What Is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is HMRC's programme to move income tax reporting onto a fully digital, real-time basis. From April 2026, if you are self-employed or a landlord with total income from those sources above £50,000 per year, you must:

  • Keep digital records of your business income and expenses using MTD-compatible software
  • Send a quarterly summary of your income and expenses to HMRC within one month of each quarter end
  • Submit an End of Period Statement (EOPS) after your final quarter of the tax year
  • Complete a final declaration to finalise your tax position for the year

From April 2027, the threshold drops to £30,000. From April 2028, it drops again to £20,000. By 2029, virtually every self-employed person and landlord in the UK will be within MTD ITSA.

This is not optional. If you are over the threshold and do not comply, HMRC will issue penalties. The old system of filing one self assessment return each January will still exist for those below the thresholds, but for everyone above, quarterly filing is now law.

What Does a Making Tax Digital Accountant Actually Do?

A making tax digital accountant is simply a qualified accountant who understands MTD ITSA requirements and can set you up to comply. The core tasks are:

  • Selecting and setting up MTD-compatible software (Xero, FreeAgent, QuickBooks, Sage, or others with HMRC-recognised MTD functionality)
  • Helping you organise your records digitally so they feed into the software correctly
  • Submitting the quarterly updates on your behalf (or teaching you to do it yourself)
  • Reviewing the quarterly figures for errors or missed deductions before they go to HMRC
  • Preparing and submitting the End of Period Statement and final declaration
  • Managing any tax payments that arise from the quarterly figures

If you already use bookkeeping software like Xero or FreeAgent, your accountant can connect it to HMRC's MTD system and handle the quarterly submissions. If you are still using spreadsheets or paper records, the switch will require more work upfront.

Do You Actually Need an Accountant for MTD ITSA?

You can do MTD ITSA yourself. The software handles the quarterly submissions directly to HMRC. But here is what DIY compliance looks like in practice:

You need to categorise every transaction correctly every quarter. If you misclassify a business expense as personal, or miss a deductible cost, your quarterly figures are wrong. HMRC will see those numbers. If they trigger a tax calculation that is too low, you will owe interest and possibly penalties when the final declaration corrects it.

You also need to understand the timing rules. A quarter runs from 6 April to 5 July, then 6 July to 5 October, then 6 October to 5 January, then 6 January to 5 April. You have one month from the end of each quarter to submit. Miss the deadline and penalties start at £5 per day for the first 5 days, then more.

For a sole trader with straightforward income and few transactions, doing it yourself is possible. For anyone with multiple income streams, rental properties, capital allowances, or a limited company director who also does self employed work, an accountant is the safer route.

As ICAEW qualified accountants, we see clients every week who have made errors in their self assessment returns that cost them thousands in overpaid tax or penalties. Quarterly filing multiplies the risk of those errors because you are filing four times as often.

What Software Do You Need for MTD ITSA?

HMRC maintains a list of MTD-compatible software. The most common options for small businesses are:

  • Xero - widely used by accountants, strong for limited companies and sole traders. Monthly subscription, typically £12 to £40 per month depending on plan.
  • FreeAgent - popular with contractors and small Ltds. Free if you bank with certain banks (NatWest, Royal Bank of Scotland, Ulster Bank, Mettle). Otherwise around £10 to £20 per month.
  • QuickBooks - strong for sole traders and freelancers. Simple interface. Around £12 to £30 per month.
  • Sage 50 - common in trade and manufacturing businesses. More complex. Around £12 to £40 per month.
  • GoSimpleTax - budget option for sole traders with simple affairs. Around £5 per month.

Your making tax digital accountant can recommend the right software for your business. Do not buy software before you speak to them. Some accountants specialise in Xero, others in FreeAgent. Using the software your accountant knows best saves time and reduces errors.

What About VAT MTD?

If you are already VAT-registered, you may already be under MTD for VAT. That has been mandatory since April 2019 for businesses above the £90,000 VAT threshold, and from April 2022 for all VAT-registered businesses regardless of turnover.

MTD ITSA is a separate system but uses the same underlying HMRC digital platform. If your accountant already handles your MTD VAT filings, they can add MTD ITSA to their service. The quarterly submission rhythm is the same. The main difference is that VAT quarters are fixed by your VAT scheme, while ITSA quarters are fixed to the tax year.

What Will a Making Tax Digital Accountant Cost?

Costs vary by firm, location, and complexity. For a sole trader with straightforward income, expect to pay between £80 and £150 per month for full MTD ITSA compliance including quarterly submissions and the year-end declaration. For a landlord with multiple properties, expect £100 to £200 per month. For a limited company director who also does self employed work, the cost may be higher because the structure is more complex.

Compare that to the cost of a penalty. Late filing penalties for MTD ITSA start at £5 per day for the first 5 days, then £10 per day for the next 5 days, then £15 per day for the next 5 days, then £30 per day for the remaining days up to 90 days. After 90 days, additional penalties apply. A single missed quarter can cost you hundreds of pounds in penalties. An accountant costs less than that per month.

What Happens If You Ignore MTD ITSA?

If you are over the £50,000 threshold and do nothing, HMRC will send you reminders. If you still do nothing, penalties will start. The first penalty period runs from the first missed quarterly deadline. HMRC has made it clear that ignorance of the rules is not a defence. The legislation is in place. The system is live.

There is no grace period. The first quarterly deadline for the 2026/27 tax year is 5 August 2026 (covering the period 6 April to 5 July 2026). If you have not submitted by that date, the penalty clock starts.

How to Choose a Making Tax Digital Accountant

Not every accountant offers MTD ITSA services. Some are still focused on traditional annual filing. When you are looking for a making tax digital accountant, ask these questions:

  • Are you MTD-compliant and registered with HMRC as a software agent?
  • Which accounting software do you recommend and support?
  • Do you handle the quarterly submissions or do I do them myself?
  • What is your fee structure for MTD ITSA work?
  • Do you offer a setup service to get my digital records in order?

If the answer to the first question is anything other than "yes", move on. HMRC requires agents to be authorised through their digital system. Without that authorisation, your accountant cannot submit on your behalf.

When Should You Act?

If your self employed or rental income is over £50,000, start planning now. The 2025/26 tax year is the last year you will file a traditional self assessment return. From 6 April 2026, you are on the quarterly system.

If your income is between £30,000 and £50,000, you have until April 2027, but there is no harm in starting early. The software and habits you build now will serve you for years.

If your income is between £20,000 and £30,000, you have until April 2028. Still worth understanding the requirements now so you are not scrambling later.

If your income is below £20,000, MTD ITSA does not apply to you yet. That may change in future years. HMRC has indicated they intend to bring all self employed and landlord income into the system eventually.

If you are a limited company director, MTD ITSA applies to your self employed or rental income, not your director's salary or dividends. If you have no self employed income and no rental properties, MTD ITSA does not affect you directly. But if you file a self assessment return because of dividend income above the allowance, that return will still be filed annually under the existing system for now.

Our View

MTD ITSA is the biggest change to self assessment since the system was introduced in 1996. Quarterly filing is a significant shift in how you interact with HMRC. It requires discipline, organisation, and the right software. A good making tax digital accountant removes the administrative burden and gives you confidence that your filings are correct.

If your turnover crossed the £50,000 threshold in the last 12 months, speak to us now. We can set up your software, organise your digital records, and handle the quarterly submissions from day one. Contact our team to discuss your MTD ITSA requirements. We are ICAEW qualified and registered with HMRC as MTD agents. We work with Xero, FreeAgent, QuickBooks and Sage. We cover sole traders, landlords, partnerships and limited companies across every sector.