13 Common Questions About Making Tax Digital for Income Tax Self-Assessment

Understanding your implementation date is crucial. If your qualifying income exceeded £50,000 in the 2024/25 tax year, you should already be preparing for April 2026 compliance. If your income sits between £30,000 and £50,000, you have an additional year—but starting preparation early is strongly advisable. 

Who Must Comply to Making Tax Digital for Income Tax Self-Assessment?

Making Tax Digital for income Tax self-assessment applies specifically to self-employed/sole traders and landlords with total qualifying income above the threshold. The key factors determining compliance requirements are: 

Income Calculation 

The threshold considers gross income (turnover) before deducting expenses, not net profit.  

For instance, if your self-employed turnover is £40,000 and your expenses total £30,000, your qualifying income is £40,000. As this exceeds the £50,000 threshold for the 2026/27 tax year, you will need to comply with MTD for that year. 

Combined Income Streams 

If you have both self-employment income and property rental income, these combine for threshold calculation.

For eg: Someone with £20,000 self-employment income and £15,000 rental income has £35,000 qualifying income—above the £30,000 threshold from April 2027. 

Who Must Comply 

• Sole traders operating any type of business 

• Individual landlords with UK property portfolios 

• Individuals with both self-employment and property income 

Who Is Exempt from Making Tax Digital for Income Tax Self-Assessment? 

Not everyone above the income threshold must comply with Making Tax Digital for income tax self-assessment. HMRC recognizes genuine situations where digital compliance creates unreasonable burden and provides exemptions accordingly. 

What Are the Types of Income Covered Under Making Tax Digital for Income Tax Self-Assessment?

Making Tax Digital for income tax self-assessment specifically targets two income types: self-employment income and UK property income. Understanding what falls within MTD scope versus what remains outside is essential for accurate compliance. 

Income Types Outside MTD Scope 

Several income types remain on traditional self-assessment: 

• Employment income (PAYE) reported on P60/P45 

• Savings and investment income 

• Dividend income from shareholdings 

• Capital gains from asset disposals 

• Pension income 

• Partnership income (reported through partnership returns, not individual MTD) 

What Are The Quarterly Updates Requirement For Making Tax Digital for Income Tax Self-Assessment?

The quarterly update requirement represents the most significant operational change under Making Tax Digital for income tax self-assessment. Instead of annual reporting, you must submit income and expense summaries four times yearly. 

Under MTD, you have two reporting options for how those quarterly updates are structured:

1. Standard tax-year quarters These follow HMRC’s default tax calendar and divide the tax year into four fixed reporting periods.

2. Calendar (non-standard) quarters Alternatively, you may choose calendar-based quarters that align with normal business months or your operational cycle. While the reporting periods differ, the submission deadlines remain the same as standard quarters.

In both cases, each quarterly update must be submitted within one month of the quarter ending, giving you time to collect records, reconcile figures, and submit accurate information without immediate pressure when the period closes. 

Importantly, quarterly updates are not tax returns. They're information summaries providing HMRC with visibility of your financial position throughout the year. The actual tax liability calculation occurs later in the final declaration. 

What Is the Final Declaration Under Making Tax Digital for Income Tax Self-Assessment?

Despite quarterly reporting, Making Tax Digital for income tax self-assessment still requires an annual final declaration, this is the true replacement for the traditional SA100 self-assessment tax return. 

Final Declaration Timing 

The final declaration deadline remains 31 January following the tax year end—the same as current self-assessment deadlines. For the 2026/27 tax year (6 April 2026 to 5 April 2027), the final declaration is due by 31 January 2028. 

What the Final Declaration Includes 

Your final declaration encompasses: 

• Confirmation of the year's income and expenses (drawn from quarterly updates) 

• Claims for tax reliefs and allowances if any 

• Adjustments for losses, overlap relief, or other factors 

• Non-mandated income under MTD (employment, savings, dividends, etc.) 

• Capital gains and other tax events 

• Final tax calculation showing liability or refund due 

How to Keep Digital Records Under Making Tax Digital for Income Tax Self-Assessment?

Making Tax Digital for income tax self-assessment mandates comprehensive digital record-keeping that goes beyond traditional paper records or basic bookkeeping methods. Understanding these requirements is essential for compliance. 

• You are required to keep digital records covering all key business and property details, including income received, allowable expenses, capital purchases and disposals, stock valuations, and information on business assets and liabilities. Property income and expenses must also be recorded separately from other business records. 

These records must exist in digital format from the outset; you cannot maintain paper records then digitize them later for compliance purposes. 

Preservation Period 

Digital records must be preserved for at least five years from 31 January following the tax year. For 2026/27 records, you must retain them until at least 31 January 2033. 

What Software is Used for Making Tax Digital for Income Tax Self-Assessment?

Making Tax Digital for income tax self-assessment cannot be completed without using HMRC-recognized MTD compatible software. Understanding software requirements and options is crucial for successful compliance. 

MTD Compatible software must: 

• Keep digital records of business income and expenses 

• Generate quarterly update submissions in the correct format 

• Submit the final declaration 

• Receive information from HMRC (such as the estimated tax liability calculation) 

Before selecting software, verify it appears on HMRC's official list and specifically supports MTD for ITSA, not just MTD for VAT. 

Bridging Software 

If you prefer maintaining records in spreadsheets, "MTD bridging software" products connect spreadsheets to HMRC's MTD system. These create the required digital links and API submissions while allowing familiar spreadsheet-based bookkeeping. 

However, bridging software still requires proper digital links, you cannot manually copy spreadsheet data into submission software, as this breaks MTD's digital chain requirement. 

What Are the Points-Based Penalties System Under Making Tax Digital for Income Tax Self-Assessment?

Making Tax Digital for income tax self-assessment operates under HMRC's points-based penalty system for late submissions, creating different consequences than traditional fixed penalties. 

Late Submission Points-Based Penalties 

Reset Conditions:  

Penalty points may be reset to zero once the required conditions are met.

• Submit every required return on time for a continuous compliance period of

  • 24 months if you file annually, or

  • 12 months if you submit quarterly updates.

• Clear all outstanding obligations by ensuring that every late or missing return from the previous 24 months has been submitted, even if penalties were already applied.

• Separate from VAT: Points for income tax do not affect VAT points. 

 Late Payment Penalties 

• Applies to balancing payments or amounts due after amendments/assessments. 

• Not charged on payments on account. 

Penalty Structure:  

Interest: Charged from due date until payment (Bank of England base rate + 2.5%). 

Point To Remember: For their first year in the new penalty system, all taxpayers will have an additional 15 days, giving 30 days in total to pay any outstanding tax before a late payment penalty is issued. 

What Is HMRC's Soft Landing Approach for Making Tax Digital for Income Tax Self-Assessment?

HMRC has confirmed a soft-landing period will apply during the first year of MTD for ITSA implementation to help taxpayers adjust to the new digital requirements. During the 2026/27 tax year (for those mandated from April 2026), HMRC will take a lenient approach to late quarterly update submissions and minor digital record-keeping issues, issuing warnings and guidance rather than imposing immediate penalties.

However, this grace period has important limitations:

• The final declaration deadline of 31 January 2028 remains fully enforced with normal penalties,

• Tax payment deadlines are not relaxed, and

• Deliberate non-compliance will still face full penalties.

The soft landing is temporary and only applies during each taxpayer's first year of mandation—full penalty enforcement will apply from the second year onwards. 

Are taxpayers allowed to participate voluntarily before MTD mandation?

HMRC allows voluntary MTD for ITSA participation before your mandatory compliance date. This option offers significant advantages for forward-thinking taxpayers. 

Who Can Voluntarily Participate?

Any sole trader or landlord can volunteer for MTD for income tax regardless of income level.  

There are no restrictions, if you file self-assessment for business or property income, you can volunteer for MTD. Voluntary participation requires that the taxpayer is a UK resident with an up-to-date National Insurance number, has filed at least one Self-Assessment return, and critically, has no outstanding tax liabilities 

Voluntary Participation Start Date 

Voluntary participation is available from 6 April 2024, well before the April 2026 mandatory date and even after this date if your income does not exceed the relevant threshold. This provides a two-year familiarization window for early adopters.

Exiting Voluntary Participation 

Once you exceed the mandatory threshold, you can exit MTD even if you are under the threshold for three consecutive tax years. However, if you voluntarily enrolled below thresholds and your income remains below thresholds, you can apply to exit MTD after completing a full tax year of voluntary participation. 

Exit applications require demonstration that your income remains consistently below thresholds and that continuing MTD creates disproportionate burden. 

Conclusion 

The digital transformation of UK taxation is no longer distant future—it's imminent reality. Success requires proactive preparation including software selection, digital record-keeping establishment, and process adaptation well before mandatory compliance deadlines. Whether you handle MTD compliance independently or work with accounting professionals, understanding these fundamental facts ensures you navigate the transition successfully while maximizing the benefits digital tax reporting offers. 

Start your preparation now. Assess your income position, evaluate software options, and establish digital record-keeping foundations for Making Tax Digital for income tax self-assessment. Early action prevents compliance difficulties, reduces stress, and positions your business advantageously for the digital tax future that begins in April 2026.

Other Commonly Asked Questions