From September 2026, HMRC is automatically enrolling self-employed individuals and landlords whose qualifying income exceeded £50,000 for the 2024-25 tax year into Making Tax Digital for Income Tax (MTD ITSA) — provided they have not yet joined voluntarily (ICAS, 25 August 2026). The process is being rolled out in waves, via letter or digital notification. Every auto-enrolled individual must adopt MTD-compatible software — Xero, QuickBooks, Sage, IRIS, or equivalent — to maintain their records and submit quarterly updates.
Background: A Programme That Launched in April but Is Still Below 75% Adoption
MTD ITSA became mandatory on 6 April 2026. By that point, more than 570,000 sole traders and landlords had voluntarily signed up for the 2026-27 tax year, and more than 436,000 had already submitted their first quarterly update (ICAS, 25 August 2026).
Those figures are encouraging — but they also reveal that out of roughly 780,000 taxpayers in scope for the first wave (income threshold above £50,000), a significant share had yet to take action. That is precisely the group HMRC is now targeting with automatic sign-up.
The stakes are high. The programme had already been delayed five times since its initial announcement in 2019. HMRC cannot afford another incomplete rollout. Auto-enrolment is the catch-up mechanism.
Practical Impact for SME Finance and IT Leaders
If your organisation engages UK-based subcontractors or freelancers, or if you personally hold a side activity with rental income exceeding £50,000, auto-enrolment creates several immediate obligations.
MTD-compatible software is now mandatory. This is not a recommendation: HMRC requires that accounting records be kept in recognised software. The most widely used solutions in the UK market — Xero, QuickBooks, Sage 50cloud, IRIS Accounts Production — are all compliant. Even a sophisticated spreadsheet does not meet MTD requirements.
Four quarterly submissions per year. The annual Self Assessment return is replaced by four quarterly updates submitted directly to HMRC through your software. Submission deadlines are fixed: the first one for the 2026-27 tax year was 7 August 2026. For newly auto-enrolled individuals, quarterly obligations begin as soon as enrolment is confirmed.
New points-based penalty regime. MTD ITSA introduces a penalty system based on accumulated infraction points — similar to a driving licence points scheme. Each missed or late quarterly submission adds a point; once a threshold is crossed, a financial penalty applies. The first year (2026-27) comes with a soft-landing period: no financial penalty is charged for late submissions, provided the update is eventually filed. From 2027-28 onwards, the regime will be fully enforced.
Verify the data HMRC holds on you. Auto-enrolled taxpayers must log into their HMRC online account to check the information used to sign them up — income sources, contact details, company name. If any data is inaccurate (for example, income from a business that has since closed, or an outdated address), it must be corrected online or by contacting HMRC directly. Failing to do so risks generating quarterly obligations against income sources that are no longer active.
What to Watch
Phase 2 arrives in April 2027. The income threshold drops from £50,000 to £30,000. Sole traders and landlords with income between £30,000 and £50,000 will be required to join MTD ITSA — either voluntarily or through a similar auto-enrolment process. For any SME that regularly engages UK freelancers, this significantly widens the pool of contractors who may be affected.
Third-party software compliance still needs confirming. If you use a less common ERP or accounting tool, check whether it appears on HMRC’s official list of MTD ITSA-compatible software. Some niche or sector-specific solutions have been slow to obtain certification.
For full context on the programme framework, see our article Making Tax Digital: The Income Tax Obligation for Earnings Over £50,000 Is Now Live. For an overview of the UK ERP market and MTD-compliant vendors, read our UK ERP landscape: Sage UK, Access Group, MTD and post-Brexit challenges. And to track adoption since launch, our analysis MTD Income Tax: Slow But Real Progress Toward Full Adoption provides the baseline context.
