MTD IT: Frequently Asked Questions
Introduction
Over the past few years, tax expert Paul Aplin and our in-house specialist Paul Lodder have hosted numerous webinars on Making Tax Digital for Income Tax (MTD for IT). This FAQ brings together the most commonly asked questions from accountants and bookkeepers, providing clear and practical answers.The information in this document reflects our current understanding of HMRC's rules at the time of writing. We will update it as and when further guidance or changes are issued.
1. General Overview
Making Tax Digital (MTD) for Income Tax will require certain taxpayers (sole traders and landlords) to maintain digital records and submit quarterly updates of their income and expenses to HMRC, followed by a final end-of-year declaration. The final declaration will effectively replace the requirement to submit a self-assessment tax return.
- From 6 April 2026, individuals with combined annual turnover from self-employment and/or gross property rental income exceeding £50,000 will need to comply. Whether they exceed the limit will be tested based on their 2024/25 Self Assessment tax return. It is important to note that these figures are gross income, before any deduction of expenses.
- From 6 April 2027, this threshold reduces to £30,000 and whether they exceed the limit will be tested based on the 2025/26 return.
- The government intends to reduce the threshold further to £20,000 during this parliament (from a date to be confirmed).
Key point: The threshold is based on turnover and gross rent, not profit, and only considers income from self-employment and/or property.
1.3 How is mandation determined?
Mandation is based on a "current year minus two" (CY-2) rule. For instance, to be mandated from April 2026, HMRC looks at the Self Assessment tax return for 2024/25 (due by 31 January 2026). If turnover and/or gross rent exceeded the threshold on that return, MTD for Income Tax applies for that taxpayer from April 2026.
Mandation for April 2027 is based on the 2025/26 self-assessment return, which must be submitted by 31 January 2027.
Once mandated, a business remains within MTD for a minimum of three years.
Yes, or rather it will very soon. A taxpayer will be able to authorise more than one agent, for instance one agent for bookkeeping and quarterly submissions (the “Supporting Agent”) and another for finalisation of the position for the tax year (the “Main Agent”). Each agent will need the appropriate authority to act on the client's behalf. The supporting agent will not be able to view in-year tax calculations or deal with the finalisation. HMRC has agreed to incorporate this facility in response to representations from professional bodies.
2. Registration and Timelines
- February 2025: Agent update 128 (advising agents that clients will receive communication).
- March 2025: Agents notified which clients may be in scope.
- April–May 2025: Pre-mandation letters to taxpayers with income > £50k, inviting them to join the pilot (“beta”).
- May–June 2025: Further letters to remaining taxpayers with income > £50k and those with income between £45k–£50k.
https://www.gov.uk/government/publications/agent-update-issue-128/issue-128-of-agent-update#MTD
Formal mandation for those over the threshold starts from 6 April 2026 (or 6 April 2027 if gross turnover and/or rent is over £30k).
You can voluntarily sign up earlier (e.g., during the pilot or, as HMRC prefers to call it, “beta testing” phase). It is often simpler to join at the start of a tax year, but you can register at any time and catch up any missed quarterly updates. Penalties do not apply to late quarterly returns during the beta testing phase.
Either is possible. An agent can register clients on their behalf, though this currently has to be done individually rather than in bulk.
If you begin a new business after MTD is in effect, your official "digital start date" will usually be 6 April of the year following the tax year in which you first have to file a Self Assessment return for that new business. This is the CY-2 rule.
Each individual business has its own digital start date. You may end up submitting multiple sets of quarterly updates, one for each business, once each crosses its start date or threshold. Again, the CY-2 rule applies.
The government intends to bring partnerships within MTD for Income Tax from a date that has yet to be announced. No date has been announced for the start of MTD for Corporation Tax.
3. Record-keeping software
Yes. Businesses must keep digital records and submit quarterly updates via software compatible with HMRC's MTD requirements. Submitting manually (e.g., typing information directly into HMRC's website) is not permitted.
You may use:
- Bookkeeping software certified for MTD for Income Tax.
- Spreadsheet software (such as Excel), but you must then use bridging software to send the required data to HMRC.
You will still need to submit separate quarterly updates for MTD for Income Tax. If VAT quarters do not align with MTD for Income Tax quarters, you will need to manage both schedules. It's essential to keep digital records in, or as close as possible to, real time to avoid confusion, although this may require additional client education and workflow planning.
It is important to note that all businesses and landlords within the scope of MTD for Income Tax will be required to use the same quarters coinciding with the tax year or calendar quarters (see 4.2 below). The requirement is set in legislation. This does not affect MTD for VAT. If a business has an accounting year that does not align with one of the MTD for Income Tax quarters, the MTD for VAT quarters may therefore not align with the MTD for Income Tax quarters. In such cases, consideration will need to be given to whether to align the MTD for VAT quarters with the MTD for Income Tax quarters. See 4.12 below.
Yes. Multiple software solutions are allowed as long as they are HMRC-approved. HMRC stores all quarterly submissions, so your final submission software can pull the relevant data from HMRC rather than having to connect directly to your tax and/or bookkeeping platform. For example, you can use Dext Solo for quarterly submissions and then use your existing tax software for finalisation (as long as it is HMRC MTD for Income Tax approved).
4. Quarterly updates and finalisation
No. You will submit:
- Four quarterly updates of income and expenses for each self employment.
- Four quarterly updates of income and expenses for all UK properties combined
- Four quarterly updates of income and expenditure for all overseas properties combined
- One final declaration at year-end to adjust for any tax or accounting items and confirm the final figures.
The quarterly updates contain summary totals and not the individual detailed transaction data.
Many individuals will of course also be required to submit four quarterly MTD for VAT returns.
Quarterly updates must be submitted within about 1 month (technically 1 month + 7 days if calendar quarters) following each quarter-end. For example, if the quarter ends on 5 July, the update must be submitted by 7 August.
You can choose between using:
- The default tax-year quarters (6 April–5 July, 6 July–5 October, etc.), or
- Calendar quarters (1 April–30 June, 1 July–30 September, etc.) by making an election.
Quarterly submissions are year to date - 6th April - 5th July and then 6th April to 5th October and so on. This is a significant improvement - and the direct result of discussion between HMRC and the professional bodies - on the original proposal that each quarter would be “stand-alone” and not cumulative, because errors and omissions will now be corrected on a cumulative basis, without the need to re-file and earlier return.
Errors and omissions must be corrected promptly and in any event by the time the next quarterly return after discovery is filed.
No other custom quarter dates are permitted under MTD for Income Tax.
The fact that the MTD for Income Tax quarter dates are set in this way will create issues for some taxpayers whose businesses have accounting years that do not coincide with the quarter dates. The problems arise because their MTD for VAT quarters may be different - as noted at 3.2 - and because of Basis Period Reform (see 4.13).
No. There is no change to payment deadlines. Tax remains payable under the usual Self Assessment due dates.
It is preferable to use one accounting method (cash or accruals) consistently. Mixing methods within the same year can be complex and could lead to any in-year tax calculations yielding misleading results.
You only report income and expenses in the quarterly updates. Capital items (e.g., equipment) are factored in at the final declaration stage through capital allowances. The effect on any in-year tax calculations must be borne in mind.
Yes. You can make a calendar quarter election with HMRC before submitting your first quarterly update of the tax year. From then on, you'll report based on calendar quarters. You can withdraw or change this election later, but timing rules apply. The date by which the quarterly return must be filed is unaffected by the election.
Yes, provided you're reasonably sure there won't be any more income or expenses in the final days of that quarter. If something does come in after you file early, simply include it in the next update. You can submit up to 10 days early.
Yes. You file a partial-period update covering the date after your last update through to the date you closed the business. You must also inform HMRC of your cessation date by the deadline for that quarter.
As soon as you spot an error or omission, you will need to correct your digital records. If you haven't made your final update for that period, you should include the corrected figures in your next quarterly update. This will ensure HMRC receives the updated information.
Yes. HMRC allows "3-line accounts" (total income, total expenses, net profit) for those mandated under a certain turnover threshold (currently the VAT threshold).
This applies to both the self employed and to landlords. Only a single category is needed for each source of income and a single category for the associated expenses, with one exception: landlords must record finance costs such as mortgage interest separately (because of the way relief is given for such costs).
This does not however remove the obligation to keep digital records using MTD for Income Tax compliant software. It is simply a carry over of the current reporting easement for Self Assessment into the MTD for Income Tax regime.
No. Quarterly updates only require income and expense figures. You do not need to submit a balance sheet at the quarterly stage. Any detailed accounting adjustments will be made in your final (year-end) submission if needed.
No, you do not have to align your VAT quarters with your MTD for Income Tax quarters. While some businesses might choose to align them for convenience, it is not mandatory. You would simply file each set of quarterly obligations (VAT and MTD for Income Tax) as they fall due on their own schedules.
BPR will impact businesses that have accounting years that do not end on 31 March, or on 1, 2, 3, 4 or 5 April. This is because the assessable profits will be based on the time apportioned profits of each accounting period any part of which falls into the tax year. Adjustments will have to be made in the final submission for the year and in many cases it will be impossible to do this based on the MTD for Income Tax quarters.
The quarterly returns contain summary income and expenditure information in set categories. The categories are broadly similar to those used in the current self-assessment return for self-employment and property income. Individual transaction details are not part of the quarterly returns - that level of detail remains in the taxpayer’s software.
5. Property income
Landlords whose gross rents (or gross rents when combined with self employed turnover) exceed the turnover threshold must keep digital records and submit quarterly updates of rental income and allowable expenses.
Joint owners should apportion property income and expenses (as now). Each co-owner's share is tested against the threshold. For instance, if a property generates £60,000 total rent split 50/50, each person has £30,000 for the purpose of the threshold test.
No. MTD status is generally determined two tax years prior. If the taxpayer wasn't mandated at the start of the year, crossing mid-year won't trigger MTD for Income Tax until the next April after HMRC has looked at the relevant tax return. See 1.3.
Yes. HMRC has made two relaxations to the rules:
- Joint property owners can choose to report rental income gross on the quarterly returns and then report expenses as a part of the year end finalisation process
- Joint property owners can also create a single digital record for each income and expense category, removing the need for each joint property owner to maintain digital records for each transaction
These relaxations apply only to income and expenses from jointly let property and not to other rental income and expenses in the taxpayer’s own (sole) name.
Residential property finance costs (such as mortgage interest) must be shown as a separate expense figure (because of the way relief is given for such costs)
Joint property owners and their agents will need to think carefully about whether they wish to make use of these relaxations. The first merely defers the point at which expenses have to be reported (and leaving expenses out of the quarterly returns will affect the accuracy of any in-year calculations) and the second may create issues in future if HMRC opens an enquiry and requests full transaction detail.
6. Multiple trades and income sources
Yes. Each self-employment business requires its own quarterly updates, and a landlord with rental income also submits quarterly updates. For example:
- Self-Employed Business One: 4 quarterly updates
- Self-Employed Business Two: 4 quarterly updates
- UK Rental Property (combined for all such properties): 4 quarterly updates
- Overseas Rental Property (combined for all such properties): 4 quarterly updates
- End-of-year final declaration: 1 submission
Yes. If the total qualifying turnover (self-employment plus rental) is above the threshold, MTD for Income Tax applies.
No. MTD thresholds only consider self-employment and property income.
7. Penalties and compliance
Yes, beginning in April 2026 for those over £50,000 turnover. There will be a new, points-based penalty system mirroring - but operated independently of - the one used for MTD for VAT:
- One penalty point per missed submission deadline.
- After four points, a financial penalty of £200 is charged.
Any number of self-employed sources, even though each will require its own set of quarterly returns, will only count as a single quarterly obligation for this purpose.
No late-submission penalties apply during the voluntary testing phase (before April 2026).
HMRC may still require quarterly updates from the start of the mandated year. Late filing can lead to penalties under the existing system or, once it applies to a particular taxpayer, penalty points and eventually a penalty once the threshold is met.
8. Voluntary registration and beta testing
Yes. This allows you and your clients to get used to the system. You can join at any point in the year (often simpler at 6 April), then submit any missed quarters.
The client will be subject to the new penalty regime, except that it will not operate in respect of late MTD for Income Tax quarterly returns during the beta phase.
Yes. You must have the client's consent before registering them in the beta.
9. Exemptions
HMRC may exempt taxpayers who cannot engage digitally due to:
- Disability
- Location (e.g., no reliable internet access)
- Incompatible religious beliefs
If your circumstances change (e.g., you get reliable internet), you must notify HMRC and will then likely come under MTD for the next relevant tax year.
If you're not UK-domiciled or not UK resident for a particular tax year, your foreign businesses are generally excluded from MTD for Income Tax. However, any UK-based business or rental income above the threshold would still require MTD for Income Tax submissions.
Trusts and estates are not included in the MTD for Income Tax regime.
10. Finalisation
The finalisation software will retrieve the final (cumulative) quarterly update information from HMRC. Accounting and tax adjustments are then made to the self-employment income and the MTD for Income Tax information is then consolidated with all other sources of income and gains, reliefs and deductions as would be done when preparing the self-assessment return. Once this exercise is complete, the finalisation submission is made to HMRC.
Finalisation will in many cases be done in different software to that used for the preparation and filing of the quarterly returns, but some software will have end-to-end functionality enabling both preparation/submission of the quarterly returns and finalisation. The choice will be down to the taxpayer and their agent(s) deciding on what is best in their particular circumstances.
11. Additional points and reminders
- Threshold Based on Turnover: MTD applies if total self-employment and/or property turnover exceeds the relevant threshold.
- Two-Year Look-Back: Mandation for a given year is based on the tax return from two years prior - the CY-2 rule.
- Three-Year Minimum: Once mandated, a taxpayer remains in MTD for at least three years.
- Other Income Sources: Employment, dividends, etc., do not affect the MTD turnover threshold.
Submission Deadlines: Quarterly updates are due one month + 7 days (if calendar quarters) after quarter-end and on the seventh of the month following the quarter end (if using tax year quarters). You can submit up to 10 days before the quarter ends if you're sure no more transactions will occur.
12. Frequently referenced legislation and guidance
- MTD for Income Tax Software List
- Overview of Making Tax Digital
- Check Eligibility for MTD for Income Tax
- Legislation : The Income Tax (Digital Requirements) Regulations 2021 – Part 3
- Points-Based Penalty System
- Sign Up a Client for MTD for Income Tax
- https://www.gov.uk/government/publications/digital-record-keeping-notice-for-making-tax-digital-for-income-tax/making-tax-digital-for-income-tax-digital-record-keeping-notice
Get ahead of MTD for IT with Solo
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Disclaimer
This document provides general information based on current guidance and legislation as at 1st March 2025. Future changes or updates by HMRC may alter the requirements.
