What is MTD ITSA? A plain English guide for sole traders

Making Tax Digital for Income Tax Self Assessment — or MTD ITSA for short — is HMRC's biggest shake-up to self-assessment in decades. If you're a sole trader, it affects you directly. Here's what it actually means, without the jargon.

What is MTD ITSA?

MTD ITSA is HMRC's requirement for self-employed people and landlords to keep digital records and submit tax updates quarterly — rather than once a year via a Self Assessment tax return.

Instead of a single annual return, you'll now submit four quarterly updates to HMRC throughout the year, plus a final end-of-year declaration to wrap everything up.

The idea behind it is simple: HMRC wants more visibility into your income and expenses in real time, rather than finding out about it all at once in January.

Who does it apply to?

MTD ITSA is now live for sole traders and landlords with a combined income over £50,000. Those earning between £30,000 and £50,000 will follow from April 2027.

If you're not sure whether you're affected, a good rule of thumb is: if you file a Self Assessment tax return and your self-employment income is over £50,000, MTD ITSA applies to you now.

What do I actually need to do?

To comply with MTD ITSA, you need to:

1. Keep digital records of your income and expenses — spreadsheets don't count unless they're connected to approved software
2. Submit quarterly updates to HMRC — these are summaries of your income and expenses for each three-month period
3. Submit a final declaration at the end of the tax year — this replaces your old Self Assessment return

The quarterly deadlines fall roughly every three months after your accounting period starts. Miss them and HMRC can issue penalties.

Does MTD mean I need accounting software?

Yes — HMRC requires you to use software that's compatible with their MTD system. There are various options on the market, from full accounting platforms to simpler tools designed just for sole traders.

At TaxChill, we handle all of this for you. We connect your bank feeds, categorise your transactions, and submit your quarterly updates directly to HMRC — you just review and approve before anything goes in.

The good news

While MTD sounds daunting, there's a silver lining: quarterly updates mean you'll always have an up-to-date picture of your profit and your likely tax bill. No more January panic. No more surprise bills.

With the right support in place, MTD ITSA can actually make your finances much less stressful than they were before.

If you'd like to understand what MTD ITSA means for your specific situation, book a free call with us — we're happy to walk you through it.