- MTD ITSA from April 2026: self-employment or property income above £50,000
- From April 2027: threshold drops to £30,000
- Dividends are investment income — they do NOT count toward MTD ITSA thresholds
- Most sole directors with only salary and dividends are not affected
- Quarterly updates are reporting obligations only — tax is still paid annually
What is MTD ITSA?
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is a fundamental change to how self-employed individuals and landlords report income to HMRC. It replaces the single annual Self Assessment return with:
- Four quarterly updates per tax year — reporting income and expenses for that quarter
- One final declaration at the end of the tax year — replacing the SA return, adjusting for any reliefs and calculating the final tax liability
Tax is still calculated and paid annually — the quarterly updates are digital reporting obligations, not quarterly tax payments.
Who is affected and when
| Phase | Start date | Who is in scope |
|---|---|---|
| Phase 1 | April 2026 | Self-employed individuals and landlords with total qualifying income over £50,000 |
| Phase 2 | April 2027 | Those with qualifying income over £30,000 |
| Phase 3 | April 2028 (announced, not yet legislated) | Those with qualifying income over £20,000 |
Qualifying income for MTD ITSA means gross income from self-employment and/or property. The threshold applies to the combination of both sources — not each separately.
Are you affected as a director?
This is the most important question, and the answer for most sole directors is: probably not.
| Income type | Counts toward MTD ITSA threshold? |
|---|---|
| Director salary from your company | No — employment income |
| Dividends from your company | No — investment/savings income |
| Self-employment income (sole trader work) | Yes |
| Property rental income (gross) | Yes |
| Interest income | No — savings income |
A director who takes only salary and dividends from their limited company, with no additional self-employment or rental income, is not in scope for MTD ITSA at any threshold — regardless of how large those salary and dividend amounts are.
When directors ARE affected: If you have self-employment income alongside your directorship (e.g., you also do freelance work in your own name), or you own rental property, those income streams count. If gross self-employment + property income exceeds £50,000 from April 2026, you are in scope and must use MTD-compatible software and file quarterly updates.
What MTD ITSA requires in practice
If you are in scope, here is what changes:
| Old process | New MTD ITSA process |
|---|---|
| One Self Assessment return per year (by 31 January) | Four quarterly updates + one final declaration |
| Can file on paper or via HMRC portal | Must use MTD-compatible software |
| Annual record review at year-end | Ongoing digital record-keeping throughout the year |
| One penalty point system for SA | New points-based penalty system for MTD submissions |
Quarterly update deadlines
The four quarterly update periods and their filing deadlines:
| Quarter | Period | Filing deadline |
|---|---|---|
| Q1 | 6 April – 5 July | 5 August |
| Q2 | 6 July – 5 October | 5 November |
| Q3 | 6 October – 5 January | 5 February |
| Q4 | 6 January – 5 April | 5 May |
| Final declaration | Full tax year | 31 January (following year) |
Quarterly updates contain a summary of income and expenses for the period — not a full detailed breakdown. You are correcting and finalising the position with the final declaration.
What the quarterly updates contain
For self-employment income, each quarterly update reports:
- Total turnover/gross income for the quarter
- Allowable expenses by category (staff costs, travel, office costs, etc.)
- The software calculates the estimated profit and estimated tax liability
The quarterly figures are cumulative estimates — they help you track where you are across the year but are not finalised until the year-end declaration.
Compatible software
You must use HMRC-approved MTD ITSA software. As of 2026-27, approved software includes:
- FreeAgent — adding MTD ITSA capability; good for sole directors
- Xero — MTD ITSA ready for self-employment and property
- QuickBooks Self-Employed / QuickBooks Online
- Sage — MTD ITSA compatible
- Various specialist bridging / standalone MTD ITSA apps — some specifically for landlords
HMRC maintains a current list of approved software at hmrc.gov.uk. Check before subscribing — the list of fully approved products is still growing.
The new penalty regime for MTD ITSA
MTD ITSA uses a points-based penalty system for late submissions (replacing fixed SA penalties):
- Each late quarterly update or final declaration earns one penalty point
- When points reach the threshold (4 for quarterly filers), a £200 financial penalty is charged
- Further financial penalties apply for each subsequent late submission while at the threshold
- Points can be cleared if you file on time for a sustained period and outstanding submissions are up to date
This is designed to be more lenient for occasional lateness but progressively harsher for serial offenders.
MTD ITSA vs MTD for VAT: key differences
| MTD for VAT | MTD ITSA | |
|---|---|---|
| Mandatory since | April 2022 (all VAT businesses) | April 2026 (phased) |
| Who is affected | All VAT-registered businesses | Self-employed/landlords above income thresholds |
| Filing frequency | Quarterly (or annual accounting) | Quarterly + annual final declaration |
| Tax paid | Each quarter | Annually (same as now) |
| Directors with only salary/dividends | Not applicable (unless company is VAT registered) | Not affected (unless separate self-employment/property) |
Use the calculator
Frequently asked questions
Do dividends count as income for MTD ITSA?
What software do I need for MTD ITSA?
What happens if I miss a quarterly update?
Do I need to pay tax quarterly under MTD ITSA?
I am in scope for MTD ITSA from April 2026 — what do I need to do now?
Important: This guide is for general information only and does not constitute tax or legal advice. Tax rules change — always verify current rates and thresholds with HMRC or a qualified accountant before making decisions.