MTD for Landlords

Making Tax Digital for Income Tax (MTD ITSA) will change how landlords report rental income to HMRC. This guide explains what records to keep, how to submit quarterly updates, and steps to prepare before MTD becomes mandatory.

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Making Tax Digital for Landlords Explained

Making Tax Digital for Income Tax changes how landlords report rental income to HMRC. From April 2026 onwards, qualifying landlords will move away from a single annual Self Assessment return and instead keep digital records and submit updates throughout the year using approved software.

This applies only to individual landlords, not limited companies. If you earn income from UK or overseas property and submit a Self Assessment tax return, MTD is likely to affect you in the coming years.

Why Landlords Need to Prepare Now

Although MTD for Income Tax does not start for most landlords until April 2026 at the earliest, preparation matters well before then. HMRC will decide whether you are in scope based on past tax returns, not future expectations.

Landlords who wait until the year MTD becomes mandatory often find themselves rushed into unfamiliar software, unclear record keeping, and unnecessary stress. Early preparation gives you time to test systems, understand what HMRC expects, and build manageable habits.

What Making Tax Digital for Income Tax Means

Under MTD, landlords must keep digital records of rental income and expenses and submit quarterly updates to HMRC using compatible software. These updates are summaries, not tax bills, and are designed to give HMRC a clearer picture of income during the year.

At the end of the tax year, landlords will still submit a final digital declaration confirming totals and making any adjustments. This replaces the Self Assessment return for property income and must be filed by 31 January following the tax year.

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When MTD Will Apply to You

MTD for Income Tax is being introduced in stages based on qualifying income. HMRC will assess your position using the most recently submitted Self Assessment return. For example, whether you must join in April 2026 is based on your 2024 to 2025 tax return, due by 31 January 2026. HMRC will contact landlords who are required to join.

• From April 2026 if your qualifying income is over £50,000
• From April 2027 if your qualifying income is over £30,000
• From April 2028 if your qualifying income is over £20,000

What Counts as Qualifying Income for Landlords

Qualifying income includes gross rental income before expenses from UK or overseas property, plus any sole trade income you receive. If you have both, the figures are added together.

Income that does not count includes employment income, pensions, dividends, interest, partnership income, and income from properties owned through a limited company.

For jointly owned properties, only your share of the rental income is counted. This means many landlords with joint ownership will fall into later phases of MTD.

How Tax Reporting Will Change Under MTD

Under Making Tax Digital, the biggest change for landlords is moving from a single annual Self Assessment submission to ongoing digital reporting. Income and expenses must be recorded digitally as they arise, and quarterly summaries submitted to HMRC throughout the year.

This does not change how much tax you pay or when it is due; payments remain aligned with the existing Self Assessment timetable.

Digital Record Keeping Requirements

Landlords must record each rental transaction digitally. You do not need to scan or store invoices digitally, but all transaction details must exist in software before submission. Records should include dates, amounts, and categories of income and expenses. HMRC expects records to be kept close to real time, although periodic updates are acceptable provided records are complete before filing.

Quarterly Updates Explained

Quarterly updates summarise income and expenses for each property business and are submitted four times per year, usually within one month of the quarter end. These updates are not tax calculations and do not trigger payments. HMRC only receives totals from your digital records, not detailed invoices or receipts.

The End of Year Digital Tax Return

After the fourth quarter, landlords submit a final declaration through MTD software. This confirms that quarterly data is complete and allows for adjustments such as accounting elections or reliefs. This replaces the Self Assessment property pages and must be submitted by 31 January, alongside any tax due.

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Practical Steps for Landlords to Get Ready

Review Your Rental Income

Start by checking all rental income for the current and past tax years. Make sure all amounts received are accurately recorded, including any deposits, rent from joint tenants, and income from overseas properties. This will help you understand what qualifies as digital record-keeping under MTD.

Separate Rental Finances

Use a dedicated bank account for your rental income and expenses. Keeping finances separate from personal accounts reduces errors, makes digital record-keeping simpler, and ensures that each transaction is easily traceable for quarterly updates.

Choose MTD Compatible Software Early

Research and select software that is HMRC-recognised and suitable for your portfolio size. Early adoption allows you to become comfortable with the system, understand its reporting features, and avoid last-minute stress when MTD becomes mandatory.

Speak to Letting Agents About Digital Reporting

If you use letting agents, discuss how they provide statements and transaction records. Ensure the information they supply can be imported into your software digitally or easily reconciled, so your quarterly updates remain accurate and compliant.

Start Recording Income and Expenses Digitally

Begin logging each transaction digitally as soon as possible, including rent, repairs, and other property expenses. Regular updates reduce end-of-year pressure and make the transition to MTD seamless.

How Professional Support Can Help

Accountants and bookkeepers experienced with landlords can help select suitable software, set up digital records, manage quarterly updates, and handle the final declaration.

For many landlords, support is about structure and reassurance, not handing everything over.

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How to get Ready for MTD as a Sole Trader

Making Tax Digital is changing how sole traders report income and expenses to HMRC. This guide explains the shift to digital record-keeping, quarterly updates, and the final digital declaration, helping you prepare ahead of April 2026.

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Preparing for Making Tax Digital as a Sole Trader

Making Tax Digital for Income Tax (MTD ITSA) represents one of the biggest changes to the tax system for sole traders in a generation. From April 2026, many sole traders will move away from the familiar annual Self Assessment process and into a system of ongoing digital reporting. While that date may still feel distant, early preparation is important.

MTD is not just about filing tax more often. It requires changes to how records are kept, how income and expenses are tracked, and what software is used. Sole traders who leave preparation too late may find themselves rushing to adopt new systems under pressure, increasing the risk of errors, missed deadlines, or unnecessary costs. Preparing early allows time to choose the right tools, improve record keeping habits, and spread the learning curve gradually.

Even if MTD does not apply to you from April 2026, understanding the changes now helps future proof your business. MTD is being introduced in phases, and most sole traders will fall within scope over time. Getting comfortable with digital records and software sooner rather than later can make the eventual transition far smoother.

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What Making Tax Digital for Income Tax Means for Sole Traders

Making Tax Digital for Income Tax changes how sole traders report their business income and expenses to HMRC. Instead of submitting one Self Assessment tax return each year, you will be required to keep digital records and send updates to HMRC throughout the year using compatible software.

Under MTD ITSA, sole traders must record income and expenses digitally at transaction level. These records are then used to submit quarterly updates to HMRC, giving a running picture of business performance. At the end of the tax year, a final digital declaration is submitted to confirm the figures, make any necessary adjustments, and finalise the tax position.

Importantly, MTD does not change how much tax you pay or the rules around allowable expenses. It changes how and when information is reported, not the underlying tax calculation. For sole traders, this means moving away from once-a-year reporting towards a more regular, digital approach that relies on accurate, up-to-date records throughout the year.

When MTD Will Apply to You

Making Tax Digital for Income Tax will be introduced in stages, based on your qualifying income rather than your profits. HMRC will use figures from your past Self Assessment tax returns to decide when you must join MTD.

From April 2026, MTD will apply if your combined qualifying income from self employment and property is more than £50,000 per year. From April 2027, the threshold reduces to more than £30,000, and from April 2028, it is expected to reduce again to more than £20,000.

HMRC will typically look at the income figures reported on your most recent submitted tax return before the start of the tax year in question. If that return shows qualifying income above the relevant threshold, you will be required to follow MTD rules for the entire tax year. This means keeping digital records and submitting quarterly updates even if your income later falls below the threshold.

If your income is close to a threshold, early planning is particularly important. A small increase in turnover could bring you into scope, and HMRC will not assess eligibility in real time. Your obligation is set in advance based on historic data.

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What Counts as Qualifying Income

Qualifying income for MTD includes gross income, not profit. For sole traders, this means total business turnover before expenses. For landlords, it includes gross rental income received during the tax year.

If you have both sole trade income and property income, HMRC adds these together to determine whether you exceed the MTD threshold. For example, a sole trader with £35,000 of business turnover and £20,000 of rental income would have £55,000 of qualifying income and fall within MTD from April 2026.

Income that does not count as qualifying income includes employment income taxed through PAYE, dividends, savings interest, pensions, and capital gains. These remain outside the scope of MTD for Income Tax, even though they are still reported as part of your overall tax position.

Understanding what counts and how HMRC measures it is critical. Many sole traders assume eligibility is based on profit or just business income alone, but it is the combined gross income from self employment and property that determines when MTD applies.

How Tax Reporting Will Change Under MTD

Making Tax Digital for Income Tax replaces the traditional once-a-year Self Assessment process for business income with ongoing digital reporting. Instead of pulling together figures long after the tax year has ended, sole traders will be expected to keep their records up to date and submit information to HMRC at regular points throughout the year.

The annual Self Assessment tax return will no longer be used to report sole trade or property income once you are within MTD. Instead, HMRC will receive quarterly updates during the tax year, followed by a final digital submission after the year end. Other types of income, such as employment income or dividends, will continue to be reported separately where required.

This shift is designed to encourage more accurate record keeping and reduce end of year pressure, but it does require a different mindset. Tax compliance becomes a year-round process rather than a single annual task.

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Digital Record Keeping Requirements

Under MTD, sole traders must keep their business records in a digital format using compatible software. Each individual transaction must be recorded, rather than summary totals. This includes the date, amount, and category of income or expense.

You do not need to store copies of invoices or receipts digitally, but the transaction details must exist in a digital record before any quarterly update is submitted. HMRC expects records to be kept as close to real time as possible, although they can still be entered periodically, provided they are complete and accurate.

Digital records must be kept for each business you operate. If you run more than one sole trade, each business needs its own set of digital records and its own reporting under MTD.

Quarterly Updates Explained

Quarterly updates are summaries of your income and expenses for each three month period of the tax year. These updates are submitted to HMRC using MTD compatible software and are based on the digital records you have kept.

There are four standard quarterly periods, and each update has a filing deadline one month after the period ends. HMRC uses these updates to build an ongoing picture of your business activity, but they do not create a final tax bill. The figures submitted are not confirmations of tax due and can be adjusted later.

Quarterly updates do not include claims for reliefs or allowances that are usually applied at the end of the year. They are purely a reporting mechanism, not a final calculation.

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The End of Year Digital Tax Return

After the end of the tax year, you will submit a final digital declaration using MTD software. This replaces the Self Assessment return for your business income. It confirms that all quarterly updates are complete and correct and allows you to make any necessary adjustments.

This is the stage where you apply accounting adjustments, claim allowances and reliefs, and finalise your taxable profit. Once the final declaration is submitted, HMRC can calculate the tax due for the year in the usual way.

Although the process changes, the underlying tax rules remain the same. The final declaration serves the same purpose as the current Self Assessment return, but it is built on digital records and quarterly reporting rather than a single annual submission.

Do You Still Need Self Assessment?

Making Tax Digital for Income Tax removes the need to submit a traditional Self Assessment return for your sole trade once you are within MTD. That part of the return is replaced by quarterly updates and a final end of year digital declaration.

However, Self Assessment does not disappear entirely for everyone. You may still need to file a Self Assessment return if you have other income that is not yet fully covered by MTD, such as complex investment income, capital gains, or certain relief claims. HMRC guidance makes clear that MTD changes how business income is reported, not the wider obligation to declare taxable income where required.

Over time, HMRC intends for more income types to be brought into digital reporting, but for now many taxpayers will operate a hybrid position where MTD reporting sits alongside limited Self Assessment obligations.

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MTD Compliant Software

To comply with MTD, you must use software that is compatible with HMRC’s systems. This software must be able to keep digital records, prepare quarterly updates, submit information directly to HMRC, and receive confirmation that submissions have been accepted.

HMRC does not provide free software for most businesses. Instead, you must choose a commercial accounting platform or work with an agent who uses compliant software on your behalf. GOV.UK maintains an official list of MTD compatible software to help businesses choose a suitable product.

For sole traders, the right software is usually one that matches the size and complexity of the business. Simple tools may be sufficient for straightforward income and expenses, while growing businesses often benefit from software that also handles VAT, invoicing, and cash flow.

Using Spreadsheets Under MTD

Spreadsheets are still allowed under MTD, but with important limitations. A spreadsheet on its own cannot submit quarterly updates or final declarations to HMRC. To comply, it must be used alongside bridging software that connects the spreadsheet to HMRC’s systems.

The spreadsheet must contain the underlying digital records, and the transfer of data to bridging software must be done digitally. Manually copying figures into another system does not meet HMRC’s requirements.

In practice, spreadsheets can work for very simple businesses, but they increase the risk of errors and missed deadlines. Many sole traders move to full accounting software to reduce admin and ensure ongoing compliance as MTD becomes mandatory.

Digital Links and Why They Matter

Digital links are the connections between different pieces of software used to keep records and submit information. HMRC requires data to flow digitally from the original record to the submission, without manual retyping or copy and paste.

Examples of acceptable digital links include linked spreadsheet cells, file imports such as CSV uploads, automated data transfers, or API connections between systems. Common pitfalls include exporting totals and re entering them manually or adjusting figures outside the software without recording a digital audit trail.

For sole traders, digital links matter because HMRC can reject submissions that do not meet these rules. Setting up compliant systems early helps avoid disruption, penalties, and last minute fixes once MTD applies.

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Can You Be Exempt From MTD?

HMRC recognises that not everyone is able to comply with Making Tax Digital. You may be exempt if it is not practicable for you to use digital tools because of age, disability, or lack of reliable internet access. These are known as digital exclusion exemptions and must be agreed by HMRC; they are not automatic.

There are also income-based exclusions. If your qualifying income is below the relevant MTD threshold, you are not required to join. In addition, some individuals are automatically excluded, such as those who do not have a National Insurance number and cannot reasonably obtain one.

If you believe you qualify for an exemption, you must apply to HMRC directly. Until HMRC confirms the exemption, normal reporting obligations continue to apply.

What Happens If Your Income Drops Below the Threshold

MTD does not switch on and off year by year. HMRC applies a three-year rule to determine whether you remain within scope.

If your qualifying income falls below the threshold for three consecutive tax years, you may be able to leave MTD from the following tax year. Until that point, you are expected to continue keeping digital records and submitting quarterly updates.

This approach is designed to provide stability and avoid frequent changes to reporting obligations due to short-term fluctuations in income.

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Practical Steps to Get Ready for MTD

Even if MTD does not apply to you yet, early preparation makes the transition significantly easier. Small changes made early reduce pressure once MTD becomes mandatory. Key actions to take now include:

Review Your Records

Check how income and expenses are currently recorded and whether they are complete and consistent.

Separate Business Finances

Use a dedicated business bank account to simplify digital record keeping and reduce errors.

Choose Suitable Software

Explore MTD-compatible software that matches your business size and confidence with technology.

Improve Digital Habits

Get comfortable recording transactions regularly rather than leaving everything until year end.

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How Professional Support Can Help

Accountants and bookkeepers can play a key role under MTD, particularly during the transition period. Support may include setting up compliant software, reviewing digital records, handling quarterly submissions, and ensuring the final declaration is accurate.

For many sole traders, professional support is less about handing everything over and more about creating a system that works day to day, with reassurance that obligations are being met correctly.

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MTD for VAT

Making Tax Digital for VAT requires VAT-registered businesses to keep digital records and submit VAT returns using compatible software. This guide explains what records to keep, how to maintain digital links, and the steps to ensure compliance with HMRC’s MTD rules.

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VAT and Making Tax Digital

Making Tax Digital for VAT is now fully established and applies to almost all VAT registered businesses. It introduced mandatory digital record keeping and digital VAT return submission, changing how VAT is managed and reported without changing the underlying VAT rules themselves.

Businesses are now required to maintain VAT records in compatible software, which ensures that all data flows digitally between records and VAT submissions. This has streamlined reporting, reduced errors from manual calculations, and provides HMRC with a more accurate, near real-time view of VAT activity. For businesses new to MTD, early adoption of compliant software helps avoid last-minute stress and ensures smooth integration with existing accounting processes.

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What Making Tax Digital for VAT Is

Making Tax Digital for VAT requires VAT registered businesses to keep their accounting records digitally and submit VAT returns to HMRC using compatible software. These requirements have applied to all VAT registered traders since April 2022.

You must use software that can connect directly to HMRC through its API platform. HMRC’s online VAT return is no longer available unless you are formally exempt from MTD for VAT.

Importantly, MTD for VAT does not change VAT rates, schemes, or payment deadlines. The VAT return still contains the same nine boxes and is filed and paid on the same timetable as before.

Key Features of MTD for VAT

Under MTD for VAT, all VAT registered businesses must maintain digital records for all transactions relevant to VAT. This includes sales and purchase invoices, VAT collected, and VAT paid. These digital records form the basis for submitting VAT returns directly through HMRC-compatible software.

MTD also requires that these records are linked digitally to avoid manual copying of totals between systems. The goal is to reduce errors, ensure accurate reporting, and give HMRC a more timely view of VAT activity.

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Digital Record Keeping for VAT

MTD for VAT requires all VAT-registered businesses to record each individual transaction digitally. You do not need to scan or store invoices digitally, but the details of every sale and purchase must exist in a compatible digital record before the VAT return is filed.

What Must Be Included in Digital Records

Digital records must include your business details, VAT registration number, and any VAT accounting schemes you use. For sales transactions, record the time of supply, the value of the transaction, and the applicable VAT rate. For purchases, include the time of supply, the value including any non-reclaimable VAT, and the amount of input tax claimed.

Where invoices contain items with different VAT rates, each rate must be recorded separately to ensure accurate reporting. This level of detail ensures your VAT submissions are compliant with HMRC requirements and can be verified if needed.

Special Rules for Certain Schemes

Some VAT accounting schemes, such as the Retail Scheme or Flat Rate Scheme, allow simplified VAT calculations. However, digital records are still required for all transactions, and the specific rules of your scheme must be reflected in your records. Keeping clear, digital records ensures compliance and prevents errors during VAT submissions.

Maintaining accurate digital records not only helps with compliance, but also allows businesses to quickly generate reports, reconcile accounts, and prepare for audits or HMRC checks. Properly structured records reduce the risk of mistakes and simplify the submission process.

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Who Must Comply With MTD for VAT

MTD for VAT now affects all VAT-registered businesses in the UK, regardless of size or turnover. Understanding the requirements is essential to avoid penalties and ensure smooth compliance.

Automatic Sign-up

HMRC automatically enrolled all existing VAT-registered businesses when MTD for VAT became mandatory. Newly registered VAT traders are also enrolled automatically at the point of registration, meaning no separate sign-up is required.

Scope

Sole traders, partnerships, limited companies, non-UK businesses registered for UK VAT, trusts, and charities all fall under MTD if they are VAT-registered. The rules apply irrespective of business size, turnover, or accounting method.

Consequences of Non-Compliance

Failing to submit VAT returns digitally, maintain accurate digital records, or comply with digital link rules can trigger HMRC’s points-based penalty system. This may result in fines, interest, and increased scrutiny.

Accountants often identify compliance gaps, such as missing digital links between systems or incorrect transaction categorisation. Proactive reviews can prevent avoidable errors before HMRC intervention.

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VAT Exemptions and Digital Audit Trail

VAT Exemptions Under MTD

You do not need to comply with MTD for VAT if HMRC agrees that it is not practicable for you to do so. This may apply where digital tools cannot reasonably be used due to age, disability, or lack of internet access. It also applies to businesses subject to insolvency procedures and those run entirely by practising members of a religious order whose beliefs prevent electronic record keeping.

Exemptions are not automatic. Businesses registering for VAT are signed up to MTD by default and must apply separately if they believe they qualify for exemption. Applications are made directly to HMRC, and decisions are confirmed in writing. While an exemption request or appeal is under review, HMRC allows businesses to continue filing VAT returns using their existing method.

The VAT Account and Audit Trail

Your VAT account forms the digital audit trail between your records and the VAT return. It shows how output tax and input tax figures are calculated and adjusted. This includes reverse charge VAT, corrections, error adjustments, and any other VAT required under VAT rules.

Some calculations, such as partial exemption or capital goods scheme adjustments, do not need to be kept digitally, but a digital journal entry must be recorded to reflect the adjustment in the VAT account.

Software and Digital Links

MTD for VAT allows records to be kept across more than one system, including spreadsheets, but there must be digital links between them. Information cannot be transferred manually by copying or retyping data.

Digital links include automated transfers, API connections, linked spreadsheet cells, file imports such as CSV or XML, or securely transferring files to an agent for import into software. Copy and paste does not meet HMRC’s definition of a digital link.

MTD compatible software must be able to keep and preserve digital records, create a VAT return, submit it to HMRC, and receive confirmation and messages back from HMRC. GOV.UK maintains a list of approved VAT software.

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MTD for VAT Compared to MTD for Income Tax

MTD for VAT and MTD for Income Tax follow the same digital principles, but they apply differently. VAT reporting remains quarterly and transactional, while MTD for Income Tax introduces quarterly updates alongside a final year-end declaration. VAT applies to all VAT registered businesses, while MTD for Income Tax is being phased in based on income thresholds.

Choosing the Right Software

Choosing software that supports both VAT and Income Tax reporting can reduce duplication and simplify compliance as MTD expands. This is especially important for businesses that are both VAT registered and within scope of MTD for Income Tax. Integrated software helps maintain digital links, avoids errors, and ensures both VAT and income records are accurate and easily accessible.

Staying Compliant

If you are VAT registered, MTD is not optional. Ensuring your software is compatible, your records are digital, and your digital links are in place is essential to avoid disruption, missed filings, and penalties. Proper preparation ensures submissions are accurate and deadlines are met consistently.

We help businesses review their VAT processes, choose suitable software, and set up compliant digital records so VAT returns are filed accurately and on time. This becomes even more important for businesses that will also need to comply with MTD for Income Tax, where quarterly reporting and year-end declarations require consistent, reliable digital records.

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Need Help With Making Tax Digital?

If you’re unsure about software, digital record keeping, or how to comply with MTD, our specialist team can guide you every step of the way.

We provide tailored advice for any businesses' that need it. Helping you stay compliant while saving time and reducing stress.

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Understanding Making Tax Digital

Making Tax Digital is HMRC’s initiative to modernise the UK tax system. This guide explains how digital record-keeping and quarterly reporting will change the way self-employed individuals and landlords manage their income tax.

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Understanding Making Tax Digital (MTD)

Making Tax Digital (MTD) is HMRC’s long-term initiative to move the UK tax system fully online. It replaces the traditional Self Assessment process with a digital system that requires regular record keeping and more frequent reporting. The goal is simple: reduce errors, improve accuracy, and give taxpayers a clearer picture of their liabilities throughout the year. HMRC provides full details on its programme on GOV.UK under “Making Tax Digital”.

Currently, most sole traders and landlords report income annually via a Self Assessment tax return. MTD changes this approach. Instead of one yearly submission, taxpayers will maintain digital records and submit quarterly updates for each business or property income source. At the year’s end, a final digital declaration replaces the traditional return, helping to minimise mistakes caused by manual entries and paper-based processes.

This shift is significant because it changes how and when you report your income. Rather than completing a single return each January, you will manage your tax position continuously with accurate digital records forming the basis of every submission. This provides both HMRC and taxpayers with a more up-to-date and accurate view of taxable income throughout the year.

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Who Must Join Making Tax Digital for Income Tax and When

Making Tax Digital (MTD) for Income Tax becomes mandatory from 6 April 2026. Whether you must use it depends on your Self Assessment status and your qualifying income, which is your total gross self-employed and property income before expenses.

You must use MTD if all the following apply:

• You are a sole trader or landlord.
• You report self-employed or property income.
• Your qualifying income is more than £20,000.

HMRC phases in MTD based on your qualifying income for each tax year. The table below outlines when you will need to start:

Tax Year	Gross Qualifying Income Threshold*	Tax Year to Start MTD
2024-25	£50,000	2025-26
2025-26	£30,000	2026-27
2026-27	£20,000	2027-28

*See the 'Who must use MTD' section to check how qualifying income is calculated.

Business partnerships will join later, and HMRC will publish a timetable. You can sign up early, but you do not need to join until after you have submitted the Self Assessment return that confirms your qualifying income.

Who Is Exempt

You are exempt if your qualifying income is £20,000 or less. You can also be exempt if you are digitally excluded and HMRC agrees it is not reasonable for you to keep digital records. Some individuals are automatically exempt, including trustees, personal representatives of someone who has died, individuals without a National Insurance number by 31 January before the tax year, Lloyds members, and non-resident companies.

How HMRC Confirms Your Start Date

HMRC reviews your Self Assessment return each year. If your income is above the relevant threshold, HMRC will write to you confirming that you must start using MTD from the next tax year. Even without a letter, you are responsible for checking your qualifying income and signing up on time.

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How Making Tax Digital Changes Your Tax Reporting

Making Tax Digital (MTD) replaces the traditional annual Self Assessment return with a digital reporting system. Instead of sending one return each January, you will keep digital records throughout the year, submit quarterly updates, and complete a final digital declaration after the tax year ends. HMRC explains this structure in its Making Tax Digital guidance on GOV.UK.

Quarterly Updates

Quarterly updates are short digital submissions sent to HMRC every three months. They show your income and expenses for each business or property source. HMRC sets out the required information in its Update Notice.

There are four standard quarterly periods:

• 6 April to 5 July
• 6 July to 5 October
• 6 October to 5 January
• 6 January to 5 April

The filing deadlines are always the same: the seventh day of the second month after the period ends (for example, 7 August for the first quarter). You can choose to report using calendar quarters by making a formal election with HMRC. Quarterly updates do not finalise your tax; they give HMRC an ongoing view of your position based on your digital records.

End of Year Finalisation

At the end of the tax year, you complete a final digital submission, which replaces the traditional Self Assessment tax return. Here you confirm your total income, adjust any figures from the quarterly updates, claim reliefs and allowances, and finalise your tax position. HMRC uses this submission to calculate your final bill for the year.

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Penalties Under Making Tax Digital

HMRC’s new penalty system for Making Tax Digital (MTD) for Income Tax replaces automatic fines with a fairer points-based model. When you miss a submission deadline, you receive a penalty point rather than an immediate charge. A financial penalty of £200 only applies once you reach two points for late annual submissions. Points can later be reset once all filing obligations are met and any overdue returns are submitted. This approach focuses on persistent non-compliance rather than occasional mistakes.

Late Submission Penalties

If you fail to submit your quarterly or final digital updates on time, HMRC will assign penalty points according to the points system. Occasional late submissions are unlikely to trigger a financial penalty unless the points threshold is exceeded. This system is designed to encourage timely filing without penalising first-time or minor errors.

Late Payment Penalties

Late payment penalties under MTD work differently. If tax remains unpaid 30 days after the payment deadline, HMRC applies an initial percentage-based charge. From day 31 onward, a daily accruing charge is added until the balance is cleared. Setting up a Time to Pay arrangement within 15 days of the deadline prevents penalties, provided the arrangement is maintained.

These rules apply to volunteers joining MTD from April 2024, although financial penalties only take effect for annual obligations due from January 2026.

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Exemptions from Making Tax Digital

Digital Exclusion

You may apply for an exemption if you cannot use digital tools due to age, disability, or location—for example, lack of reliable internet access. HMRC evaluates these requests individually and may require supporting evidence.

Income Exemption

Individuals with qualifying income below the £30,000 threshold (from April 2027 under current plans) are not required to join MTD. Those below this level will continue using the traditional Self Assessment system unless they voluntarily opt in.

Qualifying Care Income

Certain individuals receiving qualifying care income may be exempt from MTD obligations, following the same rules that currently apply under Self Assessment.

No National Insurance Number

MTD for Income Tax requires a valid National Insurance number. If HMRC has not issued one—for example, for new arrivals to the UK—you may be exempt until your number is in place.

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Free MTD-Compliant Softwares

Making Tax Digital requires all records to be kept digitally and submitted to HMRC using recognised software. This means you cannot rely solely on spreadsheets or paper records unless you use a bridging solution to connect them to MTD-compliant software. The right software helps you maintain accurate records, calculate your income and expenses, and submit quarterly updates efficiently.

Zoho Books

Zoho Books is a full featured accounting platform compliant in MTD for VAT and MTD ITSA. There is a gererous free transaction limit of up to 1,000 invoices per year with upgrades available if you need more.

Sage

Sage offers an AI powered MTD software with great support for businesses and sole-traders of all sizes. For Non-VAT registered sole traders with very basic filing requirements, Sage Individual offers a free way to use the software. If those restrictions are too much, you can always upgrade when the need arises.

@Coconut

@Coconut is an MTD Compliant Software aimed at Sole traders and landlords. It tries to simplify the accountancy process for these individuals with real tiem bank integration. A 30 day free trial is offered for you to see whether you like the software before committing to a subscription.

Clear Books & Clear Books Free

Clear Books & Clear Books Free are perfect for small and medium sized sole-traders. Clear Books free offers a free way to use the software, only requiring upgrade if you find you are accounting in more complex scenarios such as multi-currency or you need more comprehensive financial reports.

Rental Bux

Rental Bux is recognised as a MTD software aimed at Landlords with property in the UK, abroad or both. It offers a range of functionality that aid landlords in handling complex portfolios.

QuickFile

QuickFile is fully compliant with MTD for both VAT and ITSA. Free for accounts with under 1000 transactions per every 12 months with an unlimited user plan included in their free tier. If a paid upgrad is required it is £45 per month, with excess transactions being automatically charged for.

Self Assessment Direct

Self Assessment Direct focuses on bridging software which allows for movement to MTD from. The software offers a bare bones approach to MTD. Whilst it is not as user friendly as other offerings, those looking for a completley free option to manage your accounts may find this service useful.

Free Agent

Free Agent allows for compliance with both MTD for Income tax Self Assessment and MTD for VAT. It offers a suplementary mobile app and supports various types of income including Sole-Trader and UK Property income. It also offers a full API which allows for you to add custom integrations and fully embed it as part of your businesses pipeline.

TaxNav

TaxNav is another HMRC compliant MTD software which uses AI to simplify tax workflows for small to medium size businesses. It guides you through a step-by-step process to make your quarterly filings easier to comprehend and carry out.

Other well-known options widely used by self-employed individuals and landlords include: Xero and Quickbooks.

When choosing software, it is important to consider how it fits your workflow. Look for features like automatic transaction categorisation, report generation, multi-device access, and the ability to authorise agents if you use an accountant. Some software allows bridging tools to connect existing spreadsheets or accounting systems to HMRC, which can be useful if you are transitioning from manual record keeping.

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Preparing for Making Tax Digital

Preparing for Making Tax Digital starts with reviewing your current records. Ensure all income and expenses are accurately documented and stored digitally. This will form the foundation for your quarterly updates and final submissions.

Choose MTD-Compliant Software

Select software or apps that are HMRC-recognised for MTD compliance and suited to your business or property income. Familiarise yourself with the features, reporting options, and how it integrates with HMRC submissions.

Check Your Digital Infrastructure

Ensure you have reliable internet access and secure digital storage for all records. Having a robust system in place prevents delays or errors when submitting quarterly updates.

Get Professional Support if Needed

Professional onboarding and support services can guide you through setting up your systems, training on digital reporting, and ensuring your transition to MTD is smooth and compliant. If in doubt, contact a tax professional for advice on what will be required across the year.

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Need More Help?

If you need more help or haven't found exactly what you were looking for, feel free to Get in Touch. We are dedicated to supporting our clients through any and all UK and US tax system changes.