MTD for Income Tax?
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Yes.
Sage Business Cloud is HMRC-recognised and is particularly strong for larger sole traders and partnership-ready workflows.
Is FreeAgent really free?
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Yes, if you hold a business current account with NatWest, Mettle, RBS, or Ulster Bank.
FreeAgent is otherwise a paid subscription.
What is Pandle best for?
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Micro-businesses and simple sole traders.
Pandle offers a genuinely free starter tier with bank imports and basic MTD VAT tools, with ITSA features expanding.
Is Coconut good for freelancers?
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Yes.
Coconut auto-categorises transactions and is designed for freelancers and gig workers entering MTD.
Does Zoho Books work for UK MTD?
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Zoho Books supports MTD for VAT and is developing ITSA features. It is affordable and includes multi-currency and inventory.
What about Wave Accounting?
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Wave is popular in North America but has limited UK MTD integration. For ITSA compliance, UK taxpayers should prefer HMRC-recognised UK providers like Xero, QuickBooks, or FreeAgent.
Is there software specifically for landlords?
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Some landlord-specific tools exist, but most major platforms (Xero, QuickBooks, Sage, FreeAgent) now include property income tracking and ITSA-ready reporting.
What is TaxCalc MTD?
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TaxCalc is a UK tax practice platform. Their commercial products are aimed at accountants rather than end-users, but they are fully HMRC-recognised.
Can I use HMRC’s basic PAYE Tools for ITSA?
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No. Basic PAYE Tools only handles employment tax. It cannot submit ITSA quarterly updates or EOPS filings.
Where can I compare all MTD software?
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