Making Tax Digital 2026: The Complete Freelancer's Guide to MTD for ITSA

What MTD for Income Tax actually is

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is HMRC's programme to move income reporting closer to real time. The annual Self Assessment return is replaced, for those in scope, by four quarterly updates submitted through MTD-compatible software and a final declaration after the tax year ends.

Two things become mandatory: records must be kept digitally from the start of the tax year, and submissions must travel through software that connects to HMRC's API. Typing figures into HMRC's own Self Assessment portal is not an option for anyone inside the MTD scope, and paper records kept for three months and typed up later do not satisfy the digital record-keeping rule.

The quarterly updates are summaries of business income and expenses for the period, not full tax returns. You do not calculate a tax liability each quarter. HMRC uses the data to build a running estimate of your position, which you can see in your HMRC online account.

Who is affected, and when

MTD for Income Tax is being rolled out in phases, starting in April 2026 with the highest income band and widening in later years as the qualifying income level steps down. Sole traders and landlords are in scope. Partnerships, limited companies and people with only PAYE employment income are not currently in scope, although that could change.

The detail that catches people out is that the test is gross income, not profit. Turnover before any expenses is what counts, so a freelancer with a healthy turnover and thin margins can be in scope while someone with lower turnover and better margins is not. Income from self-employment and from property is combined when working out whether you cross the line.

The qualifying income levels for each phase are set at fiscal events and are revised, so check the current figure for your phase on GOV.UK rather than working from a number you saw in an article. If you are near the boundary, plan on the assumption that you will be in scope.

What changes in practice

The tax year is divided into four quarters aligned to the UK tax year: 6 April to 5 July, 6 July to 5 October, 6 October to 5 January, and 6 January to 5 April. Each quarterly update is due in the month following the end of that quarter.

Digital record-keeping starts on 6 April of the first year you are in scope. Every transaction has to be recorded digitally on an ongoing basis, which in practice means capturing invoices, receipts and bank transactions as they happen rather than in a January scramble.

After the fourth quarterly update you still submit a final declaration by 31 January following the end of the tax year. That declaration replaces the Self Assessment return: it confirms total income, claims reliefs and allowances, and finalises the liability. The tax year ending 5 April 2026 is still filed the old way, under Self Assessment.

Penalties and the first-year soft landing

HMRC has confirmed a soft landing for the first year of operation, during which no penalty points are issued for late quarterly updates. The intention is to give taxpayers and agents room to adjust to a new filing rhythm without immediate financial consequences for teething problems.

Once the soft landing ends, late quarterly updates attract points under a points-based penalty system, and a financial penalty is triggered once you accumulate enough points. Points can be reset by keeping a clean submission record for a period. The point thresholds and the penalty amount are set in legislation and revised, so confirm both on GOV.UK.

The soft landing covers quarterly updates only. Late payment penalties and interest on your annual tax bill apply from the start, and the final declaration carries the same late filing consequences as a Self Assessment return does today.

Choosing MTD-compatible software

HMRC publishes a list of recognised MTD-compatible software on GOV.UK. To qualify, a product must maintain digital records, submit quarterly updates through HMRC's API, and submit the final declaration. A third-party tool is required, because HMRC's own Self Assessment portal does not accept MTD submissions.

The established accounting platforms have built or are building MTD for Income Tax support. They are mature products, and for a sole trader the recurring subscription is a real cost, so it is worth comparing what each one actually includes at the tier you would buy.

Spreadsheets are still allowed as a record-keeping medium, but they need bridging software to get the data to HMRC. The spreadsheet itself must still meet HMRC's digital record-keeping requirements, and the bridging step adds a manual handover that integrated software does not have.

Taxmo is a UK bookkeeping and tax product for freelancers and sole traders. It already prepares and submits VAT returns to HMRC through the Making Tax Digital API, and quarterly submission for MTD for Income Tax is in development, so today it is the record-keeping and tax-estimate side that is live.

Your MTD action plan

Preparation is what separates a painless transition from a stressful one. The freelancers who start early find the quarterly rhythm ordinary by the time the first deadline arrives.

• Check your gross income for the current and previous tax years against the qualifying level published on GOV.UK, remembering that it is turnover before expenses.
• Sign up for MTD for Income Tax through your HMRC online account. It is a separate step from your existing Self Assessment registration, and being registered for Self Assessment does not enrol you.
• Choose MTD-compatible software now rather than in April, set it up, and import what you can.
• Start keeping digital records straight away so the habit is formed before it is compulsory.
• File the last pre-MTD Self Assessment return by 31 January in the normal way.
• Diarise the first quarterly update deadline, which falls in the month after the first quarter ends.

Common questions