Making Tax Digital: A Comprehensive Q&A Guide
Our Making Tax Digital team have put together a comprehensive guide to common questions
What exactly is Making Tax Digital (MTD) for Income Tax and who does it apply to?
MTD affects self-employed individuals and landlords with total annual income over £50,000 (before deduction of expenses). The threshold is based on the 2024/25 tax returns and all individuals whose total income from self-employment and/or property exceeded £50,000 in 2024/25 are mandated to use MTD from 6 April 2026 (unless otherwise exempt).
Other income, including partnership income, is excluded from the MTD threshold test.
Under MTD, an individual will be required to keep digital records and will require MTD compatible software to comply. They will also need to report to HMRC quarterly, rather than annually.
MTD applied from April 2026 for self-employed individuals and landlords with total annual income over £50,000. However, from April 2027 the threshold will drop to those with total annual income over £30,000, and from April 2028 to £20,000.
Why are the government introducing MTD?
Every year, errors and failure to take reasonable care contribute to the UK’s tax gap and MTD seeks to reduce this by bringing the tax system closer to real-time.
Who does MTD not yet apply to?
MTD currently only applies if you have self-employment or property income above the thresholds. Otherwise, nothing changes – you continue with normal tax returns.
Individuals with income below £20,000 – the government is considering including these taxpayers in the future.
Limited companies are currently not included in MTD plans, however there is a consultation in place to modernise the reporting of payments to participators of close companies.
Partnerships & LLPs may be included in the future, but no timeline has been announced yet.
Individual partners are not affected for partnership income but may need to comply with MTD if they have separate qualifying income.
Who is exempt from MTD?
If you fall within the scope for MTD but would like to learn more about the different circumstances that qualify for exemption you can read our detailed blog here
Do I still need to file a Self Assessment Tax Return?
No, MTD Income Tax Self Assessment will replace the traditional annual Self Assessment Tax Return. Instead, you will be reporting updates quarterly and then a final declaration (which will include all sources of income), by 31 January following the end of the tax year.
Under MTD, HMRC will not be supplying their own software to enable the final declaration to be made, unlike Self Assessment.
Will tax payment dates change?
There will be no changes to tax payment dates.
I am VAT registered – how much do these changes affect me?
If you are VAT registered, you are likely already using MTD compliant software and are already used to the quarterly reporting processes. Therefore, the administrative burden will likely not feel so high for you.
What digital records do I need to maintain?
You will need to keep digital records of your income and expenses from self-employment and/or your property business.
Digital records should include
- The amount
- The date of the income or expense
- The category/type of income and expenses.
These categories are the same as the income and expense categories from the Self Assessment tax return.
From the point where business records are created electronically, all transfers of data will have to be made digitally, including submitting the quarterly updates, making any corrections, and filing the MTD tax return.
I use a spreadsheet currently – is that enough for MTD?
We will be able to use bridging software for small businesses or landlords who use simple spreadsheets. However, it may be advisable for you to explore a different solution for your digital record keeping and to use cloud-based software – we will happily discuss the various options with you.
I have jointly owned properties, will we need to keep separate records and report separately?
HMRC have recognised the impracticality of maintaining separate digital records and so for now, will be allowing landlords to keep less detailed digital records for their jointly owned properties. They will not have to submit quarterly updates for expenses related to joint properties, only income. Instead, expenses can just be reported when finalising the position at the end of the year.
Will I need to make separate submissions for each source of MTD income?
The simple answer is yes. However, many software packages enable MTD compliance for multiple sources of income from within one package.
What if I make a mistake in one MTD submission?
As MTD submissions are cumulative within a tax year, any errors can be adjusted for in the following quarter.
When are the quarterly MTD submissions due?
The quarterly submissions cover a calendar quarter and are due for submission one month and one week after the end of the quarter. For example, the submission covering the period April to June will be due for submission by 7th August.
Will HMRC advise me whether MTD affects me?
HMRC have written to taxpayers that they believe will meet the criteria for MTD from April 2026. However, individuals are responsible for reviewing whether MTD applies to them, and for registering accordingly.
MTD applies to me. How do I sign up?
If MTD applies to you, you do need to sign up online through your Government Gateway account prior to the due date of the first MTD submission. We can sign individuals up as agents on their behalf, and have already done so for our existing clients.
What if I become self-employed or start renting a property part way through a year?
New income sources don’t trigger MTD immediately, but MTD will apply from April following the submission of the tax return that included the new source of income.
To test if the annual MTD threshold is met for a new source of income, a calculation should be carried out to pro-rata the income over 12 months.
You can choose to comply with MTD earlier.
What if my income falls below the MTD threshold?
You will only become exempt if your qualifying income falls below the MTD threshold for three consecutive tax years.
Will be there be penalties for non-compliance with MTD?
There will be a points-based penalty regime for non-compliance with MTD, however not for the first year that MTD comes into force, being 2026/27.
What software options are available to me?
To comply with MTD, three main tasks must all be completed using software:
- Keeping digital records
- Making quarterly submissions
- Submitting the end of year final declaration
You can meet these requirements in two ways:
- Use a single “all-in-one” software that handles everything, or
- Use a combination of different tools for different steps, for example:
You might keep records in a spreadsheet, use bridging software to submit quarterly updates, and have an agent file your end of year final declaration using commercial software.
It is important to know that not all MTD compatible software can submit the end of year final declaration, so it’s important to check this when choosing a product if you do not have an agent.
We have spent the last year exploring various digital software options and discussing these with our clients to help our clients to decide which solution is best suited for their circumstances.
We are also supporting clients who wish to use spreadsheets by offering to use our bridging software.
Our shortlist of recommended software products is detailed below, along with training links. Speak to us as we may be able to offer a discount on these products.
Dext Solo
Dext Solo is an HMRC recognised, purpose-built, and compliant software solution designed for sole traders and landlords to meet MTD obligations. It offers automated receipt/invoice capture, digital record keeping, bank statement processing, real time reporting and direct filing of quarterly submissions to HMRC.
Click here for Dext Solo’s home page: Dext Solo
Various tutorial videos can be found here: Dext Solo training videos
Xero
Xero offers various HMRC recognised, purpose-built, and compliant software solutions designed for sole traders and landlords to meet MTD obligations. There are dedicated plans like Simple, Ignite, or Grow. Users can choose plans based on transaction volume and required functionality. These solutions offer smart document capture, bank statement processing, real time reporting and direct filing of quarterly submissions to HMRC.
Click the links below for further information about the three smaller MTD for Income Tax solutions from Xero:
Click here for Xero Simple: Xero Simple
Click here for Xero Ignite: Xero Ignite
Click here for Xero Grow: Xero Grow
There are user videos under the various features on each page.
Hammock
Hammock is an HMRC recognised, MTD-compliant software specifically designed for landlords. It offers real-time tracking of rental income/expenses, automated bank reconciliations, instant receipt capturing, and direct filing of quarterly submissions to HMRC.
Click here for Hammock’s home page: Hammock
Hammock is offering live webinars hosted weekly. These sessions provide an overview of the software, demo the core features and explain the key steps to set up the software. Book here: Weekly webinar booking link
How we can help
We can offer expert advice and guidance at every step of the way to help you navigate the new MTD obligations:
- We can help you explore software solutions, set them up, train you on the software and help you put efficient processes in place for digital record keeping.
- If you already have software systems in place, we can also review these to ensure these are best suited for your business.
- If you would prefer not to carry out your bookkeeping yourself, we can do this for you along with making the quarterly submissions to HMRC on your behalf.
- We also offer a ‘check and submit’ service for individuals who would prefer to carry out most of their bookkeeping independently, whilst utilising our MTD team for limited bookkeeping support and submissions.
We will of course be submitting the final declaration for each client as per our usual Self Assessment service.
If you have any questions, or would like to discuss how MTD affects you, and the solutions available to your specific circumstances, please do not hesitate to get in touch with our MTD team.
Our contact details can be found here.
