What is Making Tax Digital?
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HMRC’s programme to move tax reporting to digital software. It requires businesses and individuals to keep digital records and submit updates to HMRC via API-enabled software.
Is MTD mandatory for everyone?
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MTD for VAT is already mandatory for all VAT-registered businesses. MTD for Income Tax (ITSA) becomes mandatory from April 2026 for those with gross qualifying income over £50,000, and April 2027 for those over £30,000.
When does MTD for Income Tax start?
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April 2026 for sole traders and landlords with qualifying income over £50,000. April 2027 for those over £30,000. Partnerships are expected from April 2028.
What counts as qualifying income?
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Gross business turnover plus gross property income, before any expenses. Employment, dividends, and savings income do not count toward the MTD ITSA threshold.
Do I use gross or net income for the threshold?
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Gross. Always use turnover and rents before expenses. A taxpayer with £55,000 turnover and £20,000 costs still has £55,000 qualifying income and must join MTD.
What are quarterly updates?
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Summaries of income and expenses sent to HMRC every 3 months. They are not full tax returns. You must submit 4 per year, within one month of each quarter ending on 5 July, 5 October, 5 January, and 5 April.
What is the End of Period Statement?
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An annual statement due by 31 January where you confirm final figures, make accounting adjustments, and claim allowances. It replaces the calculation section of the old Self Assessment tax return.
What is the Final Declaration?
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A confirmation of your total tax liability across all income sources, also due by 31 January. It replaces the old SA100 submission process.
Can I still use spreadsheets?
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Only if combined with bridging software that sends data to HMRC via API. Manual re-typing or CSV uploads into the HMRC gateway break the digital links rule and are non-compliant.
What is bridging software?
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Software that sits between your records (e.g., a spreadsheet) and HMRC. It takes your totals and submits them through the API. It is a short-term fix; full cloud accounting is better for ITSA.
Which software is MTD-approved?
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Xero, QuickBooks, Sage, FreeAgent, FreshBooks, Zoho Books, and many others are HMRC-recognised. Always check the provider supports both VAT MTD and ITSA APIs if you need both.
Is there free MTD software?
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Some providers offer free starter tiers (e.g., FreeAgent free with certain banks). HMRC also lists low-cost bridging tools. However, most feature-rich MTD solutions charge £10–£30/month. See our
Best MTD Software guide.
What are digital links?
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A digital link is an electronic transfer of data between software programs without manual intervention. Copy-paste, manual CSV imports, and re-typing break the digital link and are not MTD-compliant.
Can I photograph receipts?
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Yes. Photos and scans are acceptable evidence if attached to the digital transaction in your software. You must keep them for 5 years (6 years if VAT-registered).
Do landlords need MTD?
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Yes. If your gross property income (before expenses) pushes your total qualifying income over £50,000 (£30,000 from 2027), you must join MTD for ITSA. See our
landlord guide.
Do self-employed people need MTD?
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Yes, if gross turnover exceeds the thresholds. See our dedicated
self-employed MTD page for sole trader timelines and software picks.
What if my income is under £30,000?
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There is currently no mandatory MTD ITSA date for those under £30,000. You can continue using the existing Self Assessment system. However, you may voluntarily join MTD if you wish.
What happens if I miss a quarterly update?
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You receive 1 penalty point. Once you reach the threshold (e.g., 4 points for quarterly updates), HMRC issues a £200 fixed penalty. Points decay over time if you file on schedule.
How do late payment penalties work?
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Interest runs daily from the due date. A 2% surcharge hits at 30 days, and a further 4% at 6 months. The sooner you pay or arrange a Time to Pay agreement, the lower the cost.
Can I appeal a penalty point?
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Yes, if you have a reasonable excuse such as serious illness, system outage, or bereavement. “I forgot” or “I did not understand MTD” are generally not accepted.
Is MTD the same as the old tax return?
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No. The annual SA100 is replaced by 4 quarterly updates, an End of Period Statement, and a Final Declaration. The total tax deadline is still 31 January, but the workflow is spread across the year.
Do I need an accountant for MTD?
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Not legally, but practically yes for most business owners. The 4 updates per year, digital links rules, and EOPS adjustments make professional support highly cost-effective. We can
match you with one.
What is the MTD pilot?
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HMRC’s live testing programme allows eligible taxpayers to join MTD for ITSA early. It lets you test quarterly reporting and software integration before the 2026 mandate. Ask your accountant if you can join.
Will MTD apply to companies?
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MTD for Corporation Tax is in development but not yet mandated. The current focus is VAT, sole traders, landlords, and partnerships. Limited companies should watch for future announcements.
Can I switch software later?
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Yes, but migrating historical data and re-establishing digital links can be complex. It is better to choose the right software now than switch during the 2026 transition rush.
Does MTD change how much tax I pay?
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No. The tax calculation rules remain the same. MTD changes how and when you report, not the underlying tax rates or allowances.
What if I have multiple businesses?
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You must report each business separately within MTD. Your software should allow multiple “businesses” or “properties” so each income stream is tracked individually before rolling into your total tax position.
Do charities need MTD?
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Charities and not-for-profits that are VAT-registered already follow MTD for VAT. Charities with trading subsidiaries may fall under ITSA rules depending on the entity structure and income levels.
What is a functional compatible software?
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HMRC’s term for software that can keep digital records, preserve digital links, and communicate directly with HMRC via API. It is the legal minimum for MTD compliance.
How do I register for MTD?
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You sign up through HMRC online or via your MTD software. Your accountant can also authorise and register you using their agent services account. Once signed up, you cannot revert to paper.
Can I leave MTD once joined?
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Generally no. If you are mandated into MTD (e.g., VAT-registered or above the ITSA threshold), you must remain compliant. Exemptions are rare and usually relate to disability, religious objection, or insolvency.
What are the CIS interactions?
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If you operate under the Construction Industry Scheme, your MTD software must handle CIS deductions correctly within both your VAT returns and ITSA updates. Not all software does this well.
Is there a list of HMRC-recognised software?
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Yes. HMRC publishes an official list, but we curate a comparison of the best MTD software with pricing, affiliate deals, and user ratings. See our
MTD Software Comparison.
When should I buy MTD software?
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Ideally by mid-2025. This gives you time to migrate data, test bank feeds, and submit a voluntary quarterly update before the April 2026 mandate. Waiting until Q1 2026 risks penalty points and accountant backlog.
Do I still need to keep paper records?
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You do not need to keep paper originals if you have digital copies (photos/scans). The legal requirement is to preserve readable records for 5 years. Digital storage satisfies this if backed up securely.
