Are Sole Traders & Landlords Ready for Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax is no longer a future consideration for sole traders and landlords in the UK. It is a confirmed and steadily approaching change that will fundamentally reshape how income tax is reported, how records are kept, and how often HMRC expects updates.

From April 2026, many individuals who currently submit a single Self-Assessment tax return each year will move onto a system of digital record keeping and quarterly reporting under Making Tax Digital for Income Tax Self-Assessment (MTD ITSA). For others, the change will follow in 2027 and beyond.

While the concept of MTD has been discussed for years, its practical impact is only now becoming clear. For sole traders and landlords, this is not just a technical update it is a shift in mindset, habits, and financial management.

So, the question is an important one:
Are sole traders and landlords ready for Making Tax Digital for Income Tax?

This guide explains what MTD ITSA means in practical terms, who must comply, how it affects day-to-day working, and what you can do now to prepare confidently.

What Is Making Tax Digital for Income Tax?

Understanding ITSA and MTD ITSA

Income Tax Self-Assessment (ITSA) is the system used by HMRC to collect tax from people whose income is not fully taxed at source. This includes self-employed individuals and landlords, who currently report income and expenses once a year via a Self-Assessment tax return.

Making Tax Digital for Income Tax, commonly referred to as MTD ITSA, replaces this annual reporting process with a digital and ongoing system. Rather than preparing everything at the end of the tax year, taxpayers must keep digital records and submit quarterly updates to HMRC using compatible software.

The intention behind MTD ITSA is to reduce errors, improve accuracy, and give taxpayers better visibility of their tax position throughout the year.

When Does MTD for Income Tax Start?

MTD ITSA is being introduced gradually based on income thresholds.

From 6 April 2026, MTD ITSA becomes mandatory for sole traders and landlords whose combined gross income from self-employment and/or rental income exceeds £50,000.

From 6 April 2027, the threshold reduces to £30,000, bringing a much wider group into scope.

The government has also confirmed plans to extend MTD further in future, meaning smaller businesses and landlords should not assume they will remain outside the system indefinitely.

A key point often misunderstood is that HMRC considers gross income, not profit, and income from multiple sources is added together. For example, modest self-employment income combined with rental income could easily push someone over the threshold.

Who Does MTD ITSA Apply To?

MTD ITSA applies to individuals, not companies. It is specifically aimed at:

• Sole traders
• Individual landlords
• Individuals with both self-employment and rental income

Some people may be exempt due to age, disability, or lack of digital access, but exemptions are not automatic and must be formally agreed with HMRC.

For most sole traders and landlords who earn above the thresholds, MTD ITSA will be unavoidable.

What Will Change Under MTD for Income Tax?

Although tax rules themselves largely remain the same, how and when information is reported changes significantly.

Digital Record Keeping Becomes Essential

MTD ITSA requires records to be kept digitally. This means moving away from paper files, manual summaries, and informal spreadsheets that are not digitally linked to HMRC.

Income and expenses must be recorded in a structured digital format that software can summarise and submit without manual re-entry. For many, this will mean adopting cloud accounting software or upgrading existing systems.

Quarterly Updates Replace Annual Catchups

Instead of reporting everything once a year, MTD ITSA introduces quarterly updates for each source of income.

These updates provide HMRC with a snapshot of income and expenses for that quarter. They are not final tax calculations, but they form part of the overall reporting process.

At the end of the tax year, figures are adjusted and confirmed through year-end submissions.

End of Period Statement and Final Declaration

Under MTD ITSA, the traditional Self-Assessment tax return is replaced by:

An End of Period Statement, which finalises income and expenses for each business or property source; and a Final Declaration, which brings together all taxable income and confirms the final tax liability.

The final declaration deadline remains similar to the current system, but the work leading up to it is spread across the year.

Penalties and Why Preparation Matters

HMRC is introducing a points-based penalty system alongside MTD ITSA. Each missed submission earns a penalty point, and once a threshold is reached, financial penalties apply.

Although HMRC has announced a more flexible approach during the initial transition, this should not be mistaken for long-term leniency. Over time, consistent late submissions or poor record keeping will lead to penalties and increased scrutiny.

This makes preparation critical. Being partially ready or intending to “catch up later” is a risky strategy under MTD.

Are Sole Traders Ready for MTD ITSA?

Many sole traders still prepare their accounts retrospectively, often months after the tax year ends. While this has worked under the traditional Self-Assessment system, it is poorly suited to MTD ITSA.

MTD requires more frequent engagement with finances, regular record keeping, and a clearer separation between business and personal transactions.

Sole traders with fluctuating income or multiple revenue streams may benefit from this increased visibility, but only if systems are set up correctly and used consistently.

Are Landlords Ready for MTD ITSA?

Landlords face their own challenges with MTD ITSA, especially those with multiple properties or joint ownership arrangements.

Rental income and expenses must be recorded accurately and consistently throughout the year. While HMRC does not require submissions per property, good digital records are essential for compliance, planning, and portfolio performance.

For many landlords, MTD ITSA highlights weaknesses in existing record-keeping practices that need addressing well before mandatory start dates.

How MTD ITSA Changes Cash Flow Awareness

Although MTD ITSA does not change when tax is ultimately payable, it significantly improves visibility.

Instead of discovering liabilities at year end, taxpayers receive ongoing estimates based on submitted data. This encourages better budgeting, fewer payment surprises, and improved cash flow planning.

Over time, this shift can reduce reliance on time-to-pay arrangements and late payments.

Choosing the Right Software

MTD ITSA requires compatible software, but the best solution varies from person to person.

Some sole traders and landlords prefer intuitive cloud-based platforms with bank feeds and automation. Others may use enhanced spreadsheets connected to HMRC through bridging software.

The most important factor is that the system is compliant, reliable, and something you can realistically maintain.

Choosing unsuitable software often leads to frustration, errors, and revert-to-old-habits behaviour that causes compliance problems later.

The Growing Role of Professional Support

As tax becomes more digital, the role of accountants and bookkeepers becomes more proactive. Rather than stepping in once a year, professionals now support clients throughout the year.

For many sole traders and landlords, this ongoing support is not just convenient but essential, particularly as reporting frequency increases and penalties become stricter

How Carter Bookkeeping Services Can Help Sole Traders & Landlords?

Making Tax Digital for Income Tax is not just a compliance exercise. It requires the right systems, consistent processes, and ongoing confidence that everything is being done correctly.

Carter Bookkeeping Services Limited specialises in supporting sole traders and landlords through the transition to MTD ITSA and beyond.

Understanding When MTD Applies to You

Every client starts in a different position. Carter Bookkeeping Services Limited reviews your income sources and levels to confirm exactly when MTD ITSA applies, whether that is April 2026, April 2027, or later.

This clarity allows you to plan properly rather than reacting at the last minute

Setting Up MTD-Compliant Systems

Moving to digital records can feel overwhelming, especially if you’re used to traditional methods. Carter Bookkeeping Services Limited helps you select and implement MTD-compatible software that suits your business or property income, ensuring it is set up correctly from day one.

The focus is on systems that are practical, compliant, and sustainable.

Ongoing Bookkeeping and Quarterly Submissions

MTD ITSA is about consistency. Carter Bookkeeping Services Limited provides ongoing bookkeeping support to ensure records are maintained accurately throughout the year and quarterly updates are submitted on time.

This removes the pressure of deadlines and reduces the risk of penalties.

Specialist Support for Landlords and Sole Traders

Sole traders benefit from streamlined systems that separate business and personal finances, while landlords receive support tailored to rental income, allowable expenses, and portfolio management.

In both cases, the aim is accuracy, clarity, and peace of mind.

Year-End Compliance and Final Declarations

Carter Bookkeeping Services Limited also manages End of Period Statements and Final Declarations, ensuring that year-end submissions remain correct, complete, and compliant with HMRC requirements.

Clients benefit from continuity, with the same professionals overseeing records throughout the year.

Peace of Mind as Rules Continue to Change

MTD ITSA is not static. Guidance evolves, thresholds may change, and compliance expectations increase over time. Carter Bookkeeping Services Limited stays on top of these developments so clients do not have to.

This proactive support allows you to focus on running your business or managing your properties with confidence.

Frequently Asked Questions About MTD ITSA

What is Making Tax Digital for Income Tax (MTD ITSA)? 

Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is an HMRC system that requires sole traders and landlords to keep digital records and submit quarterly summaries of income and expenses using approved software, replacing the traditional annual Self-Assessment tax return. 

Who needs to comply with MTD ITSA? 

MTD ITSA applies to UK sole traders and individual landlords with combined gross income from self-employment and/or rental property over £50,000 from April 2026, and over £30,000 from April 2027. Income from all qualifying sources is added together.

When does MTD for Income Tax become mandatory?

MTD for Income Tax becomes mandatory from 6 April 2026 for individuals earning over £50,000, and from 6 April 2027 for those earning over £30,000. The income thresholds are based on your previous tax return.

Does MTD ITSA apply to landlords?

Yes. MTD ITSA applies to individual landlords with qualifying rental income above the threshold, regardless of whether they are also self-employed. Rental income and sole trader income are combined when assessing whether MTD applies.

What counts as qualifying income for MTD ITSA?

Qualifying income includes gross income from self-employment and UK property rental income before expenses are deducted. It does not include employment income taxed through PAYE or income from limited companies.

Will I need to pay income tax quarterly under MTD?

No. MTD ITSA requires quarterly reporting of income and expenses, not quarterly tax payments. Final income tax payments are still due after the end of the tax year, based on HMRC deadlines.

What are quarterly updates under MTD ITSA?

Quarterly updates are digital summaries of income and expenses sent to HMRC every three months using compatible software. These updates show estimated figures and do not finalise your tax liability.

What is an End of Period Statement (EOPS)?

An End of Period Statement is a year-end submission that finalises income and expenses for each business or property source under MTD ITSA. It replaces parts of the traditional Self-Assessment process.

What is the Final Declaration under MTD ITSA?

The Final Declaration replaces the annual Self-Assessment tax return. It confirms all income sources, reliefs, and allowances and finalises the total income tax owed for the year.

What software is required for MTD ITSA?

You must use HMRC-approved MTD-compatible software or spreadsheets connected via bridging software. The software must be able to create and submit digital records and quarterly updates.

What penalties apply if I miss MTD deadlines?

HMRC operates a points-based penalty system for late MTD submissions. Missing quarterly updates or year-end submissions earns penalty points, which lead to financial penalties once a threshold is reached.

Can my bookkeeper or accountant submit MTD updates for me?

Yes. Sole traders and landlords can authorise a bookkeeper or accountant to manage digital records and submit quarterly updates and annual declarations on their behalf.

Is it worth preparing for MTD ITSA early?

Yes. Preparing early allows you to choose suitable software, improve record-keeping habits, avoid rushed compliance, and reduce the risk of errors and penalties when MTD becomes mandatory.

How can Carter Bookkeeping Services help with MTD ITSA?

Carter Bookkeeping Services supports sole traders and landlords by assessing MTD readiness, setting up compliant digital systems, managing ongoing bookkeeping, submitting quarterly updates, and handling year-end declarations to ensure full HMRC compliance.

Final Thoughts

Making Tax Digital for Income Tax represents one of the biggest changes UK sole traders and landlords have faced in years. While it introduces new obligations, it also creates opportunities for better financial control and planning.

Those who prepare early, adopt suitable systems, and seek the right support will find the transition manageable and, in many cases, beneficial.

If you are a sole trader or landlord approaching the income thresholds, now is the time to act. With the right guidance, MTD ITSA does not have to be overwhelming.

For tailored advice and ongoing support, Carter Bookkeeping Services Limited is well placed to help you navigate the digital future of tax with confidence

👉 Contact Carter Bookkeeping Services Limited today to discuss your situation and start preparing for MTD ITSA confidently and compliantly.