Everything you Need to Know About MTD for ITSA

‘Making Tax Digital’ for Income Tax Self-Assessment (MTD ITSA) is due to become mandatory for some sole traders and landlords who meet certain thresholds as of April 2026.

But what exactly is the MTD ITSA? It is a new piece of legislation that requires businesses and landlords with qualifying income over a specified threshold to maintain digital records and update HMRC quarterly using compatible software. The government believes this will exploit the opportunities offered by digitalisation to make it easier for everyone to get tax right. Not only this but there is evidence that it will contribute to the minimisation of the tax gap, which currently stands at an estimated £5 billion.

You may have previously seen that the MTD ITSA was due in April 2024, however, this changed in late 2022 when the Government pushed the date back. As a result, our accountants here at Gow and Partners have been preparing for a smooth transition, and as such, we have outlined all the necessary information here in this blog!

Whether you’ll be legally required to sign up when 2026 comes around depends on whether your income from a self-employed trade or property rental crosses a certain threshold. So let’s get into it!

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What is the Threshold for MTD ITSA?

As it stands, you will legally be required to sign up for MTD for ITSA in April 2026 if your qualifying annual income for the tax year is more than £50,000; that is if you are a sole trader or a landlord. From April 2027, the threshold will then be lowered to £30,000, so those earning above this will then also be legally required to sign up.

It is also very likely that the threshold will be lowered again below £30,000 at a later date, however, this is not yet confirmed by HMRC.

It’s important to note that your qualifying income is the amount you earn before you deduct expenses. Let's look at an example:

You make £52,000 a year from self-employment and spend £7,00 a year in business expenses. Even though your taxable income is £45,000, since your business surpasses the qualifying income threshold, you’ll need to register your business for MTD for ITSA in April 2026.

All other sources of income typically reported through your Self-Assessment, such as employment income, dividends, and savings do not currently contribute to your qualifying income. If you need more information on what exactly contributes to your qualifying income, you can read Section 6 below, or check this on the HMRC website.

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Does MTD ITSA Affect Partnerships as well as Sole Traders and Landlords?

Originally, it was planned that the MTD ITSA would be a mandatory process for general partnerships after the original launch date of April 2024. However, this requirement was disregarded after the push-back in 2022.

Currently, it is still unclear whether or not MTD ITSA will become a legal requirement for general partnerships, and if so, what the threshold might be. What we do know is it will almost certainly not be mandated before April 2027.

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Over what Period is the Threshold for MTD ITSA Calculated?

All businesses have a basis period. This is the period for which tax is calculated and paid, which typically matches the accounting period of the business, but this is not always the case.

However, inspired by the MTD ITSA introduction, the rules are changing. It will be mandated that all unincorporated businesses (such as sole traders) must use the tax year (6 April – 5 April) as their basis period by the time the MTD ITSA is in effect.

For landlords, this won’t be much of a difference, since they already use the tax year as their basis period. However, all sole traders must use the same basis period even if their accounting period uses different dates.

For those who qualify for the MTD ITSA on the start date of April 2026, the tax year used to calculate this will be 2024/25, since income for 2025/26 will not yet have been fully declared.

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Is it Turnover or Income that Counts for the MTD ITSA threshold?

Since turnover refers to all money received by a business, it is your gross income that determines whether MTD ITSA is a legal requirement for you. Your turnover could

include money received for things like sales, which is something that is not accounted for in the MTD ITSA threshold.

It is also important to note that the threshold is based on pre-tax income you have before deducting expenses (since it is based on gross income).

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What is Considered as Qualifying Income for the MTD ITSA Threshold?

Qualifying income for MTD ITSA is that which comes from self-employment and property income from UK sources (although foreign income from self-employment or property is included if you’re domiciled in the UK).

An important note is that the income you need to consider might be from multiple self-employments you undertake and/or properties that you have.

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What About my Savings Interest, Pensions, etc. Do they Contribute to the Threshold?

No, savings interest and pensions, and other kinds of personal income do not contribute to your qualifying income. If you do fall within the scope of MTD ITSA, then you’ll also need to use your MTD software to report these alternative kinds of personal income.

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What About Income from a Jointly Owned Property?

If you are a landlord and have joint ownership of a property, your proportion of the property rented out will contribute to your qualifying income. To illustrate this, here is an example:

You and a sibling rent out a property that generates £62,000 in income. Since you’ve opted for 50/50 ownership, you’ll both have a qualifying income of £31,000 — meaning you won't need to register for MTD ITSA in April 2026, since your qualifying income is below £50,000. However, you will need to register for April 2027 since your qualifying income is higher than the £30,000 threshold.

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How do I Report my Income?

If you’re self-employed or a landlord, and you meet the threshold for MTD ITSA, you’ll need to send updates to HMRC every quarter using MTD-compatible software. Every 3

months, your selected software will add together your digital records to create totals for each income and expense category to generate your quarterly updates.

Here at Gow and Partners, we have been making use of digital accounting software since our incorporation, and as such, have an expert team who can make these processes smooth and stress-free if you do meet the threshold for the MTD ITSA.

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What if I’m Self-Employed and have Income from Landlord Rents?

For the sake of the MTD ITSA threshold, your income from self-employment and your landlord rents are combined. For example:

If you’re a self-employed plumber with £35,000 income from that trade, and you also receive £20,000 from rental income, then the total qualifying income of £55,000 pushes you over the £50,000 threshold and you must apply for MTD ITSA as of April 2026.

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Does the Threshold Apply to all Rental Income From a Property or Just the Share I Receive?

Since the MTD ITSA is about income tax, it relates solely to your own personal income. To elaborate, it applies to just the share you receive. Let’s illustrate with an example:

If you have a share rental income from a property that generates £70,000 per annum, and your share of that is £25,000 then it won’t push you over the threshold of £50,000 as of April 2026 or April 2027. However, as mentioned above, any self-employed income must be added to this amount. So, say you earn £27,000 as a plumber, then the income generated from your share of landlord rent combined with your self-employed income will push you over the April 2026 threshold.

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Do I Have to be Registered for the Existing Self-Assessment Scheme for MTD ITSA to Apply?

Yes. As of the start date for MTD ITSA, if your requirement to declare self-employed or landlord income is new (e.g. you’ve just started in a trade after being employed), you will have to use the older Self-Assessment system until your income rises above £50,000. Then, as of the start of the next tax year, you’ll be legally required to register for MTD ITSA.

This is only for 2026/27, however, and as of April 2027 if your income has been above £30,000 then you will need to sign-up to MTD ITSA.

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What if my Income Pushes me Above the Threshold, but Then Falls Below in Later Years?

Once you sign up for MTD ITSA, whether that be voluntarily or because you have passed the threshold, you must continue to use it. This is the case even if you drop below the thresholds stated above for both April 2026 and April 2027.

The only situation in which you would stop using MTD ITSA is if you stopped receiving income of that type, and hence no longer needed to submit an income tax return. At that point, you can then de-register for MTD ITSA.

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Summary

Whether you’re legally obligated to sign up for the MTD ITSA, or you volunteer to do so, our expert team of accountants at Gow and Partners are here to assist you every step of the way! We have years of experience with digital accounting software, making your transition into the MTD ISTA as smooth as possible…

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