The UK accounting landscape has been through a lot lately. The accountancy firm owners have successfully navigated through pandemic pivots, managed client meltdowns over IR35, and yet somehow came through the self-assessment season with their sanity intact. But the storm isn’t over yet. The HMRC is ready with yet another test for you in the form of Making Tax Digital for Income Tax or MTD for ITSA, as fondly called. However, unlike some of the earlier rollouts, which felt half-baked, this one is actually happening.
As an accountancy firm, if you have not already started preparing your firm for MTD for ITSA, let us tell you: you are late. You are very late, in fact. HMRC is pretty serious about their MTD for ITSA mandate, and from where we are, we can already see the April 2026 deadline approaching faster than you think. The clients have started panicking, and rightfully so. MTD for ITSA is not going to disrupt the UK accounting industry; it will separate the accountancy firms that turn disruption into opportunity from those that will perish with it.
According to HMRC’s latest figures, nearly 4.2 million self-employed individuals and landlords will be dragged into quarterly digital reporting within the next two years. That’s millions of people who, at the moment, struggle to even submit one tax return a year, but are now expected to file updates every quarter. Through software. That talks to HMRC’s systems. What could possibly go wrong?
But the good thing is, we are here. In this blog, we will discuss everything you need to know about Making Tax Digital for Income Tax, why it matters more than you might think, and how to stop this from becoming your firm’s worst nightmare.
How will Making Tax Digital for Income Tax Impact your clients (and your workflow)?
The initial blow of Making Tax Digital for Income Tax will have a severe impact on certain clients. However, those who are familiar with cloud accounting software will be able to transition smoothly. And even for those clients, getting comfortable with the quarterly reporting cycle will take some time. For smaller landlords or self-employed individuals with less complex transaction histories, this will be a monumental change. They will not only have to identify a suitable software from the list of HMRC-approved platforms, but also get comfortable with it and maintain records diligently throughout the year.
All of these changes will significantly increase the volume of new interactions. So, instead of having one annual touchpoint for self-assessment, you will have quarterly submissions, plus the EOPS and final declaration. This means there will be a significant increase in engagements, greater data processing, and significantly prolonged hand-holding. According to industry surveys, the biggest challenge in implementing MTD for ITSA will be client education. This underscores the critical need for us to simplify what can feel overwhelming.
The phased rollout of MTD for ITSA tells us everything about HMRC’s confidence levels. While they are starting small, they will surely be building up, which is either terrifying or reassuring, depending on how optimistic you are feeling.
Phase One (April 2026):
- Self-employed individuals with business income over £50,000
- Landlords with property income over £50,000
- Combined income still counts if it crosses the threshold.
Phase Two (April 2027):
- Threshold drops to £30,000
- Significantly, larger group pulled in
- Partnerships included from this point
According to HMRC’s impact assessment, nearly 1.4 million individual taxpayers will be caught in the first wave, with the second wave adding another 2.8 million. For UK accountancy firms, that’s a massive client education campaign they need to start planning straightaway, not wait till March 2026 when everyone’s panicking.
The biggest challenge for many of your clients will be not knowing which side of the £50,000 line they’re on. For most individual taxpayers, the gross income fluctuates. While someone might have had a terrific 2023, 2024 might not have been so kind, and 2025 could have been another bumper year. So, do they need MTD-compatible software for their 2026-27 returns? The answer primarily depends on their 2025-26 income, which they won’t know until… well, you see the problem.
Let us tell you who is definitely in scope:
| Taxpayer Type | Income Threshold | Mandate Date |
|---|---|---|
| Self-employed (sole trader) | £50,000+ business income | April 2026 |
| Landlords (UK property) | £50,000+ rental income | April 2026 |
| Both self-employed & landlord | Combined £50,000+ | April 2026 |
| Self-employed (sole trader) | £30,000 – £49,999 | April 2027 |
| General partnerships | Over threshold | April 2027 |
| LLPs & complex structures | TBC | TBC |
The good news here is that there are exemptions. Pensioners who only get pension income will not be impacted by HMRC’s MTD for ITSA. It is the same for trustees or those with only employment income. However, if you have clients with self-employment or property income, you must check their eligibility immediately.
As an accountancy firm, if your client’s qualifying income from self-employment is above HMRC’s £50,000 threshold, under Making Tax Digital for Income Tax, they will have to:
- Maintain digital records
- Submit quarterly updates
- File an End of Period Statement (EOPS)
- Submit a Final Declaration
HMRC’s £50,000 threshold applies from 6 April 2026, and then drops to £30,000 from April 2027. HMRC had confirmed this phased rollout in December 2022 and later reiterated it in subsequent policy updates (Source: HMRC Policy Paper).
According to HMRC’s own estimates, around 780,000 taxpayers will enter the regime in 2026, increasing to over 1.7 million when the threshold falls (Source: HMRC Impact Assessment).
This is not a small tweak to UK’s income tax reporting, it is a structural shift. In 2026, the first wave of Making Tax Digital for Income Tax will come in, and it will affect a substantial slice of your self-employed and landlord client base.
With the introduction of Making Tax Digital for Income Tax, HMRC will demand submissions through MTD-compatible software. The complete list of recognised providers is published and updated here: Choose the right software for Making Tax Digital for Income Tax
While accountancy firms can use bridging software for now, most firms will have to shift their clients onto integrated cloud platforms.
That decision affects:
- Staff training
- Workflow automation
- Pricing models
- Data security controls
The ICAEW has consistently emphasised that firms need early testing and pilot participation to avoid last-minute disruption (ICAEW MTD Hub).
Software strategy isn’t an IT decision. Under Making Tax Digital for ITSA, it becomes a core business strategy decision for your firm.
It’s a catch-22 situation for accountancy firms in the UK.
On one hand:
- Increased filings
- Increased client contact
- Increased admin oversight
On the other:
- Monthly/quarterly service packages
- Advisory upsell
- Real-time tax planning
While there is enough evidence to suggest that digital transformation enables accountancy firms to deliver higher-value advisory services, treating Making Tax Digital for Income Tax as pure compliance might shrink your margins.
Hence, to make the most of MTD for ITSA, you need to package it properly, bundling bookkeeping, quarterly reporting, and tax planning. In doing so, you will move away from once-a-year revenue to recurring income.
While it sounds simple, this shift will not happen automatically; it will require deliberate pricing design.
For the UK accountancy firms, MTD for ITSA is not just a compliance reform. It is an operational reform. Making Tax Digital for Income Tax will expose inefficient workflows, fragile client relationships, and outdated pricing. However, it also introduces several new things that many accountancy firms struggle to build: structured, recurring engagement.
2026 is your opportunity to reset how you deliver tax services to your clients entirely. The firms that win will not only comply with it but also redesign accordingly. If you are looking to get your practice MTD for ITSA ready, but do not have a clear path ahead, write to us at marketing@datamaticsbpm.com, and we will have our experts reach out to you and help you get ready, while you still control the timeline.
When does Making Tax Digital for Income Tax become mandatory?
From 6 April 2026 for individuals earning over £50,000 from self-employment and/or property. The threshold reduces to £30,000 in April 2027.
Does Making Tax Digital for ITSA replace Self Assessment?
It replaces the current annual filing structure with quarterly updates plus an end-of-year final declaration, but income tax itself remains.
Will landlords be included in MTD for ITSA?
Yes, if their qualifying property income exceeds the threshold.
Is bridging software allowed?
Yes, if it meets HMRC’s functional compatibility requirements, but many firms prefer integrated bookkeeping platforms.
