Why MTD for Income Tax mandated taxpayers are more complex than they appear
Key Takeaways
MTD IT complexity goes beyond the headline: Behind “simple” sole traders and landlords sit multiple income sources, accounting bases, periods, and ownership structures that software must handle seamlessly.
Each income source creates its own reporting cycle: Quarterly updates multiply categorisation, timing, and method decisions—turning small structural differences into operational pressure.
Landlords aren’t one-size-fits-all: Joint ownership, changing beneficial interests, and property-level splits demand software that can model real-world arrangements, not just the standard spouse scenario.
Record-keeping habits vary widely: Truly MTD-ready software must support bank-led, invoice-led, and mixed workflows without forcing clients to change how their business runs.
The real differentiator is operational fit: Practices that succeed under MTD IT will choose software that absorbs client complexity and clarifies submission responsibility—rather than pushing friction onto teams and clients.
On the surface, the cohorts affected by Making Tax Digital for Income Tax (MTD IT) appear straightforward: self-employed people and landlords, phased in via income thresholds over several years so new behaviours can embed gradually.
Underlying these straightforward taxpayers are clients with a myriad of arrangements and behaviours that create complexities — MTD IT software needs to be able to absorb these arrangements for quarterly reporting. Or they will be pushed onto the practice or their clients, ultimately creating costs.
A client is the sum of their income sources
Under MTD IT, each income source a client has becomes its own reporting cycle — four times a year — and the underlying transactions might be cleanly separated across business accounts, all mixed through a personal account, or anywhere in between.
That creates compounding operational pressure:
Categorisation: every transaction needs to land in the right income source. Get it wrong and you create rework — and once you add property splits, it gets harder again.
Methods: the accounting basis (cash or accruals) can differ by income source, not just by client.
Periods: similarly income sources can work to tax-year quarters or calendar quarters.
These structural choices are usually made for good reasons — to suit how the business actually runs, or for tax reasons. Software has to absorb that nuance and route and treat transactions accordingly, or the practice ends up forcing clients to adjust their business to suit software.
A seemingly simple decision — cash basis vs accruals — can become a downstream operational problem if it’s dictated by your MTD IT software. If a client uses accruals for a clearer view of periodic performance, but your software only supports cash, that isn’t “simplification”.
It changes how the client's business measures itself. It affects invoicing, profitability conversations, tax planning. In other words: a software constraint becomes client behaviour change, and the cost lands on the practice to translate.
A Landlord comes in many forms
Landlords aren’t one client type. They’re a set of property-by-property arrangements that only roll up into a single figure at reporting.
Record keeping has to be scalpel-accurate at the property level even when the output is a summary, and that gets real when portfolios mix wholly-owned and jointly-owned properties.
Joint ownership isn’t just “husband and wife”. It can be siblings, business partners, reluctant acquaintances or anyone sharing an asset without sharing an accountant, a software stack, or even the same MTD status. Shares change over time, changing who is taxable on what.
The keystone for jointly held properties is beneficial interest, and a “record keeper” producing them for everyone else to consume.
But co-owners may be with different practices, on different software, or mandated at different times. The friction point is whether you can split and share the right numbers for the right periods simply.
Software that only models the spouse scenario pushes the messy middle onto the practice.
How clients record transactions is a spectrum
Clients don’t keep records in a single, standard way — and under MTD IT, that variability becomes operational. Quarterly reporting only works if data collection stays frictionless.
At one end, clients run bank-first. At the other, they’re invoice/receipt-led. Many sit in the middle, using both and matching for completeness. The driver isn’t preference — it’s the shape of the business: cash-heavy work, platform payouts, high-volume e-commerce, clinicians with mixed income, landlords working from agent statements, jointly owned properties with shared splits.
To make quarterly reporting efficient, software has to meet clients where they already are: capture documents, extract statements, connect bank feeds, and handle mixed modes of record creation without forcing change on the client.
That’s what “MTD-ready” really means — not just an API to submit totals to HMRC, but tooling that supports how records are actually created, with extraction and categorisation that automates, rather than shifting it onto the practice.
Who makes the quarterly submission?
Earlier thinking on MTD IT treated client submission as incompatible with a practice-led service. If the practice is responsible for accuracy, the practice should submit.
Quarterly updates change that dynamic. They’re cumulative, and there’s room to correct and refine as you go. That makes hybrid models realistic: some clients submit their own updates, with the practice reviewing, coaching, or stepping in where risk is higher.
Technically, enabling both routes is simple. The nuance is audit and accountability.
Agent submissions sit under the agent’s services credentials and reference. Client submissions sit under the client’s Government Gateway. In both cases the agent may still be representing the client.However, the identity behind the submission matters, because it affects who HMRC sees as having done what.
Avoiding a mismatch between the credentials used, the party responsible, and what the client thinks they’re paying for is imperative. Good software makes that separation explicit, traceable, and hard to get wrong.
The takeaway for software
MTD IT isn’t “hard” because quarterly updates are technically difficult.
It’s hard because it turns messy, real-world client situations into a repeating operational cycle — across different accounting basis, income sources, ownership structures, and submission models.
If your software choice assumes a single “simple taxpayer journey”, you’ll spend the next few years in workarounds and client confusion.
The practices that navigate MTD IT profitably won’t be the ones with the most features. They’ll be the ones whose tooling matches the lived complexity — without making clients (and teams) carry it by hand.
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Dext Solo helps firms make MTD for IT routine: accurate records, fewer manual adjustments, and smooth quarterly updates—without reinventing your year-end. Onboard clients quickly, guide them to simple capture habits, and automate the repetitive bits so your team can focus on advisory work.
