Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is the biggest change to landlord tax reporting in a generation. From April 2026, this new system will transform how property owners report rental income to HMRC, replacing the traditional annual tax return for millions.

As a specialist in property tax, Errigal Accountants has created this essential guide to help landlords understand their obligations, the crucial deadlines, and proven strategies to ensure compliance or potentially avoid the regime entirely.

 

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MTD ITSA: Key Dates and Income Thresholds Landlords Need to Know

The requirement to join MTD ITSA is phased in based on your total gross income from property and self-employment (before expenses).

Crucial Point: Only rental income and self-employment income count towards this limit. Income from salaries, dividends, or pensions is not included.

 

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Is My Rental Business Required to Join MTD ITSA?

You must comply with MTD for Income Tax if you meet all of the following criteria:

1. Your total gross income (property and self-employment combined) exceeds the MTD threshold for that tax year.
2. You are registered for Self Assessment as an individual (MTD ITSA does not currently apply to Limited Companies).
3. You are a UK resident and hold a valid National Insurance Number.

 

The New Reporting Requirement: Quarterly Digital Updates

Under MTD, landlords must use HMRC-compatible software to:

• Submit quarterly digital updates of their property income and expenses.
• File an End of Period Statement (EOPS) to finalise the profits.
• Submit a Final Declaration to confirm all tax matters for the year.

 

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3 Proven Ways Landlords Can Avoid or Leave MTD

While MTD is becoming mandatory, there are legitimate routes for landlords to stay outside the regime or exit it later.

 

1. Incorporate Your Property Business (A Strategic Solution)

By moving your properties into a Limited Company, your income is taxed under Corporation Tax, not Income Tax. MTD for Income Tax does not apply to companies.

• Errigal Accountants Insight: This is a major strategic decision that involves careful planning to manage Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT) liabilities. While it avoids MTD ITSA, MTD for Corporation Tax is expected to follow later.

 

2. Apply for Digital Exclusion (HMRC Approval Required)

You can apply for an exemption if using digital tools is not “reasonably practicable” for reasons such as:

• Age, disability, or long-term illness that prevents technology use.
• Remote location without a reliable internet connection.
• Religious beliefs that prohibit the use of technology.

Action: Applications must be submitted directly to HMRC with clear supporting evidence. If approved, you can continue with paper-based filing.

 

3. Special Statutory Exclusions

Some individuals are automatically excluded from the MTD ITSA requirements:

• Personal representatives managing deceased estates.
• Trustees or executors.
• Individuals without a National Insurance Number on 31 January before the tax year.

 

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Can I Leave MTD Once I’ve Joined?

Yes. Once you are in the MTD system, you are typically required to complete it for the current tax year, but you may be able to exit in a subsequent year:

1. Income Falls Below the Threshold: If your total gross income drops below the required limit, you may be removed from MTD for the following tax year.
2. Change of Circumstances: If health or other factors change, leading to digital exclusion, you can reapply for an exemption to revert to traditional Self Assessment.
3. Cessation or Incorporation: Selling your properties, ceasing to be a landlord, or formally transferring your portfolio to a limited company will end your MTD ITSA duties.

 

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Your Annual MTD Compliance Checklist from Errigal Accountants

Preparation is the key to avoiding penalties and compliance stress. We advise all landlords to complete the following steps annually:

1. Review Gross Income: In January each year, check your total property and self-employment gross income for the current tax year.
2. Compare to Threshold: Compare this total to the upcoming MTD threshold (£50k, £30k, or £20k).
3. Implement Digital Record-Keeping: Start keeping detailed, digital records now, even if you don’t yet meet the threshold. This makes the eventual transition to MTD software seamless.
4. Seek Strategic Advice: If your income is close to a threshold, consult Errigal Accountants on whether incorporation or restructuring is a viable strategy to manage your tax affairs efficiently under the new regime.
5. Plan for Software: Research and select MTD-compatible accounting software well in advance of your mandatory start date.