Making Tax Digital for Income Tax: Are You in Scope from April 2026?

Bottom line: If your income is purely salary and dividends from your limited company, you are almost certainly not in scope for MTD ITSA in 2026. If you also have rental income or a sole trader business above £50,000, you need to be MTD-ready by 6 April 2026. Here's how to check which category you're in.

What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is HMRC's programme to replace the annual Self Assessment tax return with quarterly digital reporting. Instead of one return each January, affected taxpayers will submit four quarterly updates plus a final declaration through compatible software.

The rollout is happening in phases based on income level:

The key question: are directors in scope?

Most limited company directors who take salary and dividends from their company are not in scope for MTD ITSA. Here's why:

• Salary from your company is employment income — not self-employment income
• Dividends are investment income — not self-employment income
• MTD ITSA applies to self-employment income (sole trader earnings) and property income (rental)

A director whose entire income is salary + dividends from one limited company continues with standard Self Assessment as normal. No quarterly submissions, no MTD software required. The annual 31 January deadline remains.

Golden nugget: check your other income sources

The trap is the word "also". Many directors have multiple income streams: a limited company plus a buy-to-let property, or a company plus some freelance work as a sole trader. If the combined gross income from self-employment and rental reaches £50,000, you're in scope — even if neither stream alone hits that figure. Add up all self-employment and rental income before deciding you're excluded.

If you are in scope: what you need to do before April 2026

Step 1: Register for MTD ITSA. You need to sign up with HMRC (separate to your existing Self Assessment registration) before the deadline. HMRC will begin sending notifications to affected taxpayers.

Step 2: Choose MTD-compatible software. You must use software that connects directly to HMRC's systems via API. Manual submission through HMRC's website is not available under MTD ITSA. HMRC maintains an approved list — major options include:

• FreeAgent — popular with contractors and small business owners, good for combined company and personal tax tracking
• Xero — robust feature set, widely used by accountants
• QuickBooks — strong integration with other business tools
• Sage — established payroll and accounting suite

Step 3: Set up quarterly reporting. The four quarterly periods for individuals (not business accounting periods) are: 6 April–5 July, 6 July–5 October, 6 October–5 January, 6 January–5 April. Each update must be submitted within one month of the quarter ending.

What a quarterly update actually contains

Quarterly updates are income and expenses summaries — not full returns. For each quarter, you submit:

• Gross income from self-employment or property
• Categorised expenses (not individual receipts)

The final declaration (due by 31 January after the tax year ends) is where you add all other income sources, reliefs, and allowances — similar to the current Self Assessment return, but building on the quarterly summaries already submitted.

Golden nugget: quarterly doesn't mean quarterly tax payments

A common misunderstanding: people think MTD ITSA means paying tax quarterly, not just reporting quarterly. This is not the case. Your tax is still due in the usual Self Assessment instalments — 31 January and 31 July for payments on account, plus the 31 January balancing payment. The reporting cadence changes; the payment schedule does not (at least not yet — HMRC has discussed potential future payment changes, but these are not confirmed).

Penalties for non-compliance

HMRC is introducing a new points-based penalty system alongside MTD ITSA. Each missed quarterly update earns one penalty point. Once you reach a threshold (4 points for quarterly reporters), a £200 financial penalty applies. Additional late submission penalties then apply. The system is designed to be more lenient for occasional misses while penalising persistent non-compliance.

What to do right now

If you're unsure whether you're in scope: total up your gross self-employment and rental income for 2024-25. If it exceeds £50,000, you need to be ready for April 2026. If it's between £30,000 and £50,000, you have until 2027 but should start preparing now — choosing software early is easier than scrambling six months before a deadline. If it's below £30,000, watch for further HMRC announcements.