Step-by-step guide to preparing for quarterly reporting MTD ITSA

As of April 2026, Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) has officially begun rolling out for self-employed individuals and landlords whose gross combined income from rental and self-employment in the 2024/25 tax year exceeds £50,000. If it applies to you, it means big changes to how you manage and report your finances.

Under MTD for ITSA, sole traders and landlords must keep digital records and submit quarterly updates in addition to a final declaration, which replaces the traditional annual Self-Assessment tax return. If you don’t already use accounting software or digital records, it’s a good idea to get ahead now, as the income threshold will reduce in 2027 and 2028.

Read on for Treetops’ step-by-step guide on what is changing and how to get ready without unnecessary stress. For one-to-one advice on MTD for income tax and all aspects of tax planning, please contact us today.

What is Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA)?

Making Tax Digital (MTD) is HMRC’s long-term move towards a more digital tax system, designed to reduce errors and make tax reporting more accurate and up to date. The first phase launched for VAT in 2019, and MTD for ITSA is the next major step.

MTD moves businesses away from one annual tax return and towards more regular reporting using bookkeeping software. So, instead of completing your Self Assessment tax return in one go, you’ll be expected to keep records as you go and send HMRC a summary every quarter.

At the end of the tax year, you must submit a final declaration to confirm your income, claim any adjustments or allowances, calculate your final tax position, and pay any tax due.

Step-by-Step Guide to MTD for ITSA

Getting ready for MTD is about building good habits early. These practical steps will help you prepare gradually, avoid hiccups and make quarterly reporting far easier to manage.

Step 1: Check if you need to comply with MTD for ITSA

MTD for ITSA applies to sole traders and landlords based on their gross income from self-employment and/or property in the previous tax year.

Qualifying income refers to your total gross income from self-employment and property before expenses are deducted. For example, if your rental income is £35,000 but your profit is much lower after mortgage interest and other costs, you will still fall within the rules from 2027.

Sole traders and/or property landlords with a gross income of below £20,000 are not yet required to comply with MTD, and so will remain under the current Self-Assessment system.

Step 2: Start preparing early

MTD is not something to leave until the last minute. Even if you don’t qualify for MTD right away, it’s well worth considering now so you can be prepared for the upcoming changes.

Starting early gives you time to choose software, clean up your records, understand the process and get into good habits before quarterly updates become mandatory.

Step 3: Set up digital record keeping

Making Tax Digital is all about modernising the tax return process, so it’s mandatory to set up a digital system to record your income and expenses.

If you currently use a spreadsheet, that’s a great start. You have two options: connect it using bridging software or switch to full bookkeeping software (more on this below).

If you currently rely on paper receipts and notes, a simple spreadsheet is a good first step. Start recording income and expenses by date, amount and category, then speak to your accountant about whether bridging software or full MTD-compatible software is the best next move.

If you have multiple self-employments, each business must be recorded separately. Rental income must also be kept separate, although all UK rental income can be combined into one property business and all overseas rental income into another.

Step 4: Choose MTD compatible software

To submit updates to HMRC, you must ensure your accounting software is compatible.

The “right” software is not always the one with the most features. It is the one that suits your business, confidence level and reporting needs.

When choosing software, consider:

• How easy it is to use
• Whether the software supports all your income sources, including property income if relevant
• Whether automation features, such as bank feeds, would save you time
• Whether you need reporting tools, such as cash flow forecasting
• The cost and whether the software is scalable as you grow

There is a range of software available, including both free and paid options. Choosing the software that fits your needs will require some research. If you would like to discuss the best option for your business with an accountant, please get in touch here.

What is bridging software?

Bridging software allows businesses and landlords to submit their digital records from Excel directly to HMRC. The spreadsheet must be correctly configured to meet Making Tax Digital requirements, as the bridging software relies on specific information being recorded and structured in a particular format.

At Treetops, we provide simple, easy-to-use, MTD-compliant spreadsheets for both self-employed businesses and landlord clients. If you would like more information about these spreadsheets, please get in touch.

This can be a useful short-term solution, especially while you get used to MTD. However, it is still worth reviewing whether full accounting software would save time and give you better records in the long run.

Step 5: Track your gross income accurately

Remember that MTD thresholds are based on gross income, not profit.

You must include the combined income, including:

• Self-employment income (each self-employment must be reported separately)
• UK and foreign property income

Consistency, diligence and organisation are important here. Ensure you:

• Record income as it comes in – not at a later date
• Use separate business bank accounts
• Using an app to scan in invoices and receipts to keep them digitally can aid accuracy
• Regularly match payments against your bank transactions to spot missing or duplicate entries

Step 6: Understand quarterly reporting requirements

Quarterly reporting is a significant move away from the traditional annual tax return cycle. The aim is not to finalise or pay tax every quarter, but to keep HMRC updated.

What needs to be included in each quarterly report to HMRC?

For every business you own, you must report:

• Total cumulative income
• Total cumulative expenses
• Year-to-date totals (most MTD software keeps a cumulative total)

These are not your final tax calculations, and any necessary adjustments can be made at year-end in your final declaration.

What are the deadlines for sending quarterly updates?

HMRC gives you two ways to split the year for quarterly MTD updates. You can either follow the standard tax year quarters, which run from the 6th to the 5th, or choose calendar quarters that follow normal month-end dates. Your accountant can help you decide which option makes the most sense for your setup.

The submission deadlines stay exactly the same either way.

Why work with an accountant for MTD compliance?

You can manage MTD yourself, but many people find the support of a professional accountant helpful, time-saving, and reassuring.

At Treetops, our experienced accountants can help you:

• Set up digital record keeping if you haven’t already
• Choose the right compatible software for you
• Manage the submission of your final declaration

This support can be especially useful for landlords, sole traders, CIS workers, and fast-growing small businesses.

The benefits of MTD for ITSA for small businesses

Preparing for Making Tax Digital can seem like a lot of hassle, but think of it as a positive move for your business. The shift to digital record-keeping and quarterly updates will reduce errors and give you a much clearer view of your income, expenses, and tax position throughout the year.

You are more likely to spot cash flow problems early, understand which areas of the business are most profitable, and make better decisions. Accounting software can also save a huge amount of admin time by automating tasks such as invoicing, bank reconciliation, expense tracking and reporting, reducing the last-minute scramble that so often comes with Self Assessment.

Final thoughts on preparing for Making Tax Digital

Making Tax Digital is a big change, but it needn’t be stressful if you start early and choose the support of a reliable accountant. Once your records are digital and up to date, quarterly reporting becomes much easier to manage. The sooner you prepare, the more time you have to choose the right system, fix any gaps and avoid unnecessary pressure later.

Contact Treetops Chartered Accountants for MTD support

Making Tax Digital is a significant change, but it’s also an opportunity to take better control of your finances. Treetops is here to support you, so you don’t have to figure it all out on your own. We help landlords and sole traders set up practical, easy-to-use systems that work seamlessly and give them better business insight.

More information on our Making Tax Digital specific solutions offering can be found here.

If you’re unsure where to start or want to make sure you’re ready for MTD, please get in touch.

Frequently Asked Questions about MTD for Income Tax

What do you need to include in your Making Tax Digital submission?

Digital records of your business income and expenses form the basis of every quarterly update you submit to HMRC, so accuracy at this stage is essential.

Does Making Tax Digital replace tax returns?

Quarterly updates are summaries of your income and expenses only and are not “mini tax returns” and typically do not include accounting adjustments. Once those four updates are in, an accountant will handle your final declaration to ensure adjustments and tax relief are accurate for the year.

Do you have to pay tax quarterly with each income tax submission?

Quarterly updates are just updates; the deadlines for paying your tax have not changed. You still pay your income tax on 31 January following the end of the tax year and, if applicable, payments on account are due on 31 January and 31 July.

The good news is that with more regular reporting, you will have a clearer idea of what your eventual tax bill will look like, making it easier to budget.

Can you submit quarterly updates manually?

The purpose of MTD is to eliminate the need for manual entry. Your MTD-compatible software connects directly to HMRC’s systems to transfer data.

Does HMRC provide software that is MTD-compatible?

HMRC does not provide its own MTD software. Businesses must choose compatible software from approved third-party providers — this can be a single end-to-end solution that handles both record keeping and submission to HMRC, or a combination of products (for example, a spreadsheet plus bridging software) that work together to meet MTD requirements.

What if I have two different businesses?

If you have two different businesses, you must keep separate digital records for each business and complete a quarterly update for each business, but submit them using the same software. HMRC calculates your threshold based on your combined gross income. For example, if you have income from your sole trade of £30,000 and your rental income is £25,000, you exceed the £50,000 threshold and must comply from April 2026.

Am I exempt from quarterly reporting for MTD for ITSA?

You can apply to HMRC for an exemption if you think you are “digitally excluded” — for example, because of disability, age, remote location with no reliable internet access, or a religious objection to using electronic communications. HMRC decides each application individually.

You are permanently exempt if you are:

• A taxpayer under a Court of Protection deputyship
• A taxpayer whose affairs are managed under an enduring or lasting power of attorney, where you are no longer capable of providing financial information to HMRC yourself
• If your qualifying income is £20,000 or less, you are exempt from MTD

You are temporarily deferred until at least April 2027 if you:

• Need to file the SA109 (residence and domicile) schedule on your tax return
• Receive trust or estate income reported on your personal tax return
• Use averaging adjustments — commonly, farmers, authors and other creative professionals
• Are a non-UK resident entertainer or sportsperson with other UK qualifying income
• A recipient of Blind Person’s Allowance or Married Couple’s Allowance (claimed or transferred on your 2024/25 tax return)
• A minister of religion
• A member of Lloyd’s, in respect of underwriting income