MTD IT – Making Tax Digital – FAQs

What is Making Tax Digital for Income Tax Self-Assessment (MTD for IT)?

HMRC has a vision to digitalise the income tax system for businesses and landlords with qualifying income, which involves maintaining digital records and submitting quarterly reports to HMRC using MTD compatible software. 

For individuals, MTD for IT will be introduced in two phases:

From April 2026, for those with qualifying income over £50,000

From April 2027, for those with qualifying income over £30,000

Anyone below these limits is not required to sign up to MTD IT but they can do so voluntarily if they wish. HMRC has also recently announced plans to introduce a further reduced income limit of £20,000 from April 2028. 

What counts as qualifying income?

Qualifying income is deemed to be gross income from self-employment and gross rental income, before the deduction of expenses, and the above limits apply to a combination of both income sources, if you are in receipt of both.

How will this affect the record keeping for my business and how do I report to HMRC?

You, or your agent if you have one, will need to use MTD for IT compliant software to:

Store digital records of your self-employment and rental business income and expenses

Send quarterly updates to HMRC

Submit your final declaration (which replaces your self-assessment tax return), by 31 January following the end of the tax year

When should I sign up for MTD IT?

MTD IT is currently voluntary, and you may be able to sign up earlier than the above deadlines, if you would like to be involved in testing the service.

Alternatively, you can use the period prior to the deadlines above, to review your current record keeping ensuring this will be compliant for MTD IT, or to transition over to software which will be compliant, so that you are ready to make quarterly submissions to HMRC from these dates.

For individuals needing to register by April 2026, it would be worthwhile getting your records in order now, so they are compliant for MTD IT in plenty of time to report your first quarterly return. You can also sign up early and opt out of the quarterly submissions until that time.

Will I have to pay income tax quarterly under MTD IT?

Although you will be able to submit quarterly reports using the software available, and HMRC will provide you with an estimate of your tax liability based on the report, no quarterly tax payments will be required. Your tax liability will be calculated as normal with your end of year final declaration, with your tax payments being due the same time as under the current self-assessment scheme.

What happens if I don’t sign up in time?

HMRC will introduce late submission penalties using a points-based system, if you do not submit a quarterly return on time. Each time you miss a deadline, you’ll get a penalty point. This means you will not face a financial penalty if you make a one-off mistake, penalties will only apply if you repeatedly miss deadlines and accumulate points. If you do receive a penalty point, it will remain on your record for 12 months, after which it will be automatically removed.

Will my end of year reporting change?

Once all four quarters have been submitted to HMRC, you will need to submit a final declaration. This is where you will include any final year-end adjustments to your self-employment/rental income, as well as other reportable income or reliefs that you would normally declare on your self-assessment return.  The deadline for this submission is 31st January after the end of the tax year as normal.

What software options are available to me, if my records are not already compliant for MTD IT?

There are various software options available, all of which will be fully compliant for submissions under MTD IT. Some of the popular options with further information are listed below.

Xero

Sage

QuickBooks

Freeagent

Hammock

Landlord Studio

Excel

If you do not want to use online software, then it is possible to use excel spreadsheets. However, it will be necessary to use MTD IT compatible bridging software to ensure the figures are reported in the correct format and contain digital links to satisfy MTD compatibility. 

Can you help me to get ready for MTD IT?

Perrys are happy to discuss the software options for your business in more detail and to assist with the transition of your records to digital bookkeeping as required. We can also provide an excel template if you wish to keep things as simple as possible, and we have inhouse software to submit the quarterly reports on your behalf, should you require assistance to do so.