Making Tax Digital for Income Tax

The main changes relating to MTD for IT are that it introduces quarterly reporting through compatible software, replacing the annual Self Assessment tax return. Starting in April 2026, it applies to self-employed individuals and landlords earning over £50,000 annually, with those earning £30,000–£50,000 joining in April 2027, and those earning £20,000-£30,000 joining in April 2028.

Businesses below the £20,000 threshold can continue using the current Self Assessment system. The changes focus on improving accuracy and streamlining tax submissions.

No, Making Tax Digital (MTD) is not limited to just Income Tax (IT). The initiative also covers other tax areas, such as VAT. MTD for VAT was introduced in April 2019 and made mandatory for all VAT-registered businesses in April 2022, regardless of their turnover. Businesses must now use compatible software to keep digital records and submit VAT returns.

Future expansions of MTD are planned, although specific dates for this rollout have not been confirmed, the government is committed to extending the benefits of MTD to other tax systems.

HMRC has implemented a points-based penalty system to encourage timely submissions under Making Tax Digital (MTD). For each missed deadline, individuals or businesses receive a penalty point. Once a threshold is reached—2 points for annual, 4 for quarterly, or 5 for monthly submissions—a £200 fine is issued.

Separate points systems exist for VAT and Income Tax submissions, meaning penalties could apply to both if deadlines for each are missed. Points expire after 2 years unless the threshold is reached, in which case businesses must demonstrate good compliance over a set period to have points removed.

Late payment penalties are also being introduced, calculated based on the duration of the delay. No penalty applies if payment is made within 15 days, but delays beyond this incur escalating fines, starting at 2% after 16 days and increasing daily after 31 days.

For more information, see our blog on MTD penalties. 

Under Making Tax Digital (MTD), businesses are required to keep accurate digital records of their financial transactions. This includes details of all business income and sales, such as the date and value of each transaction, as well as any invoices issued. Businesses must also maintain records of their expenses and retain supporting evidence like receipts or proof of purchase.

For VAT-registered businesses, additional information is required, including VAT charged on sales and paid on expenses, as well as data needed for completing VAT Returns. This includes total taxable turnover and any relevant adjustments. Businesses must also record other financial transactions, such as asset purchases or loans, that impact their accounts.

These records must be stored in MTD-compatible software or linked systems capable of submitting updates digitally to HMRC. This ensures compliance with MTD requirements.

If you're already keeping digital records, Making Tax Digital (MTD) will add new requirements for your tax reporting.

Under MTD for IT, you'll also need to provide quarterly updates as well as an annual return, which means you’ll need to keep records accurate and up to date throughout the year. If your current system isn’t MTD-compliant, you’ll need to switch to compatible software.

Yes, you can still use spreadsheets for your record-keeping under Making Tax Digital (MTD), but there are some important considerations. MTD allows businesses to use spreadsheets, but they must be part of a system that is capable of submitting data directly to HMRC. This means you'll need to use bridging software that can link your spreadsheet data to HMRC's systems for tax submissions.

QuickBooks is designed to help you stay MTD-compliant with minimal effort, with every QuickBooks product offering MTD for IT functionality. Seamless integration with HMRC ensures that your tax submissions are automated and accurate, eliminating the need for manual data entry. With QuickBooks, you can easily track income, expenses, and VAT, all in real-time.

Ready to make MTD compliance a breeze? Explore our plans today and start managing your business finances with ease!