What is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax is HMRC's plan to replace the annual Self Assessment return with real-time digital reporting. Here's what it means in practice, why it exists, and what you'll actually need to do differently.
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Background: What is MTD ITSA?
Making Tax Digital for Income Tax Self Assessment — usually shortened to MTD ITSA or just MTD for Income Tax — is part of HMRC's wider Making Tax Digital initiative, which has been rolling out since 2019. MTD for Income Tax specifically targets sole traders and landlords who currently file a Self Assessment tax return each year.
Under the current system, most sole traders file a single annual return by 31 January, covering the previous tax year. MTD for Income Tax changes this so that you maintain digital records throughout the year and submit a quarterly summary of your business income and expenses directly to HMRC through compatible software.
The programme has been delayed several times since it was first announced. The current confirmed mandatory date is April 2026 for those with income over £50,000.
Why Did HMRC Introduce MTD for Income Tax?
HMRC's stated rationale is to reduce the “tax gap” — the difference between the tax that should theoretically be collected and the amount actually received. A significant portion of the tax gap is attributed to errors and misreporting in Self Assessment returns, which HMRC believes can be reduced through more frequent, software-driven submissions.
More regular reporting also gives HMRC a closer to real-time view of tax liabilities, which they argue helps taxpayers budget more accurately — knowing where you stand tax-wise throughout the year rather than discovering a large bill in January.
Critics have raised concerns about the administrative burden on smaller businesses, which is one reason the rollout has been phased and the threshold set at £50,000 for the first mandatory wave.
How MTD for Income Tax Works
Once you're signed up for MTD, your year is divided into four quarters. At the end of each quarter you submit a summary of your business income and allowable expenses to HMRC through your MTD-compatible software. These submissions are not tax payments — they're a digital record of your business activity in that period.
The MTD reporting cycle
- 1Keep digital records throughout each quarter — income received and expenses paid, categorised correctly.
- 2Submit a quarterly update within one month of each quarter ending — your software will handle the submission to HMRC.
- 3File an End of Period Statement (EOPS) for each income source after the tax year ends, confirming your quarterly figures and adding annual adjustments.
- 4Submit your Final Declaration by 31 January, bringing together all income sources and replacing the old Self Assessment return.
What Changes for Sole Traders Under MTD?
The most significant change is the move from once-a-year filing to quarterly submissions. You'll also need to use HMRC-recognised software — keeping records in a spreadsheet or paper ledger alone is no longer sufficient (though you can still use a spreadsheet if you pair it with compliant bridging software).
You'll need to categorise your income and expenses according to HMRC's required categories from the start of each quarter, so that your software can produce a compliant submission. Good accounting software does this automatically as you record transactions.
What Stays the Same?
Quarterly updates are summaries only — not tax payments. Your payments on account schedule and the January balancing payment remain unchanged. The tax year still runs from 6 April to 5 April. You'll still claim the same allowances and reliefs as before. The January 31 deadline for your Final Declaration (formerly Self Assessment return) also remains.
The fundamental rules of what is and isn't taxable as a sole trader don't change either — MTD changes how and when you report, not what you report.
How Does MTD Differ from Self Assessment?
Self Assessment involves filing one return a year, containing all your income from every source. MTD for Income Tax replaces this for your sole-trader and property income with quarterly updates plus an annual EOPS and Final Declaration. The Final Declaration is still required and covers any other income that falls outside the MTD framework (such as employment income, dividends, or savings interest), so it remains an important annual submission.
The key difference is frequency and method: quarterly digital submissions versus one annual paper or online return.
Is MTD for Income Tax the Same as MTD for VAT?
No. MTD for VAT (mandatory since April 2019 for businesses above the VAT threshold) is an entirely separate programme. It requires VAT-registered businesses to keep digital records and submit VAT returns via compatible software. If you already do this, you are compliant with MTD for VAT but this does not affect your MTD for Income Tax obligations at all.
The two programmes use different HMRC APIs, may require different software features, and have separate sign-up processes. Some software products support both; others support only one. When comparing software, make sure the product explicitly lists MTD for Income Tax (not just MTD for VAT) among its features.
Find Out if You're Affected by MTD
Use our free eligibility checker to find out exactly when you need to comply and what you need to do first.