Phase 1 is already live (and the first quarterly deadline has passed)
If you cross the £50,000 threshold and you are not yet enrolled, you are non-compliant right now. The first quarterly update for the 6 April to 5 July quarter was due by 7 August 2026. Penalty points start accruing from each missed submission. Once you accumulate 4 points, every subsequent late submission triggers a £200 penalty.
This is fixable. We can backdate enrolment, file the missed updates, and represent you in any penalty appeal. The earlier we start, the better the outcome. Book a free 15-min call now if any of this applies to you.
SECTION 01
The MTD ITSA timeline.
Three thresholds, three start dates, one phased rollout. Phase 1 is now live. Phase 2 follows in 11 months. Phase 3 is just under two years away.
The three phases at a glance
HMRC tests your qualifying income in the tax year shown two years before the start date. So Phase 1 testing happened on your 2024/25 numbers. Phase 2 tests your 2025/26 numbers. Phase 3 tests your 2026/27 numbers.
MTD ITSA rollout phases
6 April 2026
Phase 1
£50,000+ qualifying income
Live now
6 April 2027
Phase 2
£30,000+ qualifying income
11 months
6 April 2028
Phase 3
£20,000+ qualifying income
23 months
Who is NOT in MTD ITSA at all
- Anyone with qualifying income under £20,000, even after Phase 3 lands
- PAYE-only employees with no self-employment or rental income
- Partnerships (deferred indefinitely; SA800 still applies)
- Limited companies (already file Corporation Tax digitally; MTD ITSA does not apply)
- Trustees, personal representatives of estates, foster carers receiving qualifying care relief
The threshold is a one-way door
Once you cross a threshold and become subject to MTD ITSA, you stay in even if your income drops below the threshold in later years. The only way out is a digital exclusion exemption granted by HMRC.
SECTION 02
Are you in MTD ITSA right now?
A two-question check, plus the rules on what counts as qualifying income and a worked example for someone with mixed sources.
Quick check (Phase 1 / live now)
Are you in Phase 1 of MTD ITSA?
In 2024/25, did your gross self-employment + property income exceed £50,000?
YES ↓NO ↓
YES, you are in Phase 1You should already be enrolled and have submitted your first quarterly update by 7 August 2026.
Check Phase 2 and Phase 3If 2025/26 will exceed £30k → Phase 2 from April 2027. If 2026/27 will exceed £20k → Phase 3 from April 2028.
What counts as "qualifying income"
Gross income before expenses, from these sources combined:
- Self-employment trades: all of them, summed together
- UK property rental: residential, commercial, holiday lets
- Overseas property rental: in sterling equivalent at exchange rate at the time
These do NOT count toward qualifying income:
- PAYE employment income
- Partnership income (deferred from MTD ITSA indefinitely)
- Dividends, savings interest, investment income
- Pension income
- Foster carer receipts under qualifying care relief
- Capital gains
Worked example: mixed-income freelancer-landlord
Self-employed gross income (consultancy)£32,000
Buy-to-let gross rents£21,000
PAYE salary (counted? NO)£18,000
Dividends from share portfolio (counted? NO)£3,500
Qualifying income for MTD test£53,000
£53,000 exceeds the £50,000 threshold, so this person is in Phase 1 and should be enrolled now. The PAYE salary and dividends do not affect the test.
SECTION 03
The MTD ITSA calendar.
Seven submissions per business per year. Quarterly updates, then End of Period Statement, then Final Declaration. Here is the standard rhythm.
Standard quarter dates and deadlines
The default quarter periods follow the tax year (6 April to 5 April), with submissions due one month and seven days after each quarter ends. You can elect to use calendar quarters (1 April to 31 March) instead, but that does not change the submission deadlines.
Yearly MTD ITSA calendar (per business)
Q1 update
6 Apr to 5 Jul
Due by 7 August
Q2 update
6 Jul to 5 Oct
Due by 7 November
Q3 update
6 Oct to 5 Jan
Due by 7 February
Q4 update
6 Jan to 5 Apr
Due by 7 May
EOPS
End of period statement (per business)
Due by 31 January following tax year end
Final Declaration
Whole tax position (replaces SA100)
Due by 31 January following tax year end. This is the one where final tax is calculated and paid.
If you have more than one business
Each separate business needs its own four quarterly updates and its own EOPS. Self-employment plus rental property = two businesses, so 8 quarterly updates plus 2 EOPS plus 1 Final Declaration = 11 submissions per year. This is the practical reason most clients delegate the work to us.
The Final Declaration is where tax is actually computed
Quarterly updates are summary income and expenses figures, not tax computations. The Final Declaration does the proper job: applies losses, allowances, reliefs and personal circumstances, and produces the final tax bill. Balancing payment is still due 31 January, exactly as it was under the old SA100.
SECTION 04
Software.
You must use HMRC-recognised MTD-compatible software. Spreadsheets are technically allowed but only with a separate bridging product. Here are the realistic options.
The popular options
| Software | Best for | Indicative cost |
|---|
| FreeAgent | Sole traders, free with NatWest/RBS/Mettle business accounts | £0 to £19/mo |
| Xero | Growing businesses, multiple income streams | £15 to £30/mo |
| QuickBooks Self-Employed / Online | Simple sole trader to small Ltd | £10 to £25/mo |
| Sage Business Cloud Accounting | Established small businesses | £14 to £30/mo |
| Bridging software + Excel | People determined to keep spreadsheets | £5 to £15/mo + spreadsheet maintenance |
Can I keep using a spreadsheet?
Yes, technically. HMRC allows spreadsheet-based record keeping if you use bridging software to digitally transmit the data to HMRC (no manual re-typing of figures). In practice, this is more friction and more cost than just using a proper accounting package, especially if you have multiple income streams. We move almost everyone off spreadsheets onto FreeAgent or Xero during onboarding.
SECTION 05
Digital exclusion exemption.
A real route out of MTD ITSA, but it is granted by application only, not by default. Preferring paper or finding it inconvenient is not enough.
Who qualifies as digitally excluded
HMRC will consider an exemption where it is not reasonably practicable for you to use the required software. Common grounds:
- You do not have access to the internet at your home or business location
- You have a disability or health condition that prevents you using a computer
- You are of advanced age and have never used a computer
- You hold religious beliefs that prevent you using electronic communications
- You live in a remote area with no broadband and no realistic prospect of getting it
- You genuinely cannot afford the necessary equipment
How the application works
- You apply to HMRC before your start date, in writing or by phone
- You explain why each MTD requirement is not reasonably practicable for you
- HMRC asks for supporting evidence (medical letter, broadband non-availability, etc.)
- HMRC issues a written decision, typically within 4 to 8 weeks
- If granted, you continue filing the old SA100 annual return; if refused, you can appeal
Common reasons applications fail
Vague claims ("I do not like computers"). No supporting evidence. Application made too late, after the start date. Inconsistent claims (asking for digital exclusion while running an active social media presence). Using an accountant who could plainly file MTD on your behalf does not help an exemption claim.
We coordinate exemption applications for clients where digital exclusion genuinely applies. This sits within our advisory work; ask for a fixed quote at the scoping call.
SECTION 06
Penalties: what missing a deadline actually costs.
MTD ITSA uses two separate and cumulative penalty regimes. Late submission (points-based) and late payment (escalating percentages plus interest). Both bite quickly and unforgivingly.
The points-based late submission regime
Each missed submission deadline gives you one penalty point. Once you reach the threshold (4 points for quarterly filers, 2 for annual, 5 for monthly), every subsequent late submission triggers a flat £200 penalty. Points expire after 24 months of full compliance with all submission obligations.
How the points-based system bites (quarterly filer)
1
→
2
→
3
→
4
→
£200
fine
→
£200
each
more
Each missed quarterly submission = 1 point. Once you hit 4 points, the £200 penalty kicks in. Then every subsequent late submission triggers another £200, regardless of how late. Points only clear after 24 months of perfect compliance from the date of the latest point.
Late payment penalties (separate from late submission)
If you miss the payment deadline (Final Declaration tax due 31 January, or balancing payment), the penalties are cumulative and escalate fast.
Day 1 to 15 late
No penalty (yet)
But late payment interest accrues from day one at Bank of England base rate plus 4%.
Day 16
2% of unpaid tax
First fixed penalty. Plus continuing interest.
Day 31
Another 2% of unpaid tax (total 4%)
Second fixed penalty. So if you still owe £10,000 at day 31, that is £400 in fixed penalties so far plus accrued interest.
Day 31 onwards
4% per year annualised
A daily-accrued penalty at 4% per year on the unpaid balance, until paid. Plus interest at base rate + 4%. The combined effective cost can exceed 12% per year.
For deliberate non-compliance
Up to 100% of tax due
Behaviour-based penalties can stack on top for deliberate concealment.
The realistic cost for someone who is non-compliant from Phase 1 day one
Quarterly filer who misses all 4 quarterly updates in the first year, then files late: 4 points hit immediately, £200 penalty per submission from quarter 5 onwards. Plus the EOPS and Final Declaration each carry their own penalty point exposure. Plus the late payment escalation if tax is also unpaid. The compounding adds up to thousands within 12 months. We have already started taking on Phase 1 catch-up work; the earlier you act, the smaller the bill.
Already non-compliant or worried you might be?
We backdate enrolment, file the missing updates, and represent you in penalty appeals. The first 15 minutes are free; we'll tell you exactly what it'll cost to catch up.
Book a free 15-min call
SECTION 07
DIY vs accountant: honest cost.
DIY looks cheaper on the surface. Once you factor in software, learning time, time per quarterly cycle, and the genuine risk of penalty exposure, the comparison shifts. Here are the numbers.
DIY MTD (one self-employment, one rental)
- Software subscription £15 to £30/mo (£180 to £360/yr)
- Initial setup: 8 to 15 hours of your time
- Per quarter: 4 to 8 hours of bookkeeping plus filing
- EOPS plus Final Declaration: 6 to 12 hours
- Annual hidden time: 30 to 50 hours (worth £1,500+ at typical hourly value)
- Risk of penalty points and £200 fines on every miss
- HMRC enquiry: you respond alone
Monthly accounting with us
- Fixed monthly fee, software included
- We do the bookkeeping, you submit receipts
- All four quarterly updates filed on time
- EOPS and Final Declaration handled
- Quarterly profit and tax forecast included
- Penalty point management, appeals where needed
- HMRC enquiries handled at no extra charge
Pricing depends on your specific setup (number of businesses, number of transactions, software preference). We quote a fixed monthly fee at the free 15-min call. For a typical sole trader plus one rental, monthly fees usually sit in the £85 to £160 range.
SECTION 08
If you already missed your start date.
Phase 1 went live in April 2026. If you should have enrolled and didn't, every day adds risk. Here is what we do to limit the damage.
Step 1: Enrol you immediately
We sign you up for MTD ITSA on the right date, link the relevant agent authorisation, and confirm with HMRC that your records are picked up from the correct point. This stops the bleeding.
Step 2: Reconstruct the missed quarters
We rebuild the bookkeeping for the period you missed (typically Q1 6 April to 5 July, possibly Q2 if you came to us after November). Bank statements, invoices, receipts, software extracts, whatever is available.
Step 3: File the missed quarterly updates
We file the missing submissions to clear them off the active list. The penalty points already issued cannot be reversed simply by catching up, but the longer you leave missed submissions, the more new points accrue.
Step 4: Penalty appeal where there is reasonable excuse
If you have a reasonable excuse (illness, technical failure, bereavement, software provider failure), we appeal the penalty points. HMRC's "reasonable excuse" test is narrower than most people expect, but it does work in genuine cases. We've already won appeals for early Phase 1 catch-up clients.
Step 5: Set up forward compliance
Once you're current, we put you on a monthly accounting service so this never happens again. Every quarterly deadline filed by us, on time, without you needing to think about it.
The longer you wait, the worse the maths
Each missed quarterly submission = 1 penalty point. Once you have 4 points, every subsequent late submission is a £200 penalty in its own right. Catching up at month 3 is a different problem from catching up at month 9. Email or call today; we'll triage your situation in 15 minutes.
