Making Tax Digital didn’t stop at VAT. If you run your Shopify store as a sole trader, a second, separate wave of MTD is now reaching into how you report your income tax too, and it works on a completely different timeline and threshold system than the VAT rules most invoicing guides focus on. Plenty of Shopify sellers who’ve already sorted their VAT compliance assume that covers them for MTD generally, and that assumption is exactly where this next wave catches people off guard. This guide covers Making Tax Digital for Income Tax Self-Assessment, or MTD ITSA, what it means if you’re a self-employed Shopify seller, and how it’s genuinely different from the VAT-focused MTD rules covered elsewhere.
Making Tax Digital Isn’t Just About VAT Anymore
MTD started with VAT, but the government always intended it to expand into other taxes, and that expansion is now well underway.
From VAT to Income Tax: The Next Phase of MTD
MTD for VAT has applied to VAT-registered businesses since 2022. MTD for Income Tax Self-Assessment is a separate, later phase of the same broader digitalization program, aimed at how sole traders and landlords report their income tax, not their VAT. The two run on entirely different legislation, different software requirements, and different filing calendars, even though they share the same underlying “digital records, submitted through approved software” philosophy. HMRC has been explicit that this is a multi-year rollout, with VAT as the first phase and income tax as the second, rather than a single unified system covering every tax at once.
Why This Matters if You Run Your Shopify Store as a Sole Trader
A lot of smaller Shopify stores operate as sole proprietorships rather than limited companies, and it’s easy to assume that once your VAT reporting is sorted, you’re covered on the MTD front. You’re not. If you’re a sole trader and your combined income from self-employment and any property crosses the relevant threshold, MTD ITSA applies to you regardless of whether you’re VAT-registered at all. A small Shopify store well below the VAT registration threshold can still be squarely inside MTD ITSA, since the two systems measure completely different things.
What Is MTD for Income Tax Self-Assessment (ITSA)?
MTD ITSA replaces the familiar once-a-year Self Assessment return with a more frequent digital reporting rhythm.
Quarterly Digital Updates Instead of One Annual Return
Instead of submitting a single tax return each January, taxpayers within MTD ITSA send quarterly digital updates to HMRC throughout the year, followed by a final declaration after the tax year ends. The records behind those updates need to be kept digitally, in MTD-compatible software, from the point each transaction happens rather than reconstructed from receipts at year end. This is a genuine shift in rhythm: instead of one concentrated push each January, record-keeping becomes a running task spread across the whole year.
What Counts as “Qualifying Income” for Shopify Sellers
Qualifying income means your gross income from self-employment and property, combined, before any expenses or allowances are deducted. For a Shopify seller, that’s your store’s gross trading income, not your profit after costs. If you also have rental income on the side, the two get added together to determine which threshold applies to you. A store doing £45,000 in gross sales with £8,000 in rental income on the side would combine to £53,000 in qualifying income, putting it over the current £50,000 threshold even though neither source alone would.
The Phased Rollout: Who’s Affected and When
HMRC is bringing MTD ITSA in gradually, based on income level rather than switching everyone over at once.
April 2026: Over £50,000 (Already in Effect)
Since April 2026, sole traders and landlords with qualifying income over £50,000 have been required to follow MTD ITSA, based on their 2024/25 income as the qualifying year. If your Shopify store’s gross income crossed that threshold, this wave already applies to you, and HMRC would have written to confirm your requirement to start.
April 2027 and April 2028: The Thresholds Keep Dropping
From April 2027, the threshold drops to £30,000, pulling in a significantly larger group of sole traders. From April 2028, it drops again to £20,000, bringing in an estimated 900,000 additional taxpayers. If your Shopify store’s income sits below £50,000 today, it’s worth checking where you land against these lower thresholds rather than assuming MTD ITSA is years away from being relevant to you.
What Changes for Your Shopify Invoicing and Record-Keeping
The quarterly reporting requirement changes what “keeping good records” actually means in practice.
Digital Records From the Point of Sale, Not Just at Tax Time
Under MTD ITSA, the digital record needs to originate at the point each transaction happens, not get compiled from paper receipts or bank statements months later. For a Shopify seller, this means your order and invoice data needs to flow into MTD-compatible software close to real time, rather than being reconstructed in a once-a-year bookkeeping session before your return is due.
Where Your Invoicing Setup Fits Into Quarterly Reporting
A structured, accurate invoice generated at the time of each sale is exactly the kind of record that supports this quarterly rhythm well. InvoiceForge generates a proper invoice from each Shopify order as it happens, which gives you a running, dated record to feed into MTD-compatible accounting software each quarter, rather than trying to reconstruct four quarters of trading activity from order history right before a submission deadline.
MTD for VAT vs MTD for Income Tax: Not the Same Requirement
It’s worth being precise about this distinction, since conflating the two is a common and costly mistake.
Different Taxes, Different Software, Sometimes Both at Once
MTD for VAT and MTD ITSA are entirely separate obligations, covering different taxes, with different registration processes and different software approval lists. A VAT-registered sole trader whose income also crosses the ITSA threshold needs to satisfy both requirements simultaneously, which can mean running two MTD-compatible software connections rather than one. Our guide to Making Tax Digital for VAT covers the VAT-specific rules in full if that’s the piece you’re missing.
What If You’re Already MTD-Compliant for VAT?
Being MTD-compliant for VAT doesn’t automatically satisfy MTD ITSA, and vice versa. The digital record-keeping habit transfers well between the two, since both reward having structured, software-generated records rather than manual spreadsheets, but the actual filing connections, thresholds, and deadlines are entirely separate systems that need to be set up independently.
Getting Ready Before Your Threshold Year Arrives
MTD ITSA rewards sole traders who prepare a year ahead rather than scrambling once a threshold year arrives.
Checking Your Qualifying Income Now
Add up your gross Shopify trading income plus any property income from the most recently completed tax year, and compare it against the £50,000, £30,000, and £20,000 thresholds for the 2026, 2027, and 2028 waves respectively. This tells you which wave you’re likely to join, and roughly how much runway you have to get your record-keeping in order before it becomes mandatory.
Choosing Software That Covers Both, If You Need Both
If you’re going to need both MTD for VAT and MTD ITSA compliance, it’s worth choosing an invoicing and accounting setup deliberately with both in mind, rather than bolting a second solution on after your first threshold year arrives. Getting your Shopify invoice data structured and exportable now, per the retention and record-keeping habits covered in our invoice record-keeping guide, puts you ahead of whichever MTD requirement reaches you first.
Two Separate Compliance Clocks, One Underlying Habit
MTD for VAT and MTD for Income Tax Self-Assessment are separate obligations on separate timelines, but they reward the same underlying habit: structured, digital records generated at the point of sale rather than reconstructed later. If you’re a sole trader running a Shopify store, the ITSA thresholds are worth checking against your own income now, well before the year you’re actually required to comply, since the businesses that struggle with MTD are almost always the ones that only start building digital record-keeping habits once a deadline is already close. Treat the threshold check as a five-minute annual task rather than something to figure out under pressure, and whichever wave eventually reaches you will feel like a formality rather than a scramble.