Making Tax Digital for income tax (MTD ITSA) is the biggest change to how sole traders, landlords, and partnerships report their profits since self assessment began. It goes live from April 2026 for anyone with qualifying income over £50,000, and from April 2027 for those over £30,000. From April 2028, it drops to £20,000.

Most coverage treats MTD ITSA as a single-trade problem. You run a business, you report quarterly. Simple. But what if you run a trade and let a property? That is where the guidance gets thin. If you are a self-employed plumber in Leeds with a buy-to-let flat, or a freelance consultant in Bristol who rents out a former home, you need to know exactly how quarterly reporting applies to both income streams. This article covers that.

What Is Making Tax Digital for Income Tax?

Making Tax Digital for income tax requires you to keep digital records and send quarterly updates to HMRC using compatible software. At the end of the year, you submit an end-of-period statement (EOPS) and a final declaration. The annual self assessment return (SA100) will still exist in some form for the first few years, but the quarterly updates become the primary reporting mechanism.

This is not a voluntary scheme. If your qualifying income from self-employment and property combined exceeds the threshold, you must comply. The penalties for late or missed quarterly updates are still being finalised, but HMRC has indicated a points-based system similar to VAT late filing penalties.

As ICAEW qualified accountants, we are already helping clients prepare their digital records and select the right software. The key difference most people miss is this: if you have both a trade and a rental property, you do not submit one quarterly update. You submit two.

One Threshold, Two Income Streams

HMRC looks at your total qualifying income from self-employment and property letting. If that total exceeds £50,000 in a tax year, you are mandated for MTD ITSA from April 2026. If it exceeds £30,000, you are mandated from April 2027.

Here is the critical point. The threshold is combined. But the reporting is separate.

You must keep distinct digital records for your trade and for your rental property. You must submit separate quarterly updates for each. And you must submit separate end-of-period statements for each at year end.

Let us use a real example. A self-employed electrician in Sheffield turns over £65,000 from his trade, with allowable expenses of £20,000, giving a profit of £45,000. He also owns a terraced house in Kelham Island that he lets for £12,000 a year, with mortgage interest and maintenance costs of £5,000, giving a rental profit of £7,000. His total qualifying income is £52,000. He is mandated from April 2026.

He must report his trade income and his rental income in two separate quarterly updates. He cannot combine them into one return.

The Quarterly Reporting Cycle for Sole Traders with Rental Property

Each quarter, you submit an update for your trade and an update for your property. The quarters align with the tax year:

  • Quarter 1: 6 April to 5 July (update due by 7 August)
  • Quarter 2: 6 July to 5 October (update due by 7 November)
  • Quarter 3: 6 October to 5 January (update due by 7 February)
  • Quarter 4: 6 January to 5 April (update due by 7 May)

For the electrician above, that means eight quarterly submissions per year. Four for his trade, four for his rental property. Each submission must be made through MTD-compatible software that sends the data directly to HMRC.

You cannot use a spreadsheet and manually enter figures into the HMRC portal. The software must connect via HMRC's API. Spreadsheets are allowed only if they are linked to bridging software that creates the API connection.

What Data Goes into Each Quarterly Update?

Each quarterly update reports cumulative income and expenses for that income stream from the start of the tax year. So for Quarter 2, you report income and expenses for the period 6 April to 5 October, not just the July to October quarter.

HMRC does not require you to calculate profit in the quarterly update. You report the raw figures: total income and total allowable expenses. The software calculates the cumulative profit or loss.

For the rental property, you report rental income received and allowable expenses incurred. Mortgage interest is not an allowable expense for profit calculation, but you still report it. HMRC uses the figures to apply the 20% tax credit for financing costs.

Software Requirements for Dual-Income Sole Traders

Not all MTD-compatible software handles both trades and property income equally well. Some packages are built for single-trade businesses. Others allow you to manage multiple income streams within one account.

Xero and FreeAgent both support MTD ITSA for multiple income streams. QuickBooks also supports it, though the setup for separating trade and property income needs careful tagging. Sage 50 has MTD ITSA functionality but is more common in larger businesses.

If you use separate software for your trade and your property, that is fine. Each must be MTD-compatible. You just submit each quarterly update from the relevant software.

We recommend speaking to your accountant before choosing software. Some packages handle the end-of-period statements and final declaration more smoothly than others. The last thing you want is to reach April 2027 and realise your software cannot generate the EOPS for your rental property.

End-of-Period Statements and the Final Declaration

After the fourth quarter, you submit an end-of-period statement for each income stream. The EOPS confirms the final figures for the year. You then submit a final declaration which replaces the current self assessment return for MTD purposes.

For the sole trader with a rental property, that means two EOPS submissions: one for the trade, one for the property. Then one final declaration that brings everything together.

The final declaration includes any other income not captured by the quarterly updates, such as bank interest, dividends, or capital gains. You can also make claims for reliefs and allowances at this stage.

HMRC has confirmed that the final declaration will replace the SA100 for those mandated for MTD ITSA. But for the first few years, you may still need to submit a separate return for certain reliefs or if you have income streams outside MTD.

What About Partnerships?

Partnerships are included in MTD ITSA, but the rules are slightly different. A partnership must register for MTD and submit quarterly updates for the partnership's trade. Individual partners then report their share of partnership profits through their own MTD records.

If you are a partner in a trading partnership and also a sole trader with a rental property, you have three income streams to track: your partnership share, your sole trade, and your property. Each requires separate quarterly updates.

The partnership itself submits the quarterly updates for the partnership trade. You submit your own updates for your sole trade and rental property.

Practical Steps to Prepare Now

If your combined self-employment and property income exceeds £50,000, you have until April 2026 to get ready. That sounds like plenty of time. It is not, if your records are currently on paper or in a spreadsheet with no digital link.

Here is what to do between now and April 2026:

  • Review your current record-keeping. If you use paper receipts and a manual ledger, you need to move to digital records now. Do not wait until March 2026.
  • Choose MTD-compatible software that handles multiple income streams. If you have both a trade and a property, confirm the software supports separate quarterly updates for each.
  • Start using the software now. Enter your current year transactions. The more historical data you have in the system, the easier the transition will be.
  • Check whether your accountant uses MTD-compatible software for their review process. If they still work from paper printouts, you may need to switch.
  • If your income is between £30,000 and £50,000, you are mandated from April 2027. You have an extra year, but the same preparation steps apply.

What If Your Income Fluctuates?

If your income is close to the threshold, you need to monitor it carefully. MTD ITSA mandates you based on your total qualifying income in a tax year. If you have a good year and cross £50,000, you are mandated from the following April.

There is no grace period. If your 2025/26 income hits £52,000, you must be MTD-compliant from April 2026. You cannot argue that your income is usually lower.

If your income drops below the threshold in a later year, you can apply to leave MTD. But you must have been below the threshold for at least two consecutive tax years before you can opt out.

Common Mistakes to Avoid

The most common mistake we see in planning conversations is assuming MTD ITSA only applies to your main trade. If you have a rental property, even a small one, it counts toward the threshold and requires its own quarterly updates.

Another mistake is mixing trade and property income in the same quarterly update. HMRC expects separate submissions. If you combine them, your records will not match HMRC's expectations, and you may face compliance checks.

Some landlords assume that if their rental income is below the £1,000 property allowance, they do not need to report it. That is correct for the property allowance itself. But if you have a trade above the threshold and a rental property below £1,000, the rental income still counts toward your total qualifying income for the MTD threshold. You need to check whether you are mandated.

If your rental income is below £1,000 and you elect to use the property allowance, you do not need to report that income at all. It does not count toward the MTD threshold. But you must formally elect for the allowance. You cannot simply ignore the income.

How We Can Help

Our ICAEW qualified team works with sole traders, landlords, and partnerships across the UK. We help you set up your digital records, choose the right software, and manage the quarterly reporting cycle. If you have both a trade and a rental property, we make sure both income streams are handled correctly.

We are based in Manchester but work with clients remotely from London to Edinburgh. If your combined income is approaching the MTD threshold, get in touch early. The software setup and record migration take time, and the last quarter of the tax year is not the time to start.

Contact us through our contact page or read more about our services for sole traders and landlords.