MTD for ITSA for small business owners: challenges and opportunities

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) changes how sole traders and landlords keep records and send information to HMRC. Instead of only one annual return, you’ll keep digital records during the year, send quarterly updates from compatible software, then make your end-of-year submission through that software by 31 January as usual.

What’s actually changing (in one minute)

• Digital records become mandatory for sole-traders and landlords. 

• Quarterly updates are due on fixed dates (7 Aug, 7 Nov, 7 Feb, 7 May), covering each period’s totals.

• End-of-year: you review and finalise figures in software, then submit your return by 31 January (payment dates don’t change).

Rollout is phased by qualifying income (total self-employment + property income before expenses), starting 6 April 2026.

Key challenges for small business owners

1) New software costs and choices

You should use software that works with MTD for ITSA to keep records and make submissions. HMRC’s pages explain what compatible software should do (for example, support quarterly updates, end-of-year submission and your chosen update periods). Choosing and funding software is a new ongoing obligation for many.

Join the EasyInvoice Waiting List today to get early access, smart tools, and a smoother start to Making Tax Digital.

2) Workflow discipline (from “year-end rush” to weekly habits)

Quarterly updates penalise end-loaded bookkeeping. You’ll need a steady routine – capture receipts, categorise expenses, reconcile payments – so each update is quick. HMRC sets non-negotiable deadlines; missing them can lead to points and, once the threshold is reached, a penalty.

3) Understanding what must be kept digitally (and what doesn’t)

MTD requires digital records for self-employment and property transactions (date, amount, category). If you use spreadsheets, figures must flow to HMRC via digital links – no copy-and-paste. HMRC lists special cases (for example, daily gross takings for retailers, and rules for jointly let property). Getting this wrong is a compliance risk.

4) Multiple sources, multiple updates

If you have more than one business, or both trading and property income, you’ll send updates for each source. That adds moving parts to manage. HMRC’s step-by-step guide explains the structure. 

5) Penalties during mandation (and how volunteering works)

While volunteering (before you’re required), late quarterly updates do not trigger late-submission penalties. Once you’re mandated, a points-based system applies: each missed deadline is a point; reach the threshold (4 points for quarterly obligations) and you get a £200 penalty. Late-payment penalties and interest also apply as usual.

MTD benefits: turning compliance into control

Even though MTD for ITSA requires sole traders and landlords to use software for quarterly submissions, the right tool can also make the tax return process smoother and bring several useful benefits:

• Keeping your income and expenses digitally gives a clear, real-time picture of how your business is performing.

• Fewer mistakes mean a lower chance of penalties for submitting incorrect figures.

• Access to tax estimation makes it easy to monitor how the estimated tax builds up with each quarterly update. This helps plan the budget better and put aside the right amount for the year.

Remember: You can opt in early to build habits before mandation. During the voluntary period, quarterly late-submission penalties don’t apply, and HMRC signposts support for volunteers. 

Action plan (simple and ready to-go)

• Check when you need to join. Use HMRC’s eligibility tool and the official timeline.

• Pick compatible software. Ensure it can keep digital records, send quarterly updates, work with your chosen update periods, and submit your end-of-year return.

• Set a weekly routine now. Capture income/expense data digitally and keep everything linked.

• Consider early sign-up. Practise the full flow with no quarterly late-submission penalties until you’re mandated.

• Map your deadlines. For 2026 starters, the first four are 7 Aug, 7 Nov, 7 Feb, 7 May; end-of-year submission stays 31 January.

 

 

Join the EasyInvoice Waiting List today to get early access, smart tools, and a smoother start to Making Tax Digital.