A major change to how self-employed individuals and landlords in the UK report their income tax will begin in April 2026. The roll-out of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA), announced by HM Revenue and Customs (HMRC), is designed to streamline the tax process through compulsory digital record-keeping and regular updates.
From this date, those with qualifying income levels from self-employment or property will need to use compatible software, with the aim of improving accuracy, reducing paperwork, and providing real-time estimates of tax liabilities.
Overview of Making Tax Digital
Making Tax Digital for Income Tax represents a significant shift in administration, requiring the digital submission of financial records rather than annual paper-based returns. The programme, which has experienced several delays since its initial concept, is now set to become mandatory for certain taxpayers.
HMRC states that the system will enable individuals to monitor their tax position throughout the year, replacing the traditional end-of-year rush associated with tax returns. The MTD initiative aligns with broader government efforts to enhance digital infrastructure, improve compliance, and reduce tax errors.
By requiring the use of approved accounting software, HMRC aims to modernise interactions with the tax authority while offering more timely information to both taxpayers and officials.
Who will be affected
Initially, MTD for ITSA will impact self-employed individuals and landlords whose total gross income exceeds £50,000, based on their 2024/25 tax return. The mandatory requirement commences from April 2026.
Those with an income above £30,000 will come under the new system from April 2027, followed by individuals with annual earnings over £20,000 from April 2028.
HMRC estimates approximately 780,000 people will be affected in the first phase, with a further 970,000 joining the following year. The changes do not currently apply to those earning below these thresholds or to incorporated businesses.
Key digital requirements
Under the new rules, affected taxpayers must maintain digital financial records using compatible accounting software. This software must allow the recording of income and expense transactions, categorised appropriately as self-employment or property income.
Taxpayers will be required to submit quarterly updates to HMRC. These updates will be generated by the software, summarising financial activity over each period. Annual finalisation of tax affairs will also be carried out digitally, aiming to simplify the process and give more timely visibility of tax obligations.
Transition timeline
The implementation of MTD for ITSA will follow a phased approach: - April 2026: Self-employed and landlords with gross income above £50,000 - April 2027: Threshold lowered to £30,000 - April 2028: Threshold further lowered to £20,000.
This staging is intended to allow individuals and businesses time to adapt to the new system. HMRC is currently offering a voluntary pilot programme for those wishing to familiarise themselves with the requirements before mandatory compliance.
Penalties for non-compliance
Individuals who do not comply with the digital reporting requirements may face penalties under HMRC’s points-based compliance system. Penalties can result from late submissions, failure to maintain digital records, or not using approved software.
Points accumulate for each instance of non-compliance, and once a points threshold is reached, a fine of up to £200 can be issued. The points system is designed to encourage consistent, timely submissions while allowing some flexibility for occasional errors.
HMRC emphasises that although more frequent updates are required, no additional tax returns need to be filed; rather, the method and frequency of reporting have changed.
Final Summary
The introduction of Making Tax Digital for Income Tax, starting from April 2026, represents a key step in the UK’s transition to digital tax administration.
Self-employed individuals and landlords with income over £50,000 will be the first required to adopt digital record-keeping and quarterly HMRC updates, with additional groups included in later years. HMRC is providing guidance, support, and a voluntary pilot to ease the transition and has stressed that the changes do not mean extra tax returns, but rather a revised reporting method.
As this phased implementation continues, digital tax tools such as Pie will be increasingly useful for managing compliance and staying up to date with tax obligations.
