Making Tax Digital vs Self Assessment: Key Differences

The key differences between Making Tax Digital for Income Tax (MTD for ITSA) and Self Assessment are how often you report your income and expenses, how you keep records, what you submit, and how penalties work.

MTD for ITSA launched on 6 April 2026, and it represents the biggest shake-up to income tax reporting since Self Assessment was introduced over 30 years ago.

For many sole traders and landlords, the way you report your income to HMRC is fundamentally different now.

In this article, we'll break down everything you should know about MTD vs Self Assessment, including what's changed, what's stayed the same, and how to prepare for it all.

Key points

• MTD for ITSA starts from April 2026 and rolls out in phases 📅
  It applies to those with qualifying income over £50,000 from April 2026, £30,000 from April 2027, and £20,000 from April 2028.
• Digital record-keeping and quarterly reporting are now mandatory 💻
  Instead of one yearly submission, you'll send four updates plus a final declaration by 31 January. You must keep digital records using HMRC-recognised software. Paper records and standalone spreadsheets are no longer enough unless connected via bridging software.
• Penalties now follow a points-based system, but deadlines stay the same ⚠️
  Each late submission adds a point. Once you reach four points, a £200 penalty applies, with further fines for continued delays. Late quarterly penalties are waived for 2026–27 only. MTD changes how often you report your revenue, not when you pay, so your tax is still due by 31 January.
• ANNA simplifies the entire MTD transition in one system 🚀
  It's HMRC-recognised for MTD and brings everything together in one place, so you can handle quarterly reporting and year-end filing without juggling multiple tools or manual admin.

What was traditional Self Assessment, and how did it work?

Traditional Self Assessment was the system HMRC used to collect tax from people whose income isn't taxed at source through PAYE. It was meant mainly for the self employed, landlords, and company directors.

The process was annual. You kept records of your income and expenses throughout the year in whatever format you liked, then pulled them all together once a year to file your tax return.

The deadline was 31 January following the end of the relevant tax year, and that was also when any tax owed became due.

What is Making Tax Digital for Income Tax?

MTD for Income Tax is HMRC's replacement for that annual cycle – at least for sole traders and landlords above certain income thresholds.

Instead of one big return once a year, you now need to keep digital records throughout the year and submit quarterly updates to HMRC via compatible software. Then, once the tax year ends, you submit a final declaration to confirm everything.

🧠 Good to know

MTD for ITSA isn't a brand-new concept. Making Tax Digital for VAT has been running since 2019. The Income Tax extension, however, is a much bigger deal for most self employed people.

Who does MTD for ITSA apply to?

MTD for ITSA is being rolled out in phases based on gross income – your total income before expenses, combining both self employment and rental income.

Here's how the rollout works:

• From 6 April 2026: Sole traders and landlords with qualifying income over £50,000
• From 6 April 2027: Sole traders and landlords with qualifying income between £30,000 and £50,000
• From 6 April 2028: Sole traders and landlords with qualifying income over £20,000

So if you're earning £35,000 from your business and £20,000 from a rental property, your combined qualifying income of £55,000 makes you already eligible for MTD.

If you fall below the relevant threshold, traditional Self Assessment continues for now.

What's changing in MTD for ITSA?

Here are the main changes MTD for ITSA brings:

How often you need to report

Under Self Assessment, you reported your income once a year. Under MTD for ITSA, you need to report four times a year, or once per quarter, plus file a final declaration at year-end.

The quarterly deadlines are:

• 7 August
• 7 November
• 7 February
• 7 May

Each quarterly update is a summary of your income and expenses for that period. It doesn't replace the final declaration – that still comes by 31 January after the tax year ends.

How you keep your records

Under the old Self Assessment system, you had a lot more freedom in how you kept your records. Paper, spreadsheet, accounting software – the choice was yours. You just needed to be able to produce them if HMRC asked.

MTD for ITSA changes that entirely. Digital record-keeping is now mandatory, and you must use HMRC-recognised software to both keep those records and submit your updates. You can't use a spreadsheet on its own (unless it's connected to bridging software), and paper records just won't cut it anymore.

This is the change that requires the most practical preparation. If you haven't already, you'll need to choose compatible software and get comfortable using it consistently throughout the year.

💡 Did you know?

ANNA's Auto Accountant helps you stay compliant with little effort. It automatically tracks income and expenses in real time, so you don't have to rely on spreadsheets or manual logs.

What you need to submit

Under Self Assessment, you submitted one tax return covering the whole year. Under MTD, there are three types of submissions:

Together, these create a more structured and up-to-date picture of your tax position, rather than a single year-end calculation.

How the penalty system works

The penalty regime under MTD is different from traditional Self Assessment. Under the old system, a late return triggered an immediate £100 penalty, with further charges building up over time.

MTD uses a points-based system. Each late submission earns you one penalty point. Once you accumulate four points within a two-year window, a £200 financial penalty kicks in.

Each subsequent late submission after that threshold triggers another £200 fine.

Points expire after 24 months if you stay below the four-point threshold. You can wipe the slate clean by submitting on time for 12 consecutive months once you've hit four points.

🧠 Good to know

HMRC has confirmed a soft landing for the first year of MTD for ITSA.

No penalty points will be issued for late quarterly updates during 2026–27, though penalties still apply for late annual obligations (the final declaration and late payment).

It's a grace period, not a free pass – but it does give new signups a bit of breathing room to get used to the new process.

The benefits of MTD for ITSA

Quarterly reporting sounds like more work on the surface, and for some people, it'll feel that way at first. But there's an upside to the new MTD approach.

When you're updating your records regularly throughout the year, the January tax return crunch largely disappears. By the time the final declaration rolls around, your figures are already prepared, because you've been building them up all year.

The quarterly updates also mean you get a much clearer, more up-to-date picture of your tax bill throughout the year.

HMRC's motivation is also worth understanding. The tax gap for Self Assessment businesses currently sits at around 18.5%, or roughly £5 billion.

A big tax gap makes HMRC stricter, which ultimately means more reporting work and higher compliance pressure for honest taxpayers.

More frequent, digitalised reporting is intended to reduce errors and close that gap. And when records are kept in real time rather than reconstructed from memory months later, the data quality genuinely does improve.

Getting ready for MTD for ITSA

If you're newly eligible for MTD, the first thing you need to know is that HMRC won't sign you up automatically. The responsibility is on you to register for MTD, and the system assumes you already have compatible software in place before you do.

So here's how to prepare for MTD for ITSA:

Step 1: Pick your software before you register with HMRC

HMRC's MTD registration process requires an active software connection to work, so you need a recognised tool set up and linked to your account before you hit the sign-up button.

You can check HMRC's official list of compatible software on GOV.UK – it covers everything from full cloud accounting platforms to lighter bridging tools.

Here are the two main software types:

• All-in-one cloud accounting software: This kind of software handles digital record-keeping, quarterly submissions, and your final declaration in one place. It's generally the most straightforward option, especially if you want bank feeds, receipt scanning, and real-time tax estimates built in.
• Bridging software: This software option sits between your spreadsheet and HMRC, extracting the relevant figures and submitting them in a compliant way. Your spreadsheet needs to be digitally linked to the bridging tool, not just manually re-entered.

Step 2: Separate your income streams

If you have both self employment income and rental income, MTD requires you to keep and submit separate digital records for each source.

Each has its own quarterly updates, which then feed into a single final declaration.

Make sure your software can handle multiple income sources before you commit to it, as not all tools support this out of the box.

💡 Did you know?

ANNA's business account combines cash management, bookkeeping, and expense tracking in one place, so your records stay organised and MTD-ready without extra admin.

Step 3: Coordinate with your accountant

If you use an accountant or tax adviser, they can manage your MTD submissions on your behalf, but you'll need to formally authorise them through your software.

Have the conversation early, confirm who's responsible for what, and make sure they've completed the authorisation process before your first quarterly deadline.

Step 4: File your final 2025–26 Self Assessment return

Even if you've already started with MTD, you still need to submit a traditional Self Assessment return for the 2025–26 tax year by 31 January 2027.

MTD takes over from the 2026–27 tax year onwards, so there's one last return to see out the old system before the new one fully takes over.

💡 Did you know?

ANNA can handle your 2025–26 Self Assessment filing for free, helping you manage the transition to MTD without juggling multiple systems or deadlines. If you've already registered with someone else, ANNA will also refund the filing fee when you switch.

How ANNA can help with the transition

MTD for ITSA might sound like more admin, and if you try to manage it with the wrong tools, it could be. But with the right setup, the quarterly rhythm quickly becomes routine rather than a headache.

That's exactly what ANNA is built for.

ANNA is officially HMRC-recognised for MTD for ITSA, which means you can handle the whole process in one place, without juggling separate apps or spreadsheets.

Here's what you get:

• Free MTD for Income Tax: Enjoy fully automated quarterly submissions and year-end filing for 2026–27, at no extra cost.
• Smart Tax Pots: Automatically set money aside for tax as you earn, so you're always prepared for VAT, Corporation Tax, or Self Assessment payments without last-minute stress.
• Real-time tax estimates: See what you owe as you earn, so there are no nasty surprises come January.
• Automated bookkeeping: Link your bank account, and ANNA categorises your transactions automatically, keeping your records MTD-ready throughout the year.
• Business account, invoicing, and tax in one place: Have everything conveniently together, without switching between tools or manually exporting data.
• Smart reminders: Stay on top of deadlines with automatic alerts for filings, payments, and important admin.
• 24/7 tax support: Get help whenever you need it, whether you have a quick question or need guidance on your tax obligations.

MTD for ITSA is coming, but the added admin doesn't have to be – sign up with ANNA today.