MTD ITSA expands to self-employed and landlords

An overview of Making Tax Digital for Income Tax Self Assessment expansion and what it means for freelancers and landlords.

MTD ITSA changes take effect for self-employed and landlords in 2026

From 6 April 2026, Making Tax Digital for Income Tax Self Assessment applies to sole traders and landlords with a combined gross income from self-employment and property above £50,000 in the 2024/25 tax year. Affected taxpayers must keep digital records and file four quarterly updates using HMRC compatible software, followed by a final declaration each year. The change replaces the current self assessment tax return. The government says the reform will modernise the tax system and close the tax gap, but critics argue HMRC has not explained the rules clearly and that the move will cost freelancers extra time and money.

The threshold will fall to £30,000 from April 2027 and then to £20,000 in April 2028. VAT registered firms have a head start, but many sole traders and landlords will face the switch. Taxpayers can use bridging software or full MTD software, with providers including Coconut, 123 Sheets, FreeAgent and Xero. Industry voices note that some users can still rely on basic spreadsheets, but software helps connect data and keeps records audit-ready. A FreeAgent survey shows knowledge gaps, with 39 percent of respondents never hearing of MTD and almost 60 percent saying they lack sufficient guidance. A penalties system will start in April 2026, charging one penalty point per late quarterly submission, four points triggering a £200 fine, and points expiring after 24 months if compliance improves. A HMRC pilot program is available now to help taxpayers test the process before the full rollout.

The plan pushes many freelancers toward a more disciplined digital routine. On the surface, it promises clearer records and fewer errors. In practice, the cost of software, data entry, and learning new processes could be a real burden for those with simple tax affairs. The government argues the changes align with modern business practices, but critics warn the messaging is unclear and the transition could hit small players hardest. The shift also tests the appetite for a long-term compliance regime that ties tax to quarterly habits rather than annual mood swings in accounts. Public understanding and timely guidance will determine whether this reform delivers the promised benefits or creates new friction.

Highlights

The digital shift will test small business resilience in a changing tax landscape.