Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is HMRC's programme that requires sole traders and partnerships to keep digital tax records and submit quarterly updates to HMRC via MTD-compatible software, replacing the single annual Self Assessment return as the primary reporting mechanism.
The rollout is phased by gross income:
- From April 2026: sole traders and partnerships with annual gross income over £50,000 must comply.
- From April 2027: the threshold drops to £30,000.
The point most CIS guides miss is how the threshold is measured. HMRC tests MTD ITSA eligibility against gross income before CIS deductions are taken off, not your net receipts. A subcontractor who receives £40,000 in their bank account after 20% deductions on £50,000 gross is tested on the £50,000 gross figure and is in scope from April 2026. The deductions are an advance against your tax bill; they do not reduce your income for MTD purposes.
Once in MTD ITSA, a subcontractor must:
- Keep records digitally throughout the year, linking income and expenses directly from source data.
- Submit four quarterly updates to HMRC (deadlines: 7 August, 7 November, 7 February, 7 May), each summarising income and expenses for that quarter.
- File an end-of-period statement and a final declaration after the tax year ends, which replaces the traditional Self Assessment return and triggers any CIS refund or balancing payment.
In the first year (2026/27), HMRC will not issue penalty points for late quarterly updates, but late annual returns and late-payment penalties still apply in full.
Our full guide to MTD for CIS subcontractors covers the gross-income trap, software options and the quarterly deadlines in detail.