MTD ITSA Is Now Law: What Accountants and 860,000 Sole Traders Need to Do Today

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) becomes mandatory on 6 April 2026 — six days from now. If you are a sole trader or landlord with income above £50,000 per year, or if you advise clients who are, this is not a future planning exercise. It is happening now.

860,000 people across the UK must immediately begin keeping digital records and submitting quarterly updates to HMRC using compatible software. Those who aren't set up face penalties from day one of the new tax year. Accountants fielding questions about this today need clear answers for their clients.

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What Is MTD ITSA?

Making Tax Digital for Income Tax Self Assessment is HMRC's programme to move self-assessment taxpayers — sole traders and property landlords — onto digital record-keeping and quarterly reporting.

Under the old system, affected individuals filed one Self Assessment tax return per year. Under MTD ITSA, they must:

1. Keep digital records of all income and expenses using HMRC-compatible software
2. Submit quarterly updates to HMRC (four times per year, each quarter)
3. File an End of Period Statement (EOPS) annually confirming the figures
4. Submit a Final Declaration replacing the traditional Self Assessment tax return

The deadline for the first quarterly update for the 2026/27 tax year will fall in August 2026 (covering April–June 2026). But the obligation to use compatible software and keep digital records starts 6 April 2026.

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Who Is Affected from April 2026?

Phase 1 (April 2026): Sole traders and landlords with total qualifying income above £50,000 per year.

This covers approximately 860,000 individuals, including:

• Self-employed sole traders across all sectors (construction subbies, freelancers, consultants, tradespeople)
• Landlords with property income above £50,000
• Individuals with a combination of self-employment and property income that together exceeds £50,000

Phase 2 (April 2027): Extended to those with income above £30,000. An estimated further 900,000 individuals.

Phase 3 (TBC): Those with income above £20,000 — likely later in the decade.

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What Compatible Software Means

HMRC does not provide its own MTD-compatible software for income tax. Every affected person must use a third-party product from the HMRC's approved software list.

HMRC-recognised MTD ITSA software as of April 2026 includes:

• QuickBooks (Self-Employed and Simple Start plans)
• FreeAgent (popular with sole traders and freelancers)
• Xero (with MTD Income Tax module)
• Sage (Accounting Start)
• Coconut (designed for sole traders and landlords)
• TaxCalc and other accountant-grade products
• Various specialist landlord software packages

Key point for accountants: If your client is using spreadsheets or manual records, they must now either switch to approved software or use a bridging tool that pulls data from spreadsheets into an HMRC-compatible format. HMRC does not accept spreadsheet submissions directly.

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What Happens If Clients Aren't Set Up

This is the question accountants are fielding today after mainstream media coverage, including The Independent's report yesterday.

Penalties for non-compliance with MTD ITSA are points-based:

HMRC uses an accumulating penalty points system. Miss a quarterly submission, and you receive one penalty point. Accumulate four points within a 24-month window, and a £200 fine is triggered. Further missed submissions trigger additional £200 fines.

Additionally, inaccuracies in digital records or submissions can trigger separate penalties under standard HMRC penalty frameworks.

HMRC's official position: They have confirmed that the first year of MTD ITSA will include a "soft landing" approach for some penalty areas — but the obligation to file digitally begins 6 April 2026 and HMRC has not extended the start date.

P.S. Not sure if your own business is compliant across all your obligations? Take our free Compliance Score quiz — instant results, no sign-up: compliancealert.co.uk/compliance-score

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Practical Steps for Accountants to Take Now

If you advise clients who will be in scope from April 2026:

1. Identify Which Clients Are Affected

Pull a list of all sole trader and landlord clients with 2024/25 income above £50,000. Start there.

2. Communicate Before 6 April

Your clients need to know now — not after the first quarter. Send a clear, plain-English explanation of what changes for them, what software they need, and what you need from them. The window is narrow.

3. Agree a Workflow

Will you do the quarterly submissions on their behalf, or will they submit themselves with oversight? This changes your engagement letter, your pricing, and your time commitments significantly.

4. Choose Compatible Software Together

Many clients will need a new product. Some will already use QuickBooks or Xero. If they're on spreadsheets, a bridging tool may be the fastest route.

5. Understand Your Own Compliance Obligations

Accountants and bookkeepers handling client MTD submissions have their own professional obligations. Stay current with HMRC guidance as it updates.

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Why Accountants Should Know About ComplianceAlert

Your clients don't just face MTD ITSA. In the same week that MTD goes live:

• Fair Work Agency launches April 7 with walk-in inspection powers for NMW and holiday pay
• Holiday records criminal offence takes effect April 6 (unlimited fine, 6-year retention)
• SSP day-one rights come into force April 6 for all employers
• Paternity and parental leave day-one rights activate
• CIS changes (for construction clients): NIL returns mandatory, supply chain liability, director personal liability

Your sole trader clients aren't just dealing with MTD. They're facing a compliance wave on multiple fronts simultaneously.

ComplianceAlert Pro monitors HMRC, the Fair Work Agency, HSE, ICO, and 13 other UK regulators — and sends plain-English alerts when something changes that affects your clients. Accountants using ComplianceAlert can become the trusted first call when a new regulatory obligation lands.

Try ComplianceAlert free for 7 days — no credit card required: compliancealert.co.uk | Pro: £39/month

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Frequently Asked Questions

What if a sole trader's income is just over £50,000 — do they need to comply? Yes. The £50,000 threshold applies to qualifying income for 2024/25. HMRC has been specific that rounding down is not permitted. Even £50,001 in qualifying income brings someone into scope.

Can an accountant sign up on behalf of their client? Accountants can submit MTD ITSA updates as agents using HMRC agent services. You will need to have the relevant agent authorisation in place.

What counts as "qualifying income"? Qualifying income for MTD ITSA means income from self-employment and property combined. Income from employment (PAYE) does not count towards the threshold.

What if a client misses the deadline? They will be non-compliant. The points-based penalty system means the consequences build over time rather than triggering immediately — but HMRC has been clear the obligation starts 6 April.

Is there any exemption? HMRC has published exemption categories including: those who are digitally excluded (with HMRC approval), trusts, and several others. Clients who believe they qualify for exemption must apply to HMRC before the start date.

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TL;DR — Key Takeaways

• 6 April 2026: MTD ITSA mandatory for sole traders and landlords with income above £50,000
• 860,000 people must start using HMRC-compatible software now
• Quarterly updates replace annual self-assessment for affected individuals
• Accountants: identify in-scope clients, agree workflow, choose software today
• Penalties are points-based — accumulate 4 missed quarters and £200 fines begin
• ComplianceAlert monitors HMRC and all UK regulators — 7-day free trial: compliancealert.co.uk

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