Making Tax Digital for Income Tax Self Assessment (MTD ITSA) went live on 6 April 2026. Most commentary has focused on sole traders and landlords — and missed the twist. A significant number of company directors are caught too. If you or your owner-managed business clients haven’t yet confirmed MTD ITSA exposure, you have less than two months before the first quarterly submission deadline on 7 August 2026.
This post covers who is in scope, what the new compliance cycle looks like, where the penalty exposure sits, and what a CFO needs to do right now.
What MTD ITSA Actually Requires
Under Making Tax Digital for Income Tax, the annual Self Assessment tax return is progressively replaced with a four-part cycle: quarterly updates, an End of Period Statement (EOPS), and a Final Declaration. From 6 April 2026, anyone with gross qualifying income exceeding £50,000 — based on the 2024/25 tax year — must operate within this framework.
The quarterly update is not a mini tax return. It is a digital summary of income and expenses submitted through HMRC-compatible software. The first submission covers 6 April to 5 July 2026, with the deadline falling on 7 August 2026. After that, quarterly deadlines run through November, February, and May.
The EOPS and Final Declaration replace the old Self Assessment return at year end. Tax payment dates are unchanged — 31 January and 31 July — but the route to getting there is fundamentally different.
The Director Trap: Why This Is Not Just a Sole Trader Issue
Limited companies themselves remain outside MTD ITSA — HMRC has scrapped plans for a Corporation Tax equivalent for now. But directors are personal taxpayers, and many are caught on their individual income.
The test is straightforward: does the individual’s combined qualifying income — from self-employment and/or property — exceed £50,000? PAYE salary and dividends from a company do not count toward the threshold. But rental income does. Consultancy fees do. Any self-employed trade does. The result is that a director earning £40,000 in salary and £15,000 in rental income from a buy-to-let portfolio hits the £50,000 threshold and is in scope from April 2026.
This is precisely the profile of many owner-managers in the £1m–£20m turnover segment: experienced operators who have accumulated property alongside their business, drawing salary and dividends from the trading company but with significant property income sitting outside it. ICAEW’s MTD resource hub has been tracking this issue and flagging that take-up among directors in scope has been slower than expected.
The Soft Landing — And Why You Shouldn’t Rely On It
HMRC has confirmed a soft landing for 2026/27: there are no penalties for late quarterly submissions during the first year of operation. This is consistent with how MTD for VAT was introduced and reflects the reality that software readiness and awareness are still catching up.
The ICAEW’s analysis of MTD ITSA penalties confirms that from 2027/28, a points-based system applies: one point for each missed quarterly submission deadline, with a £200 penalty triggered at four points. Annual return failures attract separate penalties. The clock on those points starts from the 2027/28 tax year — but only if you have the systems and habits in place to reset them.
The soft landing creates a false sense of security. Individuals who defer action until 2027/28 will face a compressed implementation window and no penalty buffer. The first year should be treated as the rehearsal, not the holiday.
Software: The Non-Negotiable Infrastructure
MTD ITSA mandates digital record-keeping and digital submission. Paper records and manual spreadsheets do not comply. HMRC’s approved software list now exceeds 500 products — but that number obscures significant quality variation. The core requirement is a system that can maintain digital records and create a direct digital link to HMRC for submission, with no manual re-keying of data.
The established players — Xero, QuickBooks, FreeAgent, and Sage — all have MTD ITSA-compliant versions. For individuals with multiple income sources (say, two self-employed trades plus a rental portfolio), the software must handle multiple submission streams: up to eight quarterly updates per year. That is worth testing before the August deadline rather than after it.
The Chartered Institute of Taxation’s MTD ITSA page has maintained a running commentary on software compatibility and outstanding technical issues — worth bookmarking as guidance evolves through the first live year.
The Expanding Scope: What Comes Next
The April 2026 launch covers those above £50,000. But the threshold drops to £30,000 from April 2027, drawing in the next layer of self-employed individuals and landlords. From April 2028, it falls again to £20,000 — at that point, MTD ITSA will cover the substantial majority of people currently filing Self Assessment returns.
Partnerships — including LLPs — remain excluded for now with no timetable announced. This matters for professional services firms and property partnerships where the partners would otherwise be prime candidates. Watch for HMRC’s future consultations on partnership inclusion; the direction of travel is clear even if the timing is not.
The House of Commons Library research briefing from March 2026 provides the most comprehensive independent analysis of the rollout, including the CIOT’s survey findings that a majority of affected individuals were still unaware of the requirements as recently as early 2026.
MTD ITSA and Remuneration Planning
One structural question emerging in advisory conversations is whether MTD ITSA exposure is influencing remuneration planning for owner-managers. If a director’s rental income sits just above the threshold — say £52,000 combined — there is a legitimate planning question about whether restructuring property ownership (for example, into a property company, or between spouses) removes the MTD ITSA obligation. That analysis requires advice that weighs CGT, SDLT, and income tax implications against the compliance burden being avoided.
The more common scenario I see is directors who simply haven’t done the threshold calculation. They assume that because their company is not in scope, they are not in scope. The income test is personal, not corporate. Checking that calculation before 7 August costs nothing. Missing the first quarterly deadline — even in a soft-landing year — sets a poor precedent for systems and habits going into 2027/28.
Quarterly Compliance Calendar: The New Normal
For anyone newly in scope, the operational shift is significant. The annual compliance cycle — one return, one deadline — is replaced with a continuous one: four quarterly updates plus EOPS plus Final Declaration. That is six HMRC interactions per income source per year, compared to one previously.
The practical implication is that MTD ITSA needs to be calendared alongside VAT returns, payroll RTI submissions, and Corporation Tax obligations. For an owner-manager running a trading company with VAT registration, PAYE scheme, and property income, there is now a compliance touchpoint roughly every six to eight weeks across their personal and business affairs. HMRC’s step-by-step guidance for businesses sets out the full cycle.
Deloitte’s MTD ITSA analysis notes that the quarterly update requirement, while lighter than a full return, creates a discipline of continuous record maintenance that many individuals are not currently operating. The businesses that adapted most successfully to MTD for VAT were those that treated the compliance change as an opportunity to improve bookkeeping quality year-round, not just at year-end.
CFO Action Points
- Calculate personal threshold exposure now. For every director and senior executive with non-PAYE income, confirm whether combined self-employment and property income exceeded £50,000 in 2024/25. This is the triggering year.
- Register for MTD ITSA if in scope. HMRC has written to some affected individuals but not all. Don’t wait for a letter. Register through HMRC’s MTD ITSA portal.
- Confirm software is MTD ITSA-ready. If using an accountant, check they have enrolled and that software can handle multiple income streams. First quarterly submission covers 6 April–5 July 2026; deadline is 7 August 2026.
- Use the soft landing productively. No penalties for late quarterly submissions in 2026/27 — but use the year to build the habit. From 2027/28, the points clock runs.
- Map the 2027 and 2028 expansion. If you advise owner-managed businesses below the £50,000 threshold today, they may enter scope when thresholds drop to £30,000 (April 2027) and £20,000 (April 2028). Plan ahead.
- Consider remuneration structure. For directors close to threshold, a proper analysis of income sources — and whether restructuring is warranted — is worth commissioning before the 2027 expansion.