Making Tax Digital for ITSA: What Sole Traders and Landlords Need to Know

Making Tax Digital for Income Tax Self Assessment is now rolling out, bringing significant changes to how sole traders and landlords report their income to HMRC.

After several years of delays, Making Tax Digital (MTD) for ITSA (Income Tax Self Assessment) officially launched on 6 April this year. The new system represents one of the biggest changes to personal tax reporting in recent years. Instead of submitting a single Self Assessment tax return each year, many sole traders, self-employed professionals and landlords will gradually move to a more regular digital reporting process.

The changes are being introduced in stages, meaning not everyone will be affected immediately. However, now is a good time to understand what is coming and when it could apply to you.

What Is Making Tax Digital?

Making Tax Digital (MTD) is a Government initiative designed to modernise the UK tax system.

The aim is to reduce errors, improve the accuracy of tax reporting and encourage businesses and landlords to keep digital records rather than relying on spreadsheets, paper records or manual bookkeeping.

Tax reporting will become a regular process throughout the year rather than a single return in January.

Who Needs to Comply?

The rollout is based on your gross qualifying income, which is your total income before expenses from self-employment and property rental activities combined.

The requirements are being introduced in three phases:

Start Date & Gross Qualifying Income

• 6 April 2026 – more than £50,000
• 6 April 2027 – more than £30,000
• 6 April 2028 – more than £20,000

If your qualifying income for the 2024/25 tax year exceeded £50,000, you should already be complying with the new rules.  The first quarterly reporting deadline is 7 August 2026, covering the period from 6 April to 5 July 2026.

What Does This New Routine Involve?

For those who fall within the scope of MTD, there are three key requirements:

• Keep Digital Records - You must maintain digital records of your business income and expenses using compatible accounting software (not manual records or spreadsheets). If you’re already using cloud accounting software, this may involve very little change.   
• Submit Quarterly Updates - Every three months, a summary of your income and expenses must be sent to HMRC through your software. 
• Complete a Final Declaration - Finalising your tax position at the end of the tax year by 31 January, which replaces the current Self-Assessment return.

Don't Leave Preparation Until the Last Minute

HMRC has introduced a "soft landing" approach during the first year, meaning penalties for late quarterly updates will be applied more lightly while businesses adapt to the new system. The sooner you establish good record-keeping habits and appropriate software, the easier the transition will be.

Maintaining digital records throughout the year often provides better visibility of business / rental performance.  This can help with cashflow planning and identifying tax-savings in a timely manner.

How Optimum Can Support You

Making Tax Digital is more than just a software change. It affects how and when you report information to HMRC throughout the year.

If you're unsure whether the rules apply to you, need help choosing suitable software, or want to ensure your bookkeeping processes are ready, please get in touch.