Making Tax Digital for Income Tax

MTD for ITSA: what the 2026 changes mean for you

From April 2026, HMRC is rolling out Making Tax Digital for Income Tax Self Assessment (which you may also see written as MTD for ITSA, where the ITSA stands for Income Tax Self Assessment) – a major shift for sole traders, landlords and micro businesses. Instead of filing a single tax return once a year, those affected will need to keep digital records and submit quarterly updates using MTD-compatible software.

If you’re self-employed and earning over £50,000, these new rules will apply to you first, with more businesses brought in by 2028. In this guide we’ll explain exactly what MTD for ITSA is, who it affects and how to stay compliant.

Whether you’re looking to avoid penalties or just get ahead, we’ll walk you through what to expect and how Zempler Bank business accounts offer tools and features that can help you stay in control. As always, for anything complex or specific to your situation, it's worth speaking to an independent professional advisor.

What is Making Tax Digital?

Making Tax Digital, commonly shortened to MTD, is HMRC’s plan to phase out traditional Self Assessment tax returns for the self-employed in favour of real-time digital reporting. It began in 2019 with VAT-registered businesses and is now expanding to include income tax for self-employed individuals and landlords.

Under the new MTD for ITSA rules, affected individuals and businesses will need to:

• Keep digital records of income and expenses
• Submit quarterly updates to HMRC
• File an end-of-year declaration using MTD-compatible software.

It’s a big shift, especially if you’re used to logging everything once a year in a spreadsheet. But the aim is to reduce errors, improve accuracy and make tax management a more regular part of running your business.

Check out the official government information on Making Tax Digital.

Income thresholds and timelines: who’s affected?

Not everyone will be affected by the changes immediately, so it’s important to understand whether the new rules apply to you, or if and when future rules will.

Who the updates to MTD ITSA affect

HMRC’s changes to MTD rules start in April 2026, and apply to sole traders and landlords.

The schedule of MTD changes

Your (or your business’s) obligations will depend on whether you meet the gross income thresholds.

Sole traders and landlords will be required to use Making Tax Digital for Income Tax Self Assessment:

• From April 2026, if your gross income is over £50,000
• From April 2027, if your gross income is over £30,000
• From April 2028, if your gross income is over £20,000

If your income is below the £50,000 threshold for 2026, you won’t be affected right away. But it’s still worth preparing early, especially if your income fluctuates or is close to the threshold.

Practical changes to expect

Here are the key differences MTD for ITSA will bring to businesses that meet the gross income thresholds.

• Quarterly reports – Instead of filing one annual return, you’ll need to submit a report to HMRC every three months.
• Required software – You’ll need to use MTD-compatible software to maintain digital records and file your returns. Spreadsheets alone aren’t enough – they must be linked to the software via digital tools like bridging software.
• Final declaration – Your year-end tax filing (replacing the traditional Self Assessment return) must be completed through MTD for ITSA-compliant software. Just completing your Self Assessment through HMRC’s online platform will no longer suffice once you fall under MTD for ITSA rules.

If that all sounds a little overwhelming, you’re not alone. Instead, look at it as an opportunity to streamline the way you manage your finances, especially if you’re already banking digitally.

HMRC is positioning these changes as a positive step for business owners. According to James Murray, Exchequer Secretary to the Treasury, tax management modernisation is helping businesses work more efficiently, ultimately making it easier for them to handle their tax affairs and make sure everyone pays their fair share.

Zempler Bank makes it easy for you to get MTD for Income Tax ready

Zempler Bank has partnered with Coconut to make MTD preparation seamless. Coconut are an accounting software provider for sole traders and self-employed, and when you open a Zempler Bank business account, you'll get free access to Coconut's HMRC-recognised MTD accounting software for up to 24 months – saving you up to £238.

It's an industry-first integration that lets you set up both your business bank account and MTD-compliant software in minutes.

Learn more.

Exemptions and special cases

There are some exemptions from MTD for ITSA. For instance, if you’re:

• A non-resident landlord
• Part of certain partnerships
• Unable to use digital tools due to age, disability or remote location

You may be able to apply for an exemption through HMRC.

That said, eligibility can be nuanced. If you think this might apply to you, it’s a good idea to speak with a qualified accountant or tax adviser to get advice tailored to your situation.

Find out if you’re exempt.

New penalties for missed submissions

In January 2023, HMRC rolled out a points-based penalty system to replace the previous flat fines for businesses affected by Making Tax Digital ITSA. These will apply to businesses affected by the new MTD rules.

Each time you miss a deadline, you’ll receive a penalty point. Once you reach a certain number – for example, four points if you file quarterly – you’ll get a fine. Points can expire or be reset if you stay compliant for a set period, and in some cases HMRC will have discretion to waive penalties.

The system is designed to be fairer, but it still means regular reporting matters more than ever.

Read the government rules on penalties.

Common challenges for small businesses

MTD is as much about changing your processes as updating the software you use. And that can feel like a hurdle when you're already stretched.

Here are a few common roadblocks small businesses run into:

• Relying on manual methods – If you’re still using paper or unlinked spreadsheets, it’s time to switch. Manual records won’t meet the new requirements without digital links.
• Disconnected systems – Jumping between your bank, invoicing app and bookkeeping software creates more room for error. That’s where integrated tools come in, like those offered by Zempler where your account activity feeds directly into your financial workflow.
• Admin overload – If you’re managing fluctuating income streams, quarterly updates can feel daunting. But with the right digital setup you can automate a lot of it – so you can log expenses, track transactions and prepare reports without starting from scratch each time.

How to get ahead of the changes

Whether you're affected in 2026 or later, there are steps you can take now to make the shift smoother.

1. Understand your income – Add up your total self-employment and any property income. If you’re over (or close to) the upcoming gross income thresholds, it’s time to prepare.

2. Explore your software options – Not all accounting tools are MTD-ready. Look for MTD-compatible platforms or consider switching to a bank that offers built-in financial tools.

Through our partnership with Coconut, Zempler customers get 2 years of free access to HMRC-recognised MTD accounting software. You can apply for your Zempler account directly through Coconut's sign-up process and have everything set up in minutes. No need to juggle multiple providers or subscriptions.

3. Test the system early – HMRC’s MTD testing programme is open to volunteers. Signing up now can give you early access to support and help you iron out issues before the rules apply to you.

4. Build better financial habits – Start uploading receipts, tracking income and reconciling expenses regularly. The more you embed these practices now, the easier it’ll be under MTD.

5. Seek expert advice – If your business structure is complex, or you’re unsure how the rules apply to you, a tax professional can provide much-needed clarity.

Zempler and Coconut have teamed up to simplify MTD compliance for small businesses

We've made it easier than ever to get MTD-ready by partnering with Coconut, one of the UK's leading accounting software providers for sole traders and landlords.

Here's what you get:

• 2 years of Coconut software free when you open a Zempler Bank business account (saving up to £238).*
• Seamless setup: Apply for your Zempler account through Coconut's app in just minutes.
• HMRC-recognised software: Coconut is fully approved for MTD for ITSA quarterly submissions.
• Complete digital records: Snap photos of receipts, track income and expenses, and submit quarterly updates all in one place.
• VAT returns sorted: Submit VAT returns directly to HMRC from your Zempler account.
• Accountant collaboration: Share your records with your accountant in real-time through Coconut's Partner Portal.

It's the UK's first embedded sign-up process that combines an MTD tax solution with a business bank account.

* For information on the offer and to see if you’re eligible, see the offer terms here.

Final thoughts

The 2026 MTD updates signal a serious change in how small businesses are expected to operate. More digital. More transparent. More up to date.

While that might sound daunting right now, the right tools can make all the difference. Zempler Bank business accounts are built specifically for businesses like yours to make sure you’re not just keeping up – you’re staying ahead.

Ready to simplify your MTD journey?

Sign up to Coconut and apply for your Zempler business bank account to unlock 2 years of free MTD software. It takes just a few minutes to set up both, and you'll have everything you need to stay compliant when the 2026 deadline arrives.

Get started with Coconut and Zempler today.

Please note, the content in this article is not guidance from Zempler Bank and was created in whole or in part using GenAI. It may contain errors or inaccuracies and should not be relied upon as a substitute for professional advice. Zempler Bank makes no representations or warranties of any kind, explicit or implied with respect to the contents of this article. Without limitation, Zempler Bank specifically excludes and disclaims all express or implied warranties and conditions to the extent permitted by law, and any action taken using such content is strictly at the user’s risk.