Frequently Asked Questions
Making Tax Digital, Everything You Need to Know
Miss a deadline and you'll collect penalty points and fines. Know your dates.
Yes once you meet the criteria for either MTD for VAT or MTD for Income Tax, compliance is mandatory. There are no opt-outs unless you qualify for a specific exemption (e.g., due to age, disability, religious grounds, or insolvency). MTD for VAT is already compulsory. MTD for Income Tax becomes compulsory from April 2026 for those above the income threshold.
No. Limited companies are not subject to MTD for Income Tax (ITSA). They file corporation tax returns under a separate regime. However, if your limited company is VAT-registered, you must comply with MTD for VAT. If you take a salary or dividends from your company, these do not count toward the MTD-ITSA threshold only self-employment and property income count.
Bridging software is a tool that connects non-compliant record-keeping systems (like Excel spreadsheets) to HMRC’s MTD system. It allows you to continue using spreadsheets for day-to-day bookkeeping while still meeting MTD’s digital link requirement. HMRC provides free bridging software, and several commercial options exist. We can set up bridging software for clients who strongly prefer spreadsheets over full accounting platforms.
Filing on the deadline day is compliant as long as your submission is received by 23:59 that day. However, we strongly advise filing at least a few days early to avoid issues with software downtime, internet outages, or last-minute errors. Our managed clients typically have their submissions filed 1–2 weeks ahead of the deadline to eliminate any risk.
You must keep your digital records for at least 5 years after the 31 January submission deadline they relate to. For example, records for the 2026/27 tax year (with a Final Declaration due 31 January 2028) must be kept until at least 31 January 2033. This is the same retention period as traditional Self Assessment, but MTD requires these records to be stored digitally and accessible if HMRC requests them.
Yes you still need to submit a quarterly update even if your income and expenses were both zero. MTD requires a submission for every quarter, regardless of activity. A “nil” return (showing £0 income and £0 expenses) satisfies the requirement. Failing to submit a nil return will still earn you a penalty point. Your software should make it easy to submit a nil return when there’s no activity.
Making Tax Digital is HMRC’s initiative to digitise the UK tax system. It requires businesses and individuals to keep digital records and submit their tax information to HMRC using compatible software. MTD replaces the traditional paper-based or manually entered online submissions. The goal is to reduce errors, improve compliance, and make tax administration more efficient for both taxpayers and HMRC.
MTD for VAT: Already mandatory for all VAT-registered businesses since April 2022. Requires quarterly VAT returns submitted via digital links from approved software.
MTD for Income Tax (ITSA): Launches April 2026 for self-employed individuals and landlords with gross income above £50,000. Requires quarterly income tax updates, a Final Declaration replacing the traditional Self Assessment return.
Yes once you meet the criteria for either MTD for VAT or MTD for Income Tax, compliance is mandatory. There are no opt-outs unless you qualify for a specific exemption (e.g., due to age, disability, religious grounds, or insolvency). MTD for VAT is already compulsory. MTD for Income Tax becomes compulsory from April 2026 for those above the income threshold.
For MTD-ITSA, yes the Final Declaration effectively replaces your traditional Self Assessment return. However, if you have income sources beyond self-employment or property (e.g., PAYE, dividends, capital gains), these are still reported in the Final Declaration alongside your quarterly update data. MTD consolidates all your income into one digital annual submission rather than the paper or online SA100 form you previously filed.
MTD for VAT applies to all VAT-registered businesses and requires quarterly VAT returns filed via MTD-compatible software. There is no income threshold if you’re VAT-registered, it applies to you.
MTD for Income Tax (ITSA) applies to self-employed individuals and landlords whose gross income exceeds a specific threshold (£50,000 from April 2026). It requires 4 quarterly income tax updates and a Final Declaration. You can be caught by one, both, or neither depending on your business structure and income.
Limited companies follow a different compliance regime. They are not subject to MTD for Income Tax (ITSA), as they file corporation tax returns rather than Self Assessment. However, if a limited company is VAT-registered, it must comply with MTD for VAT. HMRC has announced plans for MTD for Corporation Tax in the future, but no launch date has been confirmed yet.
You need to comply with MTD for Income Tax (ITSA) if you are self-employed or a landlord and your gross income from these sources exceeds the threshold for your tax year:
- April 2026: £50,000+
- April 2027: £30,000+
- April 2028: £20,000+
Gross income is your total turnover before deducting expenses. Self-employment and property income are combined when assessing the threshold. Use our Do I Qualify tool to check your status.
Yes, if your gross rental income exceeds the MTD threshold for your tax year (£50,000 from April 2026, £30,000 from April 2027, £20,000 from April 2028). Rental income includes all property rental receipts before expenses. If you also have self-employment income, both income sources are added together to determine whether you exceed the threshold. Landlords with lower income are not in scope for MTD-ITSA.
If your gross self-employment income is below the MTD threshold for your tax year (e.g., below £50,000 in 2026/27), you are not required to comply with MTD for Income Tax. However, you still need to complete a traditional Self Assessment return if your total income requires it. If your income later rises above the threshold, you’ll need to join MTD in the tax year after you first exceed it.
No. Limited companies are not subject to MTD for Income Tax (ITSA). They file corporation tax returns under a separate regime. However, if your limited company is VAT-registered, you must comply with MTD for VAT. If you take a salary or dividends from your company, these do not count toward the MTD-ITSA threshold only self-employment and property income count.
You join MTD based on the income reported in your most recently filed tax return. If your income exceeds the threshold in one year, you must join MTD the following tax year. If your income then drops below the threshold in a subsequent year, you can apply to exit MTD but you’ll need formal approval from HMRC. It’s not automatic. Most people find it simpler to remain in MTD even if their income temporarily dips.
Yes. You can apply for an exemption if:
- You’re unable to use digital tools due to age, disability, or a remote location with no internet access
- It conflicts with your religious beliefs
- You’re undergoing insolvency proceedings
- You’re a trustee or executor acting on behalf of someone else (automatic exemption)
Exemptions must be applied for and approved by HMRC they are not granted automatically. If approved, you’ll continue filing via traditional Self Assessment.
You need HMRC-recognised MTD-compatible software. Popular options include:
- Xero
- QuickBooks
- Sage
- FreeAgent
- Zoho Books
All of these handle both MTD for VAT and MTD for Income Tax. The right choice depends on your business complexity, budget, and whether you need features like multi-currency support or payroll integration. We can recommend the best fit during your consultation.
Income specifically your total gross income from self-employment and/or property before expenses. So if you earn £60,000 in sales but have £40,000 in costs, it’s your £60,000 turnover that counts, not your £20,000 profit.
Income specifically your total gross income from self-employment and/or property before expenses. So if you earn £60,000 in sales but have £40,000 in costs, it’s your £60,000 turnover that counts, not your £20,000 profit.
Most MTD-compatible software costs between £10–£25 per month, billed as an annual or monthly subscription directly by the software provider. Some options:
- Budget-friendly: Zoho Books (£10/month), FreeAgent (free with certain banks)
- Mid-range: QuickBooks (£12/month), Sage (£14/month), Xero (£15/month)
- Premium: Advanced Xero plans (£35/month+) for larger businesses
Note that software cost is separate from any service fee you pay us we configure and support your software, but you subscribe to it directly.
Bridging software is a tool that connects non-compliant record-keeping systems (like Excel spreadsheets) to HMRC’s MTD system. It allows you to continue using spreadsheets for day-to-day bookkeeping while still meeting MTD’s digital link requirement. HMRC provides free bridging software, and several commercial options exist. We can set up bridging software for clients who strongly prefer spreadsheets over full accounting platforms.
If your accountant manages your books in their own software (e.g., they maintain a client file in their practice management system), they can file your MTD submissions on your behalf. However, you are still legally responsible for the accuracy of what’s submitted. We recommend businesses have access to their own software login so they can monitor their position in real-time, even if someone else handles the filing.
For MTD for Income Tax, quarterly updates are due one month after the end of each quarter. The tax year runs from 6 April to 5 April, with quarters as follows:
- Q1 (6 Apr – 5 Jul): Due 5 August
- Q2 (6 Jul – 5 Oct): Due 5 November
- Q3 (6 Oct – 5 Jan): Due 5 February
- Q4 (6 Jan – 5 Apr): Due 5 May
Your Final Declaration is due by 31 January following the end of the tax year. See our Deadlines page for the full calendar.
VAT returns are due one month and seven days after the end of your VAT quarter. The exact deadline depends on your VAT “stagger” (the quarter pattern HMRC assigned when you registered). Standard quarterly staggers have returns due on:
- 7 May, 7 August, 7 November, 7 February
Always check your specific stagger in your HMRC business tax account. Payment and submission deadlines are the same date unless you pay by direct debit (which gives you 3 extra working days for payment only).
Filing on the deadline day is compliant as long as your submission is received by 23:59 that day. However, we strongly advise filing at least a few days early to avoid issues with software downtime, internet outages, or last-minute errors. Our managed clients typically have their submissions filed 1–2 weeks ahead of the deadline to eliminate any risk.
No. There are no extensions or grace periods for MTD quarterly updates or VAT returns. The deadlines are fixed. If you miss one, you’ll accumulate a penalty point (or trigger a late filing penalty for VAT). The only way to avoid a penalty is to file on time or to have an approved exemption from MTD entirely. HMRC may consider exceptional circumstances (e.g., serious illness, bereavement) but this requires formal application and is not guaranteed.
If an MTD deadline falls on a weekend or bank holiday, the deadline is automatically moved to the next working day. For example, if 5 November falls on a Saturday, your Q2 update would be due on Monday 7 November. HMRC’s online systems reflect these adjustments automatically. However, planning to file early removes any confusion about adjusted dates.
Each missed quarterly update earns you one penalty point. Once you accumulate a threshold number of points (4 points for quarterly filers), HMRC issues a £200 fixed penalty. Every subsequent late filing while you’re at the threshold triggers another £200 fine. Points remain on your record for 24 months from the date of compliance and they only begin expiring once all outstanding submissions are filed. The best strategy is simply never to miss a deadline.
VAT follows the same points-based system. Each late VAT return earns 1 penalty point. When you reach the points threshold (4 points for quarterly VAT filers), you’re issued a £200 fine. Each further late return while at the threshold triggers another £200 penalty. Points expire after 24 months of full compliance. Late payment of VAT (as opposed to late filing) triggers a separate penalty regime based on the amount owed and how late the payment is.
Late payment penalties apply to the amount of tax you owe, not just the act of missing a deadline. The structure is:
- Days 1–14: No penalty (grace period), but interest accrues
- Day 15: 3% penalty on the unpaid amount
- Day 30: Additional 3% penalty (6% total)
- Day 31+: 10% per annum daily interest on the unpaid balance
For example, if you owe £10,000 and pay 30 days late, you’d face £600 in penalties plus daily interest until paid.
Yes you can appeal an MTD penalty if you believe it was issued in error or if you had a reasonable excuse for the late submission (e.g., serious illness, bereavement, technical failure beyond your control). However, “I didn’t know the deadline” or “I forgot” are not considered reasonable excuses. Appeals must be made within 30 days of receiving the penalty notice. HMRC reviews appeals on a case-by-case basis.
Yes. Separate penalties apply if you fail to:
- Maintain digital records as required by MTD (up to £3,000 per failure)
- Keep proper digital links between your records and HMRC (up to £400 per return for VAT)
- Use MTD-compatible software (penalties for non-compliance)
These are different from late submission penalties. Even if you file on time, you can still be penalised if HMRC finds your digital record-keeping doesn’t meet MTD standards. Proper software setup from the start avoids this risk.
You must keep digital records of:
- All business income (sales, invoices, receipts)
- All allowable business expenses (receipts, invoices, bills)
- Bank and credit card transactions related to your business
- VAT amounts charged and paid (if VAT-registered)
These records must be stored digitally in MTD-compatible software, bridging software, or digital spreadsheets. Paper records alone do not satisfy MTD requirements. You must also retain these records for at least 5 years after the submission deadline they relate to.
Yes you can keep paper receipts as source documents, but you must also digitise them. Most MTD software has a mobile app that lets you photograph receipts and attach them to the transaction in your digital records. The key MTD requirement is that your income and expense data must be stored digitally and linked to HMRC via compatible software. Paper receipts alone don’t satisfy MTD, but paper + digital does.
You must keep your digital records for at least 5 years after the 31 January submission deadline they relate to. For example, records for the 2026/27 tax year (with a Final Declaration due 31 January 2028) must be kept until at least 31 January 2033. This is the same retention period as traditional Self Assessment, but MTD requires these records to be stored digitally and accessible if HMRC requests them.
Yes. For MTD compliance, every transaction must be categorised into an appropriate income or expense category (e.g., “office supplies,” “motor expenses,” “professional fees”). MTD-compatible software provides a standard chart of accounts with these categories. Uncategorised transactions cannot be included in your submission, which means they won’t be reflected in your tax position. Proper categorisation is essential for accurate filings and correct tax calculations.
Cloud-based MTD software (Xero, QuickBooks, FreeAgent, etc.) stores your records on remote servers, so you won’t lose them if your computer dies. However, you must maintain access to your software account and keep backups of critical documents. If you cancel your software subscription, you should export a full backup of your records before the account closes. HMRC holds you responsible for maintaining digital records, loss of access is not a valid excuse for non-compliance.
Quarterly updates are submitted directly from your MTD-compatible software via an API connection to HMRC. The process typically involves:
- Ensuring all transactions for the quarter are recorded and categorised
- Reviewing your income and expense summary in the software
- Clicking “Submit to HMRC” (or similar button)
- Receiving an HMRC acknowledgment receipt
You don’t manually fill in forms or log into the HMRC website the software handles the submission. Your software will prompt you when a submission is due.
Yes you still need to submit a quarterly update even if your income and expenses were both zero. MTD requires a submission for every quarter, regardless of activity. A “nil” return (showing £0 income and £0 expenses) satisfies the requirement. Failing to submit a nil return will still earn you a penalty point. Your software should make it easy to submit a nil return when there’s no activity.
A quarterly update is a simplified summary of your income and expenses for that three-month period. It’s a rough snapshot not a fully reconciled tax return.
The Final Declaration is your full annual tax return. It consolidates all four quarterly updates, includes your End of Period Statement (EOPS) adjustments, adds any other income sources (PAYE, dividends, savings), and calculates your final tax liability. The Final Declaration effectively replaces the traditional Self Assessment form and is due by 31 January.
Yes you can update figures in a previously submitted quarterly update at any time before you submit your End of Period Statement (EOPS). For example, if you submitted Q1 but later realise you missed some expenses, you can revise Q1’s figures in Q2, Q3, Q4, or at EOPS. Amendments made at EOPS are considered final. Once the EOPS is submitted, further changes require a formal amendment to your Final Declaration.
If you’re in scope for MTD-ITSA, the Final Declaration replaces your traditional Self Assessment return. However, the Final Declaration is still technically a Self Assessment submission it’s just done digitally via MTD rather than on the SA100 paper form or HMRC’s online portal. If you have income sources beyond self-employment and property (e.g., PAYE, capital gains), these are included in your Final Declaration alongside your quarterly update data.
Yes you can authorise an accountant, bookkeeper, or service provider (like us) to file your MTD submissions on your behalf. This is done by granting “agent authorisation” in your HMRC account. The agent can then access your MTD records and submit returns directly. However, you remain legally responsible for the accuracy of what’s submitted so you should always review figures before giving approval. Our fully managed service handles all filings for you with your sign-off.
Our fully managed service includes:
- Full software setup and HMRC MTD registration
- All 4 quarterly ITSA updates filed on your behalf
- Final Declaration
- All VAT returns prepared and submitted
- Pre-submission review of your figures every quarter
- Proactive deadline reminders (4-week and 1-week alerts)
- Year-end tax position summary
- Unlimited email support year-round
- Dedicated MTD specialist assigned to your account
Yes you’re still responsible for day-to-day record-keeping. This means:
- Logging your income and expenses in the software (or via bank feed)
- Photographing and uploading receipts
- Reviewing your monthly bank feed reconciliation
- Approving figures before we file
We handle the review, reconciliation, and submission but we can’t create records of transactions we don’t know about. Most clients spend 10–20 minutes per week on basic record entry, and we do the rest.
Yes. Our fully managed service is a fixed monthly fee, with no hidden costs or per-submission charges. The exact fee depends on your situation (e.g., whether you’re ITSA-only, VAT-only, or both), which we confirm after your free consultation. There’s also a one-time setup fee for initial configuration, training, and HMRC registration. See our Pricing page for details.
We chase you proactively. Our process includes:
- 4-week advance reminder
- 2-week follow-up if we haven’t received your data
- 1-week urgent reminder
- Phone call if the deadline is approaching and records are still missing
We’re designed to prevent late submissions. However, if you don’t provide records and a deadline passes, you (not us) remain legally responsible for the penalty. Our job is to make it almost impossible for you to forget.
Yes, there’s no long-term contract. If you’re on monthly billing, you can cancel at any time with one month’s notice. If you’re on annual billing (20% discount), you can cancel mid-year and receive a refund for unused months. We don’t believe in locking clients in. If the service isn’t working for you, you should be free to leave.
Income specifically your total gross income from self-employment and/or property before expenses. So if you earn £60,000 in sales but have £40,000 in costs, it’s your £60,000 turnover that counts, not your £20,000 profit.
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