Today is 6 April 2026 — the first day of the new tax year, and the day Making Tax Digital for Income Tax (MTD for ITSA) formally goes live for its first wave of taxpayers. If you have clients, employees, or business interests involving self-employed individuals or landlords with income above £50,000, this is not a story to park for later. Obligations have begun. Deadlines are running. The first quarterly submission falls due on 7 August 2026.
After years of delays, false starts, and revised timetables, HMRC’s flagship digitalisation programme is now operational. HMRC estimates that approximately 864,000 taxpayers fall into this first cohort. Many of them — and plenty of their advisers — are still not fully prepared.
What Making Tax Digital for Income Tax Actually Requires
MTD for ITSA replaces the traditional single annual Self Assessment return with a regime of digital record-keeping and quarterly reporting. It does not eliminate the year-end return entirely — the annual tax return remains a requirement — but it adds four interim reporting obligations on top of it.
In practical terms, a sole trader or landlord caught by these rules must now: keep digital records of all income and expenses using MTD-compatible software; submit a quarterly update to HMRC summarising those figures; and file the usual end-of-year return by 31 January 2028 (for the 2026/27 tax year). Where a person has both a trading business and rental property income, they must file two sets of quarterly updates — one for the trade, one for the property — giving eight quarterly submissions per year in addition to the annual return.
The quarterly periods are fixed: April to July, July to October, October to January, and January to April. The first submission covers 6 April to 5 July 2026, and is due by 7 August 2026. That is four months away. For taxpayers who have not yet signed up or acquired compatible software, the clock is already ticking.
Who Is Caught — and Who Comes Next
The trigger for the April 2026 wave is qualifying income exceeding £50,000 in the 2024/25 tax year. Qualifying income means gross self-employment income plus gross property income — it is a turnover test, not a profit test. Taxpayers who filed a 2024/25 Self Assessment return showing combined income above this threshold are mandated. HMRC has been writing directly to those individuals.
This is not the end of the rollout. From April 2027, the threshold drops to £30,000 — drawing in a significantly larger second wave. From April 2028, it falls again to £20,000, which will capture the majority of the self-employed population and most property landlords. Any business owner, FD or adviser who thinks this does not yet concern them should look again at their client base or workforce.
Certain taxpayers can apply for exemptions — those without internet access, those with disabilities that prevent digital record-keeping, or those for whom compliance would be disproportionately burdensome. HMRC processes these applications on a case-by-case basis and the criteria are narrow.
The Software Question
HMRC does not provide its own software for MTD for ITSA. Every mandated taxpayer must source and pay for third-party compatible software. There are two broad approaches: a fully integrated accounting package that handles both record-keeping and quarterly submissions directly to HMRC’s API, or a combination of spreadsheets or bookkeeping tools paired with “bridging software” that translates the data into a compliant format for submission.
The fully integrated route is cleaner and less prone to error, but it carries a subscription cost. For self-employed individuals with straightforward affairs, this may feel disproportionate. Bridging software offers a lower-cost alternative for those whose records are primarily spreadsheet-based, but it introduces additional manual steps and the scope for error at each quarter.
For CFOs managing a workforce that includes self-employed contractors or owner-managed business owners — particularly where the business reimburses software costs — this is worth raising. It is also worth reviewing whether your finance function’s own record-keeping practices are in order, given that many business owners who are also directors may have self-employment or property income that falls within scope.
Penalties: A Genuine Grace Period, But Not Indefinitely
HMRC has confirmed a transitional approach to penalties for the 2026/27 tax year. Taxpayers joining MTD in April 2026 will not receive penalty points for late quarterly updates during this first year. This is a pragmatic concession acknowledging the bedding-in period, but it is important to understand its limits.
First, the grace period applies only to quarterly submission penalties — the year-end return due 31 January 2027 is not exempt from penalties. Second, the grace period is explicitly for one year only. From April 2027, HMRC’s points-based late-filing penalty system applies in full. Under that system, each missed quarterly submission generates a penalty point, and taxpayers who accumulate a threshold number of points face a fixed financial penalty. The points reset only after a period of full compliance.
The practical advice here is straightforward: use the grace period to get systems in place, not as a reason to defer action. A taxpayer who ignores quarterly submissions entirely for 2026/27 is building a compliance habit that will cost them from April 2027 onwards.
The Broader Picture: A New Tax Year of Change
MTD for ITSA does not arrive in isolation. From today, a range of other changes also take effect. The frozen income tax thresholds — personal allowance at £12,570, higher-rate threshold at £50,270 — continue to drag more income into tax as earnings rise. Employer National Insurance remains at 15% with the secondary threshold held at £5,000 through to 2031, maintaining the significant cost pressure that came in at the Autumn 2024 Budget. The National Living Wage rises to £12.21 per hour for workers aged 21 and over.
For businesses with self-employed staff or contractors in scope of MTD, today also marks the start of a parallel question: are those engagements correctly classified? HMRC’s compliance activity around IR35 and employment status has not diminished, and the introduction of MTD for ITSA adds another administrative layer that makes the distinction between employment and self-employment more consequential for both parties.
What CFOs and Business Owners Should Do Now
If you have directors, shareholders, or key personnel who earn self-employment or rental income above £50,000, the following steps are urgent. First, establish whether they have already signed up to MTD with HMRC. If not, registration should happen immediately — late registration itself does not carry a penalty in 2026/27, but it delays the start of digital record-keeping and creates risk at the first quarterly deadline.
Second, confirm that MTD-compatible software is in place and that records from 6 April 2026 onwards are being kept digitally. Legacy spreadsheet records are acceptable only if bridging software is used for submission — but the records must be digital from the start of the tax year.
Third, brief your advisers. Accountants and tax advisers who handle Self Assessment for individuals in scope should already be ahead of this, but it is worth confirming that the transition plan is in place and that the 7 August 2026 deadline for the first quarterly submission is on the radar.
Finally, look ahead to April 2027. If you have clients, contractors or business owners with income between £30,000 and £50,000, they fall into the next wave in twelve months. Starting their preparation now avoids the scramble that many in the current cohort are still experiencing today.
Talk to Tanous
Making Tax Digital for Income Tax changes the rhythm and mechanics of tax compliance for hundreds of thousands of people connected to your business. Getting it right from day one matters — both for the individuals affected and for the businesses that depend on them.
Talk to Tanous about MTD for ITSA, digital record-keeping strategy, and tax compliance planning for the 2026/27 tax year. Contact us at tanous.co.uk.