Making Tax Digital Income Tax Explained

Making Tax Digital is no longer a long-term plan. For many self-employed people and landlords, it is now the main way to report income to HMRC. If you only file once a year, making tax digital income tax can feel like a big change. You must keep records more often, send updates through software, and stay on top of your books. This guide explains the process in plain English and shows how to get ready with less stress.

MTD for Income Tax explained: what it is and what it is not

MTD ITSA stands for Making Tax Digital for Income Tax Self Assessment. In simple terms, it asks you to:

• Keep digital records
• Send quarterly updates to HMRC through MTD-ready software
• Send an end-of-period statement and a final declaration at year end

It also helps to compare MTD ITSA vs Self Assessment:

• Self Assessment (old style): one yearly return, often with spreadsheets and manual copy work
• MTD ITSA: digital records and quarterly update rules for Self Assessment, all sent through linked software

MTD does not mean paying tax four times a year. Quarterly updates are information only. HMRC uses them to show rough in-year estimates.

Who needs to sign up for MTD ITSA, and when?

Many people search who needs to sign up for MTD ITSA because they want to know if it applies to them. Usually, the rules are aimed at:

• Sole traders
• Landlords
• People whose business or property income passes the HMRC threshold
• People who are in the start phase for their group

MTD ITSA start date 2026 to 2027: what to plan for

The rollout is phased, so your date depends on your situation. For now, plan for:

• Fully digital record keeping
• Choosing and setting up software
• Time to test submissions and fix your process

If you are not in scope yet, you may still start early. That can reduce stress and help you build a smoother system.

Digital record rules for landlords and sole traders

The digital record rules for landlords and self-employed people sit at the heart of MTD. You need to keep records in digital form and update them over time.

Record these items in a steady, accurate way:

• Date of income or expense
• Amount
• Category, such as repairs, travel, or utilities
• Supplier or customer details where needed
• Proof, such as a receipt or invoice

Actionable tip: build a ‘minimum viable’ records habit

If admin time is tight, use a short weekly routine:

• Upload receipts as you go; a mobile app helps
• Check bank transactions each week
• Use the same categories every time
• Add notes for odd items, like mixed personal and business use

Quarterly updates: what you send and how it works

A major change is the need to send updates more often. The quarterly update rules for Self Assessment under MTD are designed to reduce the year-end rush and improve accuracy.

How to submit quarterly updates to HMRC

You do not use the old Self Assessment portal. Instead, you use income tax software or online tax services that support MTD.

A simple quarterly process looks like this:

1. Update your digital records for income and allowed expenses
2. Check your categories and fill in missing items
3. Create the quarterly submission in your software
4. Send it online to HMRC
5. Save the confirmation and review HMRC’s estimate

This is the basic workflow behind how to submit quarterly updates to HMRC without making it a monthly chore.

Choosing tools: income tax software, bridging software, or accounting software?

One of the most searched questions is about the compatible MTD ITSA software list and which tool to choose.

Compatible MTD ITSA software list: what ‘compatible’ really means

‘Compatible’ usually means the software can:

• Hold digital records, or connect to a record system
• Send quarterly updates
• Support year-end steps
• Link to HMRC securely

When you compare tools, check for clear MTD ITSA support, not just VAT support.

Bridging software vs accounting software: which suits you?

Bridging software vs accounting software is a key choice:

• Bridging software links a spreadsheet-led process to HMRC submissions. It can cost less and feel familiar, but it still needs careful data entry and good checks.
• Accounting software often gives you full bookkeeping, bank feeds, invoicing, expense capture, and reports. It can cut manual work, but it may also mean a bigger change in how you work.

Best MTD software for sole traders: a practical checklist

There is no single best tool for everyone, but the best MTD software for sole traders often includes:

• Easy expense capture on mobile
• Bank feed links and simple checks
• A clear quarterly submission flow
• Helpful support and plain-English guidance
• Pricing that fits your turnover and transaction level
• An option to add an accountant or agent

If you use an accountant, ask what they support and whether they can connect as your agent without hassle.

How software links to HMRC, in plain terms

MTD relies on digital links, so people often ask how to connect software to HMRC via API. You do not need to code. In most cases, it works like this:

• Choose an MTD-ready product
• Click ‘Connect to HMRC’ in the software
• Sign in to HMRC and give permission
• Return to the software and finish the link

That permission lets the software send updates safely on your behalf.

Working with an accountant: HMRC agent services account for MTD

If you use an accountant or tax adviser, they may work through an HMRC agent services account for MTD. This helps them manage permission and submit on your behalf where allowed. You still need to keep your records digital and on time.

HMRC MTD ITSA sign up process: what to expect

The HMRC MTD ITSA sign up process can vary depending on whether you sign up yourself or use an agent, and whether you join a live service or a test and setup window. In general, plan for:

• Verifying your identity with Government Gateway or a similar sign-in
• Confirming your business or property details
• Giving the software permission to act for you
• Checking that your accounting period and tax year setup is right

Actionable tip: do a ‘dry run’ month

Before your first real quarterly update:

• Check transactions up to month end
• Sort each item into the right category
• Create reports in your software
• Fix repeat issues, such as mixed-use costs or missing receipts

This lowers the risk of messy quarterly submissions that are hard to fix later.

Penalties for late MTD submissions, and how to avoid them

Late filing has always been painful, and many people worry about penalties for late MTD submissions because there are more touchpoints through the year.

To lower your risk:

• Put quarterly dates in your calendar with reminders 2–3 weeks ahead
• Check weekly or every two weeks, not only at quarter end
• Automate where you can: bank feeds, receipt capture, and repeat rules
• If you use an agent, agree who does what, including who presses send and who checks the details

If something goes wrong, such as illness or an unexpected event, keep evidence and act fast. Do not just miss the deadline without saying anything.

MTD ITSA exemptions and deferrals: are you eligible?

Not everyone can use the standard process. MTD ITSA exemptions and deferrals may apply in some cases, such as:

• Digital exclusion, such as not being able to use digital tools
• Specific situations recognised by HMRC
• Temporary delays for defined groups, where announced

If you think you may qualify, do not guess. Check the rules and apply early where needed, because waiting until the first deadline is often when problems become urgent.

Bringing it all together: a simple readiness plan

If you want a simple route to compliance with making tax digital income tax, use this phased plan:

1. Now: choose your path, such as spreadsheets with bridging software, or full accounting software
2. Next: set up categories, bank feeds, and receipt capture
3. Then: confirm how quarterly updates will work and whether an agent is involved
4. Before go-live: finish the link steps and test submissions in the software
5. Ongoing: keep records up to date and check quarterly estimates for surprises

Conclusion: your key takeaway

Understanding Making Tax Digital for Income Tax comes down to three things: keep cleaner digital records, use the right income tax software or bridging route, and build a steady quarterly routine. With the right setup, MTD can reduce year-end stress because you track your numbers through the year instead of rushing at the deadline.

Frequently Asked Questions

Question:

Do quarterly updates mean I’ll have to pay tax four times a year?

Short answer: No. Under MTD ITSA, quarterly submissions are information updates sent through compatible software to keep HMRC informed during the year. They are not final tax bills. HMRC may show estimated liabilities based on those updates, but your real tax position is confirmed through your end-of-period statement and final declaration at year end.

Question:

I already do Self Assessment yearly – what is the key difference with MTD ITSA?

Short answer: Traditional Self Assessment focuses on one annual return and often accepts spreadsheets and manual steps. MTD ITSA requires digital record keeping, quarterly updates through HMRC-compatible software, and a year-end process with an end-of-period statement plus a final declaration. You use software linked to HMRC instead of the old SA portal for these filings.

Question:

Should I choose bridging software or full accounting software?

Short answer: It depends on how you work. Bridging software lets you keep a spreadsheet-led process while handling MTD submissions, which can be cost-effective but needs careful data entry and strong checks. Accounting software gives you full bookkeeping, bank feeds, receipt capture, and easier quarterly updates, but it means a bigger change in workflow. Choose the option that fits your habits, transaction volume, and support needs.

Question:

How do I connect my software to HMRC? Do I need to be technical?

Short answer: You do not need to code. In most tools, you click ‘Connect to HMRC’, sign in on HMRC’s site, give permission, and return to the software with the link complete. That permission lets the software send quarterly and year-end submissions on your behalf. If you have an accountant, they may manage this through an HMRC agent services account with your permission.

Question:

What practical steps can I take now to avoid late-submission penalties?

Short answer: Build a simple, repeatable routine: upload receipts as you go, check bank transactions weekly, use the same categories, and note unusual items. Put quarterly deadlines in your calendar with reminders, automate where you can, and consider a ‘dry run’ month before your first real submission. If you use an agent, agree who prepares, reviews, and presses send to prevent last-minute surprises.

Q&A

Question:

Who has to sign up for MTD ITSA and when does it start?

Short answer: MTD ITSA applies to sole traders and/or landlords whose business and/or property income passes HMRC’s threshold and who fall within the phased start dates beginning 2026–2027. If you’re in scope, you’ll need digital records, compatible software, quarterly updates, and year-end filings. Even if you’re not required yet, starting early can make the switch easier.

Question:

What exactly counts as ‘digital records’ under MTD ITSA?

Short answer: You need to keep records in a digital system that can be saved and updated over time. At a minimum, capture the date, amount, category, supplier or customer where relevant, and proof such as a receipt or invoice. Consistent categories, weekly bank checks, and mobile receipt capture help keep records accurate and compliant.

Question:

How do quarterly updates work in practice, and where do I submit them?

Short answer: You do not use the old Self Assessment portal. Instead, use HMRC-compatible income tax software to update your records, review categories, create the quarterly submission, send it online to HMRC, and save the confirmation. These updates provide in-year information, not final tax bills.

Question:

How do I connect my software to HMRC – do I need an API setup?

Short answer: No coding is needed. In your MTD-ready software, click ‘Connect to HMRC’, sign in on HMRC’s site to give permission, and return to the software with the secure link in place. That lets the software send quarterly updates and year-end statements. If you use an accountant, they can manage this through an HMRC Agent Services Account with your consent.

Question:

What happens if I’m digitally excluded or can’t meet the requirements?

Short answer: Some taxpayers may qualify for MTD ITSA exemptions or deferrals, for example due to digital exclusion or other HMRC-recognised cases. If you think you may qualify, check the rules and apply early rather than waiting until the first deadline. Late action can lead to problems and possible penalties.