Making Tax Digital for Income Tax — Frequently Asked Questions (FAQ)

✅ A. Introduction & Overview (1–10)

1. What is Making Tax Digital for Income Tax (MTD for ITSA)?

MTD for ITSA is a new HMRC reporting system that changes how self-employed individuals and landlords report their income. Instead of submitting one annual Self Assessment tax return, taxpayers must:

• keep digital records of income and expenses
• submit quarterly updates to HMRC
• submit an End of Period Statement (EOPS) for each business
• submit a Final Declaration confirming total income and tax liability.

The aim is continuous digital reporting rather than annual reporting.

2. Why is HMRC introducing MTD?

HMRC believes most tax errors arise from manual record keeping and late reporting. MTD aims to:

• reduce mistakes
• improve accuracy of tax calculations
• provide taxpayers with real-time tax estimates
• modernise the UK tax system.

 

3. When does MTD for ITSA start?

Implementation is phased:

• 6 April 2026 → qualifying income above £50,000
• 6 April 2027 → qualifying income £30,000–£50,000
• 6 April 2028 → planned extension to income above £20,000.

 

4. Who must comply with MTD?

Individuals with qualifying income from:

• self-employment (sole traders)
• UK property businesses
• overseas property businesses.

 

5. What is “qualifying income”?

Qualifying income means gross income (turnover before expenses) from self-employment and property combined.

Example:

• Business income £40,000
• Rental income £15,000
  Total qualifying income = £55,000 → MTD applies.

 

6. Does salary from employment count?

No. PAYE employment income is excluded.

 

7. Do dividends, interest, or pensions count?

No — these are reported in the Final Declaration but do not determine entry into MTD.

 

8. Is the threshold based on profit or turnover?

Turnover (total income before expenses), not profit.

 

9. Will Self Assessment disappear?

The traditional Self Assessment return is replaced by:

• quarterly updates
• End of Period Statements
• Final Declaration.

However, the tax calculation process still exists.

 

10. Can I join MTD voluntarily before required?

Yes. Some taxpayers join early to test software and improve record keeping.

 

✅ B. Eligibility & Threshold Rules (11–20)

11. How does HMRC determine that I must join MTD?

HMRC reviews income reported on your most recent Self Assessment return and notifies you if you meet the threshold.

 

12. Can I be required to join mid-tax year?

No. Entry only begins from the start of a tax year (6 April).

 

13. What happens if my income exceeds £50,000 during the year?

You continue under normal Self Assessment for that year. MTD applies from the following tax year.

 

14. What happens if my income later falls below the threshold?

You generally remain in MTD until HMRC confirms that you can exit.

 

15. Does rental income count toward the threshold?

Yes, including income from UK and overseas property.

 

16. Do furnished holiday lets count?

Yes — they are treated as property income.

 

17. Are partnerships included?

General partnerships are expected to join later, but dates are not yet confirmed.

 

18. Are limited companies included?

No. Limited companies will fall under MTD for Corporation Tax.

 

19. How is jointly owned property treated?

Each owner reports their share of income.

 

20. Will HMRC notify me if I must join?

Yes. HMRC sends official notification.

 

✅ C. Digital Record Keeping (21–30)

21. What are digital records?

Electronic records of income and expenses stored in accounting software or digital systems.

 

22. Why must records be digital?

Digital records reduce manual errors and allow direct submission to HMRC.

 

23. Can I continue using paper records?

Paper alone is not compliant, but records may be transferred to digital form.

 

24. Can spreadsheets be used?

Yes, but they must connect to HMRC-compatible software via bridging software.

 

25. What is bridging software?

Software that links spreadsheets to HMRC’s systems for submission.

 

26. What is a digital link?

Electronic transfer of data between systems without manual copying.

 

27. What information must be recorded digitally?

• income amounts
• expense categories
• transaction dates
• business details.

 

28. Must I keep separate records for each business?

Yes — each trade and property business must be recorded separately.

 

29. Do I need to scan receipts?

Not mandatory but recommended for audit evidence.

 

30. How long must digital records be kept?

Usually five years after the filing deadline.

 

✅ D. Software Requirements (31–40)

31. What is HMRC-compatible software?

Software approved by HMRC to keep records and submit reports.

Examples: Capium, Sage, Xero, QuickBooks.

 

32. Does HMRC provide free software?

Generally no, though some low-cost options may exist.

 

33. Can my accountant’s software be used?

Yes, if authorised.

 

34. Can multiple software systems be used?

Yes if digitally linked.

 

35. Is cloud accounting required?

Not required but common.

 

36. Are bank feeds compulsory?

No, but recommended.

 

37. Can adjustments be made before submission?

Yes with audit trail.

 

38. Must software calculate tax?

No — HMRC calculates final tax.

 

39. Can software submit quarterly updates and EOPS?

Yes.

 

40. Will I need training?

Possibly — your accountant can assist.

 

✅ E. Quarterly Updates (41–50)

41. What is a quarterly update?

A quarterly update is a summary of your business income and expenses submitted to HMRC every three months using MTD-compatible software. It provides HMRC with regular information about your business performance.

 

42. How many quarterly updates must I submit?

You must submit four updates per tax year for each business or property business you have.

Example:

• One self-employment → 4 updates
• One property business → 4 updates
  Total = 8 submissions per year.

 

43. What are the standard quarterly reporting periods?

HMRC default periods follow the tax year:

• 6 April – 5 July
• 6 April – 5 October
• 6 April – 5 January
• 6 April – 5 April

Alternatively, you may elect to use calendar quarters.

 

44. What is the deadline for quarterly updates?

Quarterly updates must be submitted within one month after the end of the reporting period.

Example:
Period ending 5 July → deadline 5 August.

 

45. Are quarterly updates final tax figures?

No. They are provisional figures that can be adjusted later.

 

46. Do quarterly updates create a tax bill?

No. They help HMRC estimate your tax position but are not final.

 

47. What happens if my business has no activity?

You must still submit a nil return.

 

48. Can errors in quarterly updates be corrected?

Yes, errors can be corrected in later updates or during year-end adjustments.

 

49. Do I pay tax every quarter under MTD?

No. Payment dates remain largely unchanged under the Self Assessment system.

 

50. Can my accountant submit quarterly updates for me?

Yes, your authorised agent can submit updates on your behalf.

 

✅ F. End of Period Statement (EOPS) — Year-End Business Adjustment (51–60)

51. What is an End of Period Statement (EOPS)?

The EOPS is a year-end submission confirming the final business income after accounting adjustments.

 

52. Why is the EOPS required?

It ensures accurate profit calculation after adjustments such as:

• capital allowances
• accounting adjustments
• loss relief claims
• private use adjustments.

 

53. Must each business submit its own EOPS?

Yes. Each trade and property business requires a separate EOPS.

 

54. When is the EOPS deadline?

31 January following the end of the tax year.

 

55. Can I amend my EOPS after submission?

Yes, within HMRC amendment deadlines.

 

56. Does the EOPS replace business pages of the tax return?

Yes.

 

57. Can losses be reported through EOPS?

Yes.

 

58. Can accounting basis decisions be made in EOPS?

Yes (e.g., cash basis vs accrual basis).

 

59. Can my accountant submit the EOPS?

Yes.

 

60. Can EOPS figures differ from quarterly updates?

Yes — adjustments often change figures.

 

✅ G. Final Declaration — Final Tax Position (61–70)

61. What is the Final Declaration?

The Final Declaration confirms your total income from all sources and calculates your final tax liability.

 

62. What income is included in the Final Declaration?

All income sources, including:

• employment income
• dividends
• interest
• property income
• business profits.

 

63. Does the Final Declaration replace Self Assessment?

Yes for taxpayers within MTD.

 

64. When is the Final Declaration due?

31 January following the tax year.

 

65. Can I claim tax reliefs in the Final Declaration?

Yes, including pension contributions and charitable donations.

 

66. Are personal allowances applied?

Yes.

 

67. Can student loan repayments be included?

Yes.

 

68. Can the Final Declaration be amended later?

Yes, within statutory time limits.

 

69. Who submits the Final Declaration?

The taxpayer or authorised agent.

 

70. Does the tax payment deadline change?

No — generally 31 January.

 

✅ H. Deadlines & Reporting Timeline (71–80)

71. What is the UK tax year?

6 April to 5 April.

 

72. What is the Q1 deadline?

5 August.

 

73. What is the Q2 deadline?

5 November.

 

74. What is the Q3 deadline?

5 February.

 

75. What is the Q4 deadline?

5 May.

 

76. What happens if I miss a quarterly deadline?

You receive a penalty point.

 

77. What happens if I miss EOPS or Final Declaration deadlines?

Penalty points and financial penalties may apply.

 

78. Can deadlines be extended?

Only in exceptional circumstances.

 

79. Will HMRC send reminders?

Usually yes, but responsibility remains with the taxpayer.

 

80. How many submissions may I make each year under MTD?

Typically 6–8 submissions depending on number of businesses.

 

✅ I. Penalties & Compliance (81–90)

81. What penalty system applies under MTD?

The points-based penalty regime.

 

82. How do penalty points work?

Each late submission earns a point. Once a threshold is reached, a fine is charged.

 

83. Are late payment penalties separate?

Yes — separate from submission penalties.

 

84. Is interest charged on unpaid tax?

Yes.

 

85. Can penalties be appealed?

Yes with a reasonable excuse.

 

86. What is a reasonable excuse?

Circumstances beyond your control, such as serious illness.

 

87. Do penalty points expire?

Yes after a compliance period.

 

88. Are points tracked separately for each obligation?

Yes.

 

89. Am I responsible if my accountant submits late?

Yes — legal responsibility remains with you.

 

90. Are deliberate errors penalised more severely?

Yes.

 

✅ J. Exemptions, Exit Rules & Practical Impact (91–100)

91. Who may be exempt from MTD?

Taxpayers who are digitally excluded.

 

92. What is digital exclusion?

Inability to use digital systems due to age, disability, or location.

 

93. Can age alone qualify for exemption?

Not automatically.

 

94. Can disability qualify?

Yes.

 

95. Can poor internet access qualify?

Yes.

 

96. How do I apply for exemption?

Apply directly to HMRC.

 

97. What happens if my income later falls below the threshold?

You normally remain in MTD until HMRC confirms exit.

 

98. Will MTD increase my workload?

Initially yes, but it improves financial management.

 

99. What is the biggest change under MTD?

Continuous digital record keeping and regular reporting.

 

100. What is the best way to prepare for MTD?

Start digital record keeping early and work closely with your accountant.