Making Tax Digital (MTD) is HMRC’s long-running programme to move the UK tax system online. You’re probably already familiar with MTD for VAT, which has been mandatory for VAT-registered businesses since April 2022. Now the next phase is arriving: Making Tax Digital for Income Tax Self Assessment (MTD ITSA).
This is a significant change for sole traders and landlords across Northern Ireland. Instead of filing a single Self Assessment tax return each year, you’ll need to submit quarterly updates through compatible software, plus a final declaration. It’s more frequent reporting, more digital record-keeping, and a fundamentally different way of managing your tax obligations.
Here’s what you need to know.
What is MTD for Income Tax?
MTD for Income Tax requires sole traders and landlords to:
- Keep digital records of their income and expenses using HMRC-compatible software
- Submit quarterly updates to HMRC through that software
- Submit a final declaration after the tax year ends (replacing the current Self Assessment return)
The aim, according to HMRC, is to reduce errors, give taxpayers a clearer picture of their tax position throughout the year, and modernise the tax system. Whether you view it as progress or an administrative burden probably depends on how you currently manage your records.
The key point is that this isn’t optional. Once you’re within scope, you must comply. And the penalties for non-compliance are real.
Who is affected?
MTD for Income Tax applies to individuals with income from self-employment or property (or both) above certain thresholds. It’s being rolled out in phases:
| Phase | Start date | Who is affected |
|---|---|---|
| Phase 1 | 6 April 2026 | Sole traders and landlords with gross income over £50,000 |
| Phase 2 | 6 April 2027 | Sole traders and landlords with gross income over £30,000 |
| Phase 3 | To be confirmed | Those with income over £20,000 (date not yet set) |
Important: The threshold is based on gross income (turnover), not profit. If your total self-employment and property income exceeds the relevant threshold, you’re in scope, even if your profit after expenses is much lower.
A few points of clarification:
- Partnerships are not yet included. HMRC has indicated they’ll be brought in at a later date, but no timeline has been confirmed.
- Limited companies are not affected. MTD ITSA applies to individuals filing Self Assessment, not to companies filing Corporation Tax returns.
- Landlords with qualifying property income are included, whether you let a single buy-to-let or manage a portfolio. This catches many people who don’t think of themselves as “in business.”
- If you have both self-employment and property income, you add them together to assess whether you’re above the threshold.
What you’ll need to do
If you’re in scope, here’s what changes in practice:
1. Get compatible software
You’ll need software that’s recognised by HMRC as MTD-compatible. This software must be able to store your digital records and submit quarterly updates directly to HMRC.
Popular options include:
- Xero (cloud-based, strong for small businesses)
- QuickBooks (cloud-based, widely supported)
- FreeAgent (cloud-based, popular with freelancers)
- Sage (desktop and cloud options)
- HMRC’s own free software (for those with simpler affairs)
If you’re currently using spreadsheets, you’ll either need to switch to dedicated software or use “bridging software” that connects your spreadsheets to HMRC’s systems. Bridging software is a short-term fix rather than a long-term solution, but it is an option.
2. Keep digital records
All your business income and expenses must be recorded digitally. Paper receipts and manual ledgers won’t cut it on their own. Your digital records need to include:
- Date of each transaction
- Amount
- Category (the type of income or expense)
You don’t need to scan every receipt, but you do need a digital record of every transaction. Many software packages let you photograph receipts and attach them to transactions, which is good practice for keeping evidence.
3. Submit quarterly updates
Instead of gathering everything up once a year, you’ll submit updates to HMRC every quarter. The quarterly periods align with the tax year:
| Quarter | Period covered | Submission deadline |
|---|---|---|
| Q1 | 6 April to 5 July | 7 August |
| Q2 | 6 July to 5 October | 7 November |
| Q3 | 6 October to 5 January | 7 February |
| Q4 | 6 January to 5 April | 7 May |
Each quarterly update is a summary of your income and expenses for that period. It’s not a tax return; it’s a progress report. HMRC will use the data to give you an estimated tax position, so you can see roughly what you’ll owe before the year is out.
4. Submit a final declaration
After the tax year ends, you’ll submit a final declaration. This is where you make any adjustments, claim reliefs, and confirm your tax position for the year. Think of it as replacing the current Self Assessment return, though the process will feel different because most of the data has already been submitted quarterly.
The deadline for the final declaration is 31 January following the end of the tax year, the same as the current Self Assessment deadline.
5. That’s five submissions per year
To be clear: you’re making five submissions to HMRC each year under MTD ITSA. Four quarterly updates plus one final declaration. That’s a meaningful increase in the frequency of your interaction with HMRC.
Penalties for non-compliance
HMRC is introducing a new points-based penalty system alongside MTD for Income Tax. Here’s how it works:
- Late submission: You receive a penalty point for each late quarterly update or final declaration. Once you hit a certain threshold of points (currently four points for quarterly obligations), you receive a £200 penalty. Further late submissions attract £200 each.
- Late payment: Interest accrues from the payment due date. If payment is more than 15 days late, a penalty of 2% of the outstanding tax applies. After 30 days, a further 2% is charged. Ongoing late payment attracts a daily penalty at an annualised rate of 4%.
Heads up: The points-based system is designed to be more proportionate than the old fixed penalty regime. You get warnings before penalties kick in. But once you’re in penalty territory, it escalates quickly.
The NI angle: what’s different for Northern Ireland
MTD for Income Tax is a UK-wide obligation, so the core rules are the same wherever you are in the UK. But there are practical considerations specific to Northern Ireland.
NI sole traders. Northern Ireland has a high proportion of sole traders relative to the rest of the UK, particularly in trades, agriculture, and the service sector. Many of these businesses currently manage their records on paper or basic spreadsheets. The transition to digital record-keeping will be a bigger shift for these businesses than for those already using cloud accounting software.
Cross-border rental income. If you’re an NI landlord with properties in the Republic of Ireland, your ROI rental income is taxed separately under Irish tax rules (through Revenue). It doesn’t count towards your MTD ITSA threshold, but you still need to declare it on your UK Self Assessment. The interaction between UK and Irish tax obligations can be complex, and MTD doesn’t simplify it.
Cross-border self-employment. Some NI sole traders provide services to clients in the Republic of Ireland. This can create questions about where the income is taxable and how it’s reported. MTD ITSA covers your UK-taxable self-employment income. If you have cross-border income, make sure your records clearly separate UK and non-UK sources.
HMRC contact for NI taxpayers. If you need to speak to HMRC about MTD, the contact details are the same as for Self Assessment queries. The general Self Assessment helpline is 0300 200 3310. There’s no separate NI-specific line, but HMRC staff should be familiar with cross-border issues that commonly affect NI taxpayers.
Local support. If you’re not sure whether you’re in scope or how to get set up, speaking to a local accountant who understands the NI business landscape is the most practical first step.
How to prepare now
Even if your income is below the initial £50,000 threshold, or your threshold doesn’t kick in until 2027, there are things you can do now to make the transition smoother.
Start using compatible software. The sooner you move to digital record-keeping, the more comfortable you’ll be when MTD becomes mandatory. Most cloud accounting packages offer free trials, and the learning curve is manageable.
Get your records in order. If your current record-keeping is patchy, now is the time to tighten it up. Make sure you’re recording all income and expenses consistently, with proper categorisation.
Understand your income. Do you know whether your gross self-employment and property income exceeds £50,000 or £30,000? If you’re near a threshold, it’s worth getting clarity now rather than being caught off guard.
Talk to your accountant. MTD will change the way you interact with your accountant. Instead of handing over a bag of receipts at year end, you’ll be maintaining records throughout the year and your accountant will review and submit on your behalf. Discuss how this will work, and whether your current fee arrangement covers the additional submissions.
Don’t wait for the deadline. HMRC encourages voluntary sign-up before the mandatory dates. This can be a useful way to test the process and iron out any issues before compliance becomes compulsory.
Frequently asked questions
Can my accountant submit the quarterly updates for me? Yes. Your accountant can be authorised to submit on your behalf. Most will build this into their service, but it’s worth confirming what’s included in your fee.
What if I have multiple self-employment businesses? Each business is reported separately within your MTD submissions, but you only have one set of quarterly deadlines.
Do I need to submit actual invoices or receipts? No. The quarterly updates are summary figures (total income and categorised expenses), not line-by-line transaction data. But you must keep the underlying digital records in case of an HMRC enquiry.
What about capital allowances and other reliefs? These are dealt with in the final declaration, not in the quarterly updates. You’ll still be able to claim all the reliefs you’re currently entitled to.
Is there any exemption for older taxpayers? HMRC has indicated that digitally excluded taxpayers may be able to apply for an exemption, but the criteria are strict. Simply preferring paper records isn’t sufficient grounds.
How Arro can help
We’re helping sole traders and landlords across Northern Ireland prepare for MTD for Income Tax, from choosing the right software to setting up digital records and managing the quarterly submission process. If you’re unsure whether you’re in scope or want help getting ready, our team can guide you through it step by step.