HMRC’s new MTD for ITSA regime is now live. If you operate through a limited company, the good news is that this almost certainly doesn’t affect you – but almost isn’t the same as definitely.
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) started rolling out in April 2026.
In this guide, Christian Hickmott, MD of Integro Accounting explains what it is, who it applies to, and what you should do if you’re caught within its scope.
What is MTD for ITSA?
MTD for ITSA is HMRC’s new digital reporting system for people who earn qualifying income from self-employment or property.
Prior to its introduction, sole traders and landlords reported their income once a year through a Self Assessment return.
Under MTD for ITSA, that changes significantly.
Anyone within scope must now:
- Keep digital accounting records throughout the year
- Use HMRC-compatible accounting software such as FreeAgent or Xero
- Submit quarterly updates to HMRC – four times a year, not one
- File an end-of-period statement
- Submit a final declaration at the end of each tax year
This does represent a meaningful increase in admin, though much of the work can be streamlined significantly with digital accounting software (and an accountant, of course).
Who does it apply to?
The thresholds are being introduced in stages, based on gross qualifying income from self-employment or property only.
| Start date | Qualifying income threshold |
|---|---|
| April 2026 | £50,000+ |
| April 2027 | £30,000+ |
| April 2028 | £20,000+ |
Thresholds apply to gross qualifying self-employment and property income.
The important phrase is qualifying income, meaning self-employment and property income only.
The thresholds are based on gross income, not profit.
For example, a landlord receiving £55,000 in rental income with £25,000 of allowable expenses still has qualifying income above the £50,000 threshold.
PAYE salary, dividends, savings income, and capital gains don’t count towards these thresholds.
Why most limited company contractors are unaffected
Most contractors working via a limited company pay themselves a combination of salary and dividends. Neither of these income types falls within the scope of MTD for ITSA.
A typical contractor may have a £12,570 salary in 2026/27 and take the rest of their income – perhaps £40,000 – in the form of dividends. They have no rental income or sole trader earnings.
Despite filing a Self Assessment return and receiving more than £50,000 in total income, they are not affected by MTD for ITSA.
It is worth emphasising that filing a Self Assessment return does not automatically bring you within scope.
MTD targets the type of income you earn, and is unrelated to the fact that you file a tax return.
Does dividend income count towards the threshold?
No. Dividends received from your own limited company do not count as qualifying income for MTD for ITSA purposes, regardless of the amount.
The same applies to salaries (paid via PAYE).
The regime applies specifically to sole trader income and property income.
When could a contractor fall within scope?
There are two main situations where a limited company contractor could still find themselves within MTD for ITSA.
Rental income. If you personally own buy-to-let property and receive rental income in your own name – not through the company – that income counts as qualifying income. A contractor drawing a salary and dividends from their company, but also receiving £55,000 in annual rental income personally, would exceed the £50,000 threshold.
| Contractor with a rental portfolio – 2026/27 | |
|---|---|
| PAYE salary | £12,570 |
| Dividends from company | £55,000 |
| Gross rental income (personal) | £60,000 |
| Qualifying income for MTD | £60,000 |
The contractor is within MTD for ITSA from April 2026.
Separate sole trader activity. Some contractors run a side business or freelance work outside their limited company structure. If that sole trader income exceeds the relevant threshold, MTD for ITSA applies.
A landlord with £55,000 of gross rental income but significant mortgage interest and maintenance costs still has £55,000 of qualifying income for threshold purposes.
What about umbrella contractors?
Umbrella contractors are generally in the clear too. Income paid through an umbrella company is treated as PAYE employment income, which sits firmly outside MTD for ITSA.
However, umbrella workers aren’t immune by default. If you work through an umbrella but also receive rental income personally, or run a separate sole trader business, the same rules apply as for anyone else.
Will you need new accounting software?
For most limited company contractors: no, not because of MTD for ITSA. If your accountant already uses cloud-based software like FreeAgent or Xero to manage your company accounts, you already use HMRC-approved software.
Landlords and sole traders who fall within MTD are the ones who need to make sure they have compatible software in place, as HMRC will not accept manual quarterly submissions.
In summary
HMRC has confirmed plans for a separate Making Tax Digital regime covering Corporation Tax, which would directly affect limited companies. However, no mandatory start date has been confirmed for this yet.
If your income comes entirely from your limited company – salary and dividends – you are outside MTD for ITSA.
If you also receive rental income or run a separate sole trader business (e.g. a side hustle), check your gross qualifying income against the current threshold to see whether you’re in scope now or from April 2027.
If you have any questions, make sure you get in touch with your accountant.
You can access the official MTD for ITSA guidance here.
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