Making Tax Digital for Income Tax Self Assessment (MTD ITSA) reached its three-week mark on Monday, with HMRC’s biggest reshaping of self-assessment since the regime was created in 1996 now legally binding on roughly 780,000 sole traders and landlords whose qualifying income from self-employment or property exceeds £50,000 a year. The 6 April 2026 go-live, originally scheduled for 2018 and delayed five times since, finally moves a slice of the UK’s 12 million-strong self-assessment population onto a quarterly digital reporting cadence — and onto compatible software.
For the first wave, the change is structural rather than cosmetic. Affected taxpayers must keep digital records of business income and expenditure, file four cumulative quarterly updates a year through MTD-compatible software, submit a final declaration after the tax year, and replace the familiar 31 January self-assessment return with a year-end statement. HMRC has confirmed a 12-month soft-landing on late-submission penalty points for the first quarterly cycle, but interest charges on late tax under the new harmonised regime remain in force from day one.
What actually changed on 6 April
The legal threshold for the first wave is £50,000 of combined gross income from self-employment and UK property, measured by reference to the 2024/25 tax return. HMRC began writing to in-scope individuals from late February, and according to evidence given to the House of Commons Public Accounts Committee earlier this year by HMRC’s chief digital officer, the department had identified 864,000 candidate taxpayers, of which it expected roughly 780,000 to fall inside the regime once exemptions for ministers of religion, trustees of registered pension schemes and certain overseas residents are stripped out. General partnerships, limited companies and most trusts remain outside MTD ITSA for now.
The first quarterly update covers the period from 6 April to 5 July 2026 and must be filed by 7 August. That deadline is the regime’s first hard test. The second quarter (6 July to 5 October) is due by 7 November, and the cumulative model means each return effectively restates the year to date — a design choice HMRC argues reduces error but which the Chartered Institute of Taxation and ICAEW have both criticised as a source of unnecessary recalculation work for agents.
Software compatibility is doing more work in the policy than HMRC tends to advertise. As of the latest update to the public list maintained on gov.uk, around 30 commercial products are now recognised as MTD-ITSA compatible, including FreeAgent (owned by NatWest Group), Sage Business Cloud, Xero, QuickBooks Online, IRIS Elements and a cluster of bridging-software vendors aimed at agents who want to keep clients on spreadsheets. HMRC has not built a free product for taxpayers above the £50,000 threshold, which means every in-scope individual must either pay for software, share data with their accountant’s software, or use a free option from a vendor that offers a low-volume tier. The cheapest paid options sit at around £10 a month plus VAT.
Where the friction is
Three weeks in, the loudest noise is coming from agents. The Association of Taxation Technicians (ATT) wrote to the Treasury on 14 April warning that some smaller practices were turning away new MTD ITSA clients because of capacity and software-licensing economics; the ICAEW’s Tax Faculty has flagged a particular pinch point in cases where a taxpayer became newly in-scope only because of buoyant 2024/25 rental income, since the qualifying-income test backwards-looks at a tax year already closed. The Office for Budget Responsibility, in its March 2026 Economic and Fiscal Outlook, costed MTD ITSA at a net positive £315m to the Exchequer in 2026/27, rising to £810m by 2028/29, almost entirely through reduced error and failure-to-take-reasonable-care behaviour rather than new tax raised.
HMRC’s own helpline data, summarised in a written ministerial answer from the Financial Secretary to the Treasury on 22 April, showed self-assessment helpline call volumes up 18% year-on-year for the first three weeks of the 2026/27 tax year, with average wait times of 14 minutes — better than the 2024 peak of 27 minutes that triggered a critical National Audit Office report, but well above HMRC’s published 10-minute target. The agent dedicated line, which is meant to be triaged for tax-professional queries, is running at a 12-minute average. HMRC has redeployed roughly 350 customer-service staff to MTD ITSA support for the soft-landing period.
The penalty design is doing political work. Under the points-based regime that already covers VAT, taxpayers accumulate a point per missed deadline and only become liable for a £200 financial penalty once they reach the threshold (four points for quarterly filers). The 12-month grace HMRC has offered means that for the first cycle of submissions, points will be assigned but the £200 charges suppressed. Late-payment interest, calculated at the Bank of England base rate plus 4 percentage points and currently equivalent to 8.5% per annum, applies normally — a meaningful number against an environment where many sole traders have got used to paying their balancing payment on the 31 January following the year end.
The 2027 cliff
The industry’s bigger anxiety is what happens next April. From 6 April 2027 the MTD ITSA threshold drops from £50,000 to £30,000 of qualifying income, pulling in an estimated further 970,000 taxpayers per HMRC’s published impact assessment, and from 6 April 2028 it falls again to £20,000 — at which point roughly 1.75 million additional sole traders and landlords come into scope. The 2028 expansion was confirmed in the November 2024 Budget by then-Chancellor Rachel Reeves and reaffirmed in the spring 2026 fiscal statement; it remains the politically sensitive end of the rollout because it captures a population for whom £120 a year of software cost is a non-trivial share of net income.
The Treasury Select Committee is due to take evidence from HMRC on 13 May on the first three months of MTD ITSA delivery, with the Federation of Small Businesses and Low Incomes Tax Reform Group both scheduled to submit written submissions ahead of the session. The City of London accounting firms are watching the August cycle for two signals: how the cumulative-update model handles complex landlord cases involving partial-year letting, and whether HMRC’s exemption criteria for the digitally excluded — currently narrower than the legacy paper-return option self-assessment provided — generate enough litigation to force a redesign before the 2027 threshold drop.
For a project that has slipped eight years from its original launch date and absorbed an HMRC programme cost the department now puts at £1.3bn, MTD ITSA’s quiet first three weeks are a relief. The August deadline, and the political conversation around the 2027 expansion, will tell us whether it was a relief that lasts.
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