MTD Income Tax 2026: which of your clients are in scope right now

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is no longer a future requirement. From 6 April 2026, clients with gross income above £50,000 from self-employment or property (or both combined) are legally required to comply. The first quarterly submission deadline for these clients is 5 August 2026.

For many practices, a proportion of in-scope clients may not yet have the necessary infrastructure in place. This article explains how to identify who is in scope, what the legal obligations are, and what your practice needs to do before the first deadlines hit.

Who is in scope from April 2026?

The threshold is gross income — not profit — of more than £50,000 from qualifying income sources. The qualifying sources are:

• Self-employment income (including sole traders and partnerships)
• Property income (UK property, furnished holiday lettings)

Critically, these sources are combined. A client with £30,000 from self-employment and £25,000 from rental income has £55,000 in qualifying gross income and is in scope from April 2026. Employment income does not count toward the threshold.

The threshold roadmap

The government has not yet confirmed whether the £20,000 threshold will proceed on schedule, but planning should assume it will.

What does MTD ITSA actually require?

MTD ITSA replaces the annual Self Assessment tax return for qualifying income with a four-stage digital process:

Stage 1: Quarterly updates

Clients must submit a quarterly update of income and expenses for each qualifying business or property to HMRC via MTD-compatible software. The quarterly periods are fixed:

• Q1: 6 April – 5 July → deadline 5 August
• Q2: 6 July – 5 October → deadline 5 November
• Q3: 6 October – 5 January → deadline 5 February
• Q4: 6 January – 5 April → deadline 5 May

These are not estimates — they are actual figures from the client's digital records. The quarterly update does not calculate a tax liability; it is a running record submission.

Stage 2: End of Period Statement (EOPS)

After the tax year ends, the client (or their agent) submits an End of Period Statement confirming the figures for each income source, making any adjustments, and including any claims (capital allowances, overlap relief, etc.). The EOPS deadline is 31 January following the tax year end — the same as the current Self Assessment deadline.

Stage 3: Final Declaration

The Final Declaration replaces the Self Assessment tax return. It brings together all income sources (including employment income, dividends, pensions, and other sources not submitted via MTD) and calculates the final tax liability. Deadline: 31 January.

What your practice needs to set up

MTD agent authorisation

MTD ITSA requires a separate authorisation from the existing Self Assessment agent authority. This is not automatic — you need to obtain MTD-specific agent authorisation for each client before you can submit on their behalf. HMRC's online process for this is separate from the 64-8 authorisation and uses the agent services account.

If you have not set up your agent services account, this is the first step. It requires Government Gateway credentials and verification of your practice.

MTD-compatible software

Clients must keep their records in software that is recognised by HMRC as MTD-compatible. A full list is available on HMRC's software choices page. Key points:

• Spreadsheets with bridging software are permitted for MTD ITSA (unlike MTD VAT Phase 2 where digital links were required end-to-end)
• However, the records must be kept digitally — not in a paper cashbook that is transcribed later
• Software must be able to submit directly to HMRC or via a bridging tool that can

Client notification and engagement

Clients in scope need to understand what is changing. The key messages are:

1. They must keep digital records from 6 April 2026 (some were already mandated from 1 April 2026 if in scope)
2. Quarterly submissions are required, not optional updates
3. Late quarterly submissions will attract a points-based penalty system (each late submission = 1 point; 4 points = £200 penalty)
4. The annual tax return process is being replaced, not just supplemented

How to identify which clients are in scope

For practices with large client portfolios, the manual approach is to review each client's most recent Self Assessment return and identify those with qualifying income above £50,000. This is time-consuming and relies on last year's figures — clients whose income is growing may have crossed the threshold in 2025-26 without being in last year's data.

The practical approach is to treat any client with qualifying income between £40,000 and £60,000 as requiring investigation, since income fluctuation could put them either side of the threshold.

Lexendo's MTD Income Tax Readiness module assesses each client's mandatory date, readiness score (software, record keeping, agent authorisation status, client notification), and generates a prioritised action plan. It also provides the MTD Deadlines Calendar, which shows all four quarterly submission windows for 2026-27 with days remaining.

What happens if clients are not ready

HMRC has indicated it will take a supportive approach in the early stages of mandation — but this does not mean penalties will not apply. The points-based penalty regime for MTD ITSA operates automatically. A client who misses two quarterly submissions in their first year accumulates 2 penalty points. A third missed submission in the following year triggers the £200 penalty.

More practically, a client who has not set up MTD-compatible software and does not have digital records by 6 April 2026 cannot submit the first quarterly update on time. There is no grace period for software adoption built into the legislation.

The next steps for practices

1. Identify all clients with qualifying gross income above £50,000 using your practice management system or a review of 2024-25 returns
2. Confirm which have MTD-compatible software in place
3. Obtain MTD agent authorisation for each in-scope client before the first submission deadline
4. Notify clients who are not yet set up — in writing, with a clear explanation of the Q1 deadline of 5 August 2026
5. Review clients approaching the £50,000 threshold for the following year

The MTD ITSA Q1 2026-27 submission deadline is 5 August 2026. Lexendo's MTD Readiness Assessment and MTD Deadlines Calendar are available to all subscribers.

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