Making Tax Digital – FAQs

Making Tax Digital is government initiative that will digitise the UK tax system.  MTD is being introduced under a phased programme and first got underway in 2019, changing record-keeping and reporting requirements for VAT-registered businesses with a VAT-taxable turnover.

That was extended to all VAT-registered businesses in April 2022.

The next phase concerns Income Tax Self-Assessment, due to be implemented from April 2026. (This was initially due from April 2024)

If you are self-employed or a property landlord with total combined turnover from all businesses exceeding £50,000 per year your mandation date will be April 2026.

Those with an income between £30,000 and £50,000 per year will be mandated from April 2027.

Individuals will be required to:

• Keep digital records on HMRC compatible software.
• Submit quarterly updates to HMRC for each qualifying business.
• Submit an end of period statement for each qualifying business.
• Submit a final declaration that includes all other taxable income by the usual 31 January deadline.
• Pay any tax liability by the current deadlines

For each business, there is a requirement to submit a summary of the income and expenses for the following quarters: –

• Q1 6 April to 5 July will have a filing deadline of 5 August.
• Q2 6 July to 5 October will have a filing deadline of 5 November
• Q3 6 October to 5 January will have a filing deadline of 5 February
• Q4 6 January to 5 April will have a filing deadline of 5 May

An EOPS will include the usual accounting and tax adjustments required to finalise the tax position for each trade or property business. This will be due by the normal self-assessment deadline of 31 January.

A final declaration will confirm your tax position for the year. Only at this stage do you provide details of all other factors which will determine your tax liability for the tax year. Unlike the quarterly submissions and the EOPS, there is one Final Declaration per taxpayer, not per business and this replaces the usual self-assessment tax return.

It is possible to apply for an exemption if it’s not practical for you to use software to keep digital records or submit data to HMRC digitally. That could be because of your age, disability, geographic location, where there is poor internet connectivity.  Exemption can also be granted on religious grounds.

If a person is resident outside of the UK, they are not exempt but only need to comply with MTD for ITSA rules for any UK-based property and/or self-employment income. This means that there is no requirement to have to report any of your income from outside of the UK.

MTD for ITSA comes into effect from 6 April 2026. Each quarterly return will be due a month after the quarter ends. So, the first update needs to be submitted by 5 August 2026 and the final declaration for this period by 31 January 2028.

All of this feels a long way off and some of the precise details that we need from HMRC are not yet clear.  But there are some practical steps which can be taken early on to prepare, so that the change-over is smooth for individuals.

Top tips

• It’s not too soon to start to establish some good habits now to avoid an eleventh-hour ‘catch-up’
• Get into the habit of storing records electronically.
• Think about aligning your VAT quarters to the MTD for ITSA quarters.

In recognition of the scale of the change, HMRC will introduce a points-based penalty system for late submission of MTD for ITSA reporting instead of the flat rate automatic penalty regime so that those who habitually fail to meet deadlines will be penalised more stringently than those who make a one-off late submission, for example.  This replaces the current flat rate charge and feels like a more equitable approach.

It is also encouraging to note that HMRC has mooted that no penalties will be levied for inaccuracies on the quarterly submissions.  It is very likely that there will be adjustments throughout the tax year and those adjustments can be reflected in the End of Period Statement (EPOS).

Those VAT submissions will not meet the requirement of this next stage of development and individuals who are VAT registered and who fall into the scope of MTD, will still be required to make MTD for VAT submissions outside of the MTD for ITSA obligations.  Each has a separate legal obligation, and so also both will attract penalties.

HMRC has suggested that software is optimal for MTD for ITSA, as there is less room for error and data deletion, and it may prove difficult to submit the required EOPS or the final declaration without appropriate software to support you.

The aim of MTD for ITSA is to streamline the income tax system, and make it easier and faster to get your tax right.

Keeping your business records digitally also makes it easier for you to share information with your accountant, which will save time during the accounts preparation process.

HMRC has suggested that software is optimal for MTD for ITSA, as there is less room for error and data deletion, and it may prove difficult to submit the required EOPS or the final declaration without appropriate software to support you.

The aim of MTD for ITSA is to streamline the Income Tax system and make it easier and faster to get your tax right.

Keeping your business records digitally also makes it easier for you to share information with your accountant, which will save time during the account’s preparation process.