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Making Tax Digital (MTD): What You Need to Know

Making Tax Digital (MTD) is the biggest shake-up of the UK tax system in decades. It’s already fully in force for VAT and now it’s live for Income Tax too.

Since 6 April 2026, self-employed people and landlords with income over £50,000 have had to follow new rules for how they keep records and report to HMRC. This isn’t just another update, it’s changed how millions of people file their taxes, and the next threshold drop lands in April 2027.

But don’t panic. Whether you love spreadsheets, prefer bookkeeping software, or just want it done for you, Yorkshire Accountancy can help you get, or stay, MTD-compliant with zero stress.

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MTD at a Glance

  • MTD for VAT: mandatory for every VAT-registered business since April 2022, whatever your turnover
  • MTD for Income Tax (ITSA) Phase 1: live since 6 April 2026 for sole traders and landlords with qualifying income over £50,000
  • MTD for ITSA Phase 2: from 6 April 2027, threshold drops to £30,000
  • MTD for ITSA Phase 3: expected from 6 April 2028, threshold drops to £20,000
  • MTD for Corporation Tax: shelved, not going ahead
  • First ITSA quarterly deadline: 7 August 2026 (covering 6 April–5 July 2026)
  • The End of Period Statement (EOPS): scrapped in 2023, it’s not part of the current process

What Is Making Tax Digital?

Making Tax Digital (MTD) is HMRC’s long-term plan to modernise the UK tax system. Instead of filing one big tax return each year, you keep digital records and send updates to HMRC using approved software — quarterly, if you’re in scope for Income Tax.

HMRC’s goal?

  • Cut down on tax return errors
  • Encourage real-time reporting
  • Make the system simpler and more transparent

MTD started with VAT and the current phase is MTD for Income Tax Self Assessment (MTD for ITSA).

MTD for VAT: The Rules Already in Force

Before we get into Income Tax, it’s worth being clear on where MTD already applies, because the two often get confused.

Since 1 April 2022, every VAT-registered business has to follow MTD for VAT, regardless of turnover. That includes businesses registered voluntarily, well below the £90,000 VAT registration threshold. If you’re VAT-registered, you must already be keeping your VAT records digitally and filing returns through compatible or bridging software — the old manual entry route through HMRC’s online portal is gone.

Two thresholds to keep separate:

  • £90,000  – the VAT registration threshold (rolling 12-month taxable turnover)
  • £50,000 / £30,000 / £20,000 – the MTD for ITSA income thresholds (see below)

They’re unrelated. You can be well under the VAT threshold and still be mandated into MTD for ITSA, or vice versa.

A Brief History of MTD

Here’s how we got here:

  • 2015 – HMRC first announces plans to “end the tax return”
  • 2019 – MTD for VAT becomes mandatory for businesses over the VAT threshold
  • 2022 – MTD for VAT extended to all VAT-registered businesses
  • 2023 – HMRC’s Small Business Review confirms the End of Period Statement (EOPS) will be scrapped, folded into the Final Declaration instead
  • 2023–2025 – MTD for ITSA enters pilot stage with volunteer testers
  • 2026 – MTD for ITSA becomes mandatory for those earning over £50,000
  • 2027 – Threshold drops to £30,000
  • 2028 (expected) – Further rollout to those earning over £20,000

Who Does MTD for ITSA Affect?

MTD for Income Tax applies to self-employed people and landlords who earn over a certain amount in gross turnover, not profit.

From 6 April 2026 – If your combined qualifying income from self-employment or property exceeds £50,000, MTD applies.

From 6 April 2027 – The threshold drops to £30,000.

From 6 April 2028 (expected) – Further rollout to those earning over £20,000, confirmed as government policy but not yet in force.

So if you’re a sole trader, freelancer, landlord, or side-hustler with decent income, this affects you now or very soon.

What Actually Counts as “Qualifying Income”?

This trips a lot of people up. Qualifying income is your gross turnover, before expenses, not your profit, and it’s the combined total of:

  • Self-employment income
  • UK property income

It does not include PAYE employment income, dividends, pension income, or savings interest, those still need declaring on your Final Declaration, but they don’t count towards whether you’re mandated into MTD.

HMRC works out whether you’re in scope using your Self Assessment return from two years earlier. Your 2024/25 return determined whether you were mandated from April 2026; your 2025/26 return determines whether the £30,000 threshold catches you from April 2027.

Can You Leave MTD Once You’re In?

If your qualifying income drops below the threshold, you don’t come straight out. You have to stay in MTD until your income has been below the threshold for three consecutive tax years, or until you stop trading or receiving property income altogether. You can also sign up voluntarily before you’re mandated, if you’d rather get ahead of the system.

What Will Change Under MTD?

Here’s what you will need to do:

  • Keep digital records of all income and expenses, with digital links between any spreadsheets and software you use
  • Submit four quarterly updates to HMRC (a running, cumulative total for the tax year, not four separate reports)
  • Submit a Final Declaration by 31 January each year to confirm your figures, report other income, claim reliefs, and finalise your tax bill
  • Use MTD-compliant software or bridging tools throughout

In short: no more once-a-year tax return. You’ll now be dealing with HMRC five times a year.

What Counts as a "Digital Record"?

A few things catch people out here:

  • Each quarterly update is a cumulative, year-to-date total. Q2 includes everything from 6 April, not just the three months in between. Spot a mistake in Q1? You correct it in your next update rather than resubmitting the old one.
  • The standard periods run to the tax year: 6 April–5 July, 6 July–5 October, 6 October–5 January, and 6 January–5 April.
  • You can elect to use calendar quarters instead (Jan–Mar, Apr–Jun, Jul–Sep, Oct–Dec) if that suits your business better. You need to choose this before your first update of the tax year.

MTD Deadlines You'll Need to Meet

Quarterly Update Deadlines:

  • 7 August (for Apr–Jun)
  • 7 November (for Jul–Sep)
  • 7 February (for Oct–Dec)
  • 7 May (for Jan–Mar)

Final Declaration:

Due by 31 January, just like Self Assessment is now. For the 2026/27 tax year, that means 31 January 2028.

What Happened to the End of Period Statement (EOPS)?

If you’ve read older MTD guides, you may have seen a three-step process: quarterly updates, an End of Period Statement, then a Final Declaration. That’s out of date.

Following HMRC’s 2023 Small Business Review, the EOPS was scrapped as a separate step.

Everything it used to cover, finalising each income source, claiming reliefs, adjusting for capital allowances, is now handled inside the Final Declaration.

So today the process is simply: quarterly updates → Final Declaration. If anyone tells you that you need to file an EOPS, they’re working from outdated information.

Are You Exempt from MTD?

Not everyone has to comply. Some exemptions are automatic; others you need to apply for.

Automatically exempt (no need to tell HMRC):

  • Anyone with qualifying income below the relevant threshold
  • Trustees and personal representatives
  • Lloyd’s underwriters (in respect of underwriting activity)
  • Ministers of religion
  • Foster carers
  • Non-UK resident entertainers and sportspeople
  • Anyone without a National Insurance number

Exempt on application – this is HMRC’s “digital exclusion” route, for people who can show it’s genuinely not reasonable or practical for them to use compatible software, because of:

  • Age, disability, or a health condition
  • Living somewhere without reliable internet access
  • Religious beliefs that prevent the use of digital devices

Worth knowing: having an accountant doesn’t automatically make you exempt. If your agent files digitally on your behalf, HMRC generally considers you compliant already. We’ve written a full breakdown of the digital exclusion exemption process if you think you might qualify.

Can I Still Use Spreadsheets?

Yes, but not in the same way as before.

MTD rules require your data to be submitted using digital links, so spreadsheets are only allowed if they’re connected to approved bridging software, which reads the figures from your sheet and submits them to HMRC via a digital link. Manually typing totals into a submission form isn’t allowed.

At Yorkshire Accountancy, we offer:

  • A custom MTD-compliant spreadsheet (simple, easy to use, perfect for small businesses and landlords)
  • The option for clients to use their own spreadsheet, with us handling the submission using our in-house bridging software

Or Use MTD-Approved Software

If you prefer proper software, we can get you started with:

Pandle – Free for all Yorkshire Accountancy clients (normally £5/month)
Cash Book Pro – Our own free Excel-based bookkeeping tool
FreeAgent – Free if you bank with NatWest, Mettle or RBS
QuickBooks – Get a free 12-month licence when you join us (limited time offer)
Xero – Fully supported by our team

We’ll recommend the right option based on your business and show you how to use it. Not sure which fits? Our MTD software options guide runs through the choices in more detail.

Does MTD Apply to Limited Companies or Partnerships?

Worth clearing up, since it’s a common source of confusion:

  • Limited companies are not in scope for MTD for ITSA at all. MTD for Corporation Tax was proposed as a future phase but is no longer proceeding, so nothing changes there for now. If your company is VAT-registered, MTD for VAT still applies as normal.
  • General partnerships were originally expected to join MTD for ITSA on a similar timeline to sole traders, but HMRC has held off confirming a firm mandation date for partnerships while the wider rollout beds in. If this affects you, it’s worth checking your position with us directly rather than assuming a date.

What If I Ignore MTD?

Not a great idea, and the penalty system isn’t quite as simple as a flat fine per missed quarter.

Late submissions work on a points-based system:

  • You get one penalty point every time you miss a submission deadline
  • A £200 penalty is charged once you hit the threshold, 4 points if you file quarterly, 2 points if you file annually
  • Points expire after a sustained run of on-time filing (12 months for quarterly filers, 24 months for annual)
  • There’s a soft landing for 2026/27: no penalty points for your first four quarterly updates. This does not cover your Final Declaration, which is still due by 31 January 2028 as normal.

Late payment penalties are separate and tiered:

  • No penalty if you pay within 15 days of the due date (extended to 30 days for the 2026/27 soft-landing year)
  • 2% of the tax owed if you’re 16–30 days late
    A further 4%, plus an ongoing daily charge, if it’s still unpaid after 30 days
  • Interest is also charged on anything paid late, based on the Bank of England base rate

HMRC isn’t messing about. MTD is mandatory, and compliance is enforced.

How Yorkshire Accountancy Can Help

Whether you want to do it yourself or hand it all over, we’ve got you covered.

  • Set up MTD-compliant software – We’ll guide you from start to finish
  • Free QuickBooks licence – Worth up to £300 for new clients
  • Bookkeeping spreadsheet – MTD-compliant and free
  • Quarterly submissions – We’re authorised with HMRC as your agent, so we can file your quarterly updates and Final Declaration directly on your behalf
  • Monthly healthchecks – Check your records are MTD-ready
  • Full bookkeeping service – Just want it done? We’ll do everything

You’ll never miss a deadline — or a deduction. Take a look at our full Making Tax Digital services, or if you’re a landlord specifically, our Making Tax Digital for Landlords page covers the details that apply to property income.

Ready to Get MTD-Ready?

We’ll make sure you’re compliant, confident, and completely in control of your tax reporting.

Let’s get it sorted — so MTD doesn’t become your next headache.

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Frequently Asked Questions About Making Tax Digital

No, for anyone in scope for MTD ITSA, quarterly updates plus a Final Declaration replace the old Self Assessment tax return (SA100).
No. It was scrapped in 2023 and its function folded into the Final Declaration.
You’re automatically exempt and don’t need to tell HMRC. You can still sign up voluntarily if you want to.
Not for Income Tax — MTD for Corporation Tax isn’t going ahead. VAT-registered companies still need to follow MTD for VAT as before.
Yes, as long as they’re digitally linked to HMRC-recognised bridging software.