MTD for ITSA Is Coming in April 2026. Here's What It Means for You.
Making Tax Digital for Income Tax (MTD for ITSA) will become mandatory from 6 April 2026 for sole traders and landlords with qualifying income over £50,000 per year. From April 2027, it will apply to those with income over £30,000. From April 2028, the threshold drops to £20,000.
If you are a sole trader who also rents out a property, you are not a single entity for MTD purposes. HMRC treats each income stream as a separate "business" for quarterly reporting. That means you will file separate quarterly updates for your self-employment income and for your rental income, even if you use the same software to manage both.
This is the detail that most online guides miss. They treat MTD for ITSA as if you only have one trade. The reality is more specific. And if you get it wrong, you risk late filing penalties from day one.
Who Needs to Comply with Making Tax Digital for Income Tax?
The rules apply to you if you are a sole trader, a partner in a business partnership, or a landlord (including those letting a single property) whose total qualifying income from self-employment and property exceeds the relevant threshold.
Qualifying income means your gross income before expenses, not your profit. So if your self-employment turnover is £35,000 and your rental income is £18,000, your total qualifying income is £53,000. That puts you over the £50,000 threshold from April 2026.
You are not caught by MTD for ITSA if you are a limited company director, a partnership where all partners are limited companies, or if your only income is from employment or pensions. Those groups remain outside MTD for ITSA for now.
If you are a limited company director who also has a side rental property, the rental income is caught if it exceeds the threshold. Your director's salary and dividends are not.
Quarterly Reporting: Two Separate Updates Each Quarter
Under MTD for ITSA, you must send a quarterly summary of income and expenses to HMRC using MTD-compatible software. You do this four times per tax year: for periods ending 5 July, 5 October, 5 January, and 5 April.
If you have both self-employment and rental income, you submit two separate quarterly updates each time. One for your trade. One for your property business. They are not combined into a single submission.
Here is a practical example. Say you run a building consultancy from a home office in Bristol and let a flat in the same city. Your quarterly update for July 2026 would include:
- Update 1: Self-employment income and expenses for the period 6 April 2026 to 5 July 2026.
- Update 2: Rental income and expenses for the same period.
You submit both through the same software. But HMRC records them as separate businesses. At the end of the tax year, you submit a final declaration (replacing the current self assessment return) that brings both income streams together to calculate your total tax liability.
What About Partnerships?
If you are in a partnership, the partnership itself must register for MTD for ITSA and submit quarterly updates for the partnership's income. Each partner then reports their share of the partnership profit through their own MTD for ITSA record, alongside any other self-employment or property income they have individually.
This adds another layer of complexity. A partner with their own rental property and a share of partnership profits will submit quarterly updates for each of those income streams separately.
What Data Do You Need to Submit Each Quarter?
Each quarterly update requires a summary of your income and expenses for that period. You do not need to submit every receipt. You just need totals by category: sales or rental income, cost of goods sold, staff costs, premises costs, professional fees, and so on.
The software you use will organise this for you. You enter transactions as they happen, or you link your bank feed to the software so it pulls in the data automatically. At the end of each quarter, the software generates the update and sends it to HMRC.
You must keep digital records of every transaction. Paper records are no longer sufficient for MTD purposes. If you currently keep a shoebox of receipts and hand them to your accountant once a year, that system will not work from April 2026.
For rental property, you need to record each rent payment received, each expense paid, and any capital items like a new boiler or replacement furniture. The same digital record-keeping rules apply.
Which Software Works for Both Self-Employment and Rental Income?
Not all MTD-compatible software handles both income types equally well. Some are designed primarily for sole traders and treat rental property as an afterthought. Others are built for landlords and handle self-employment less well.
As ICAEW qualified accountants, we recommend checking three things before you choose software:
- Does it support multiple MTD businesses? You need to submit separate updates for each income stream. Some software only supports one MTD business per account.
- Does it handle property-specific categories? Rental expenses include things like agent fees, repairs, insurance, mortgage interest (restricted), and capital allowances. Generic expense categories are not enough.
- Does it link to your bank feeds? Manual data entry for two income streams across four quarters is time-consuming and error-prone. Bank feeds reduce the workload significantly.
FreeAgent and Xero both support multiple MTD businesses within one account. QuickBooks also handles this well. Sage Accounting is catching up but check the specific version you are using. Some older versions of Sage 50 are not MTD-compatible for income tax at all.
If you are unsure, speak to us. We can advise on which software fits your specific combination of income streams.
End of Year: The Final Declaration Replaces Self Assessment
After the four quarterly updates, you submit a final declaration by 31 January following the end of the tax year. This replaces the current self assessment return (SA100 and the associated pages like SA103 for self-employment and SA105 for property).
The final declaration brings together all your income streams, including any employment income, pensions, savings interest, and dividends. It calculates your total tax liability, deducts any tax already paid through PAYE or quarterly payments on account, and tells you the balance due.
You still pay your tax by 31 January and 31 July, just as you do now. The quarterly updates do not change the payment dates. They only change how you report the data.
What Happens If You Are Below the Threshold?
If your total qualifying income is below £50,000 from April 2026, you are not required to join MTD for ITSA immediately. But you can volunteer. Some sole traders and landlords find the quarterly rhythm helpful for keeping on top of their finances. Others prefer to wait until they are mandated.
If you are below £20,000, you are exempt entirely for the foreseeable future. HMRC has no current plans to extend MTD for ITSA below that level.
But be careful. If your income crosses the threshold during a tax year, you must join MTD for ITSA from the start of the next tax year. So if your rental income jumps from £18,000 to £25,000 in 2025/26 and your self-employment income stays at £28,000, your total of £53,000 triggers MTD for ITSA from April 2026.
Penalties for Late or Incorrect Quarterly Updates
HMRC is introducing a new penalty system for MTD for ITSA. It is points-based. You receive a penalty point for each late submission. Once you accumulate a certain number of points, you receive a financial penalty. The points reset after a period of compliance.
For quarterly updates, the threshold is two points for annual filers. That means two late quarterly updates within a 12-month period trigger a penalty. The penalty is £200 for each subsequent late submission after the threshold is reached.
For the final declaration, the penalty structure mirrors the current self assessment late filing penalties. £100 immediately if late, then daily penalties of £10 per day after 3 months, then further penalties after 6 and 12 months.
The key point is this: if you have two income streams and you are late on one quarterly update but not the other, you get a point for that update. HMRC tracks each "business" separately. So you could accumulate points faster if you manage both income streams poorly.
How to Prepare for MTD for ITSA Now
You have time before April 2026, but the preparation should start now. Here is a practical checklist:
- Choose your software. Do not wait until March 2026. Get the software now, set it up, and start using it. You can use it for your current self assessment record-keeping. The transition will be smoother.
- Set up digital record-keeping. If you still use paper or spreadsheets, move to digital. Link your bank accounts to the software. Get into the habit of categorising transactions weekly, not annually.
- Separate your income streams. If you currently lump all your income into one spreadsheet, separate your self-employment and rental income now. That makes the quarterly updates easier when MTD starts.
- Review your rental property accounting. Mortgage interest restriction, capital allowances, and replacement of domestic items relief all need proper tracking. Digital records make this easier.
- Talk to your accountant. We can review your current setup and recommend changes before the deadline. If you are not already a client, get in touch for a consultation.
Common Mistakes to Avoid
We see the same errors repeatedly when advising clients on MTD for ITSA preparation. Here are the ones to watch for:
Treating rental income as part of self-employment. HMRC sees them as separate. Your quarterly updates must reflect that. If you report rental income within your self-employment update, it will be rejected.
Using non-compliant software. Not all accounting software is MTD-compatible for income tax. Check the HMRC list of recognised software. Using incompatible software means you cannot submit the quarterly updates at all.
Ignoring the £50,000 threshold if you are close. If your income fluctuates, you might cross the threshold in one year but not the next. Once you are in MTD for ITSA, you stay in it. There is no opt-out if your income drops below the threshold later.
Forgetting that partnership income counts. If you are a partner in a business, your share of the partnership profits counts towards your qualifying income total. Even if your personal self-employment income is low, the partnership share could push you over the threshold.
Final Thoughts
Making Tax Digital for Income Tax is the biggest change to self assessment since the system was introduced in 1996. If you have both self-employment and rental income, you face a more complex reporting requirement than most. But with the right software and a bit of preparation, it is manageable.
We have been helping clients prepare for MTD for ITSA since the pilot scheme launched. Our services include software setup, digital record-keeping training, and ongoing compliance support. If you want to make sure you are ready for April 2026, book a call with our team.