Making Tax Digital: is it making tax easier or more difficult?

Making Tax Digital for Income Tax is one of the biggest changes to tax administration since Self-Assessment was introduced in 1995. After a long and delayed journey, it is now in force for the first group of taxpayers. The question for many landlords and sole traders is no longer whether MTD will happen, but whether their current processes will stand up to quarterly reporting.

This article explains who is affected, why the rules matter, and the misconceptions that could create problems later.

The road to MTD

Making Tax Digital for Income Tax was first announced in the Spring Budget of 2015, with a roadmap that originally pointed to full implementation by 2020. Under the rules, sole traders and landlords submit quarterly updates of income and expenses to HMRC, then make a final declaration to submit the final figures. This final declaration includes other taxable income along with capital gains and is also the opportunity to claim relevant reliefs.  This works on the same timetable to how returns were filled under Self-Assessment.

The timetable slipped several times. MTD became mandatory from April 2026 for taxpayers whose total qualifying income was £50,000 or more in 2024/25. Qualifying income is the combined turnover from all of a taxpayer’s trades and property businesses in the relevant year.

A second cohort joins from April 2027 if qualifying income exceeds £30,000 in 2025/26. The final planned group, with qualifying income of more than £20,000 in 2026/27, is due to join from April 2028. What happens below that level will be a matter for a future parliament.

Why MTD matters

MTD is a statutory obligation for those who meet the thresholds. It also comes with a penalty-point regime for late or missing submissions, although penalty points are not being issued for late submissions in the first year.

There are practical advantages as well. Income and expenses can be seen in closer to real time, which can help with budgeting and with estimates of tax due. The same information can support applications such as mortgages. Over time, it should also encourage stronger record-keeping habits.

Clearing up common misconceptions

Several misunderstandings are already causing confusion.

If income later falls below the threshold, MTD no longer applies.

This is not correct. If qualifying income was over £50,000 in 2024/25, MTD still applies from April 2026 even if income then falls. A taxpayer generally needs to be below the relevant threshold for three years before they can leave MTD.

A Self-Assessment tax return is still required on top of the quarterly updates and final declaration.

This is not correct. The final declaration replaces the tax return.  The final declaration will be an amalgamation of the four MTD submission, subject to any necessary updates, along with other income that would be previously has been reported on the tax return. The final declaration will include the tax calculation, which will explain what taxes are due for the year, including payments on account if relevant for the following year. For 2026/27, the first quarterly update was due by 7 August 2026, with further updates every three months until 7 May 2027. The final declaration is then due by 31 January 2028.

It is anticipated that many of the simpler MTD software packages will not be able to cope with final declarations for individuals who have more complex tax affairs. As the system is as yet untried, we will have to wait to see whether there are any major problems with final submissions for the 2026/27 year or indeed whether HMRC will accept separate self-assessment returns for individual who find out at the last minute that their MTD software will not cope with all of their sources of income and gains or the expenses or reliefs they need to claim.

Tax has to be paid quarterly.

This is not the case. Payment remains due by the final declaration deadline, so for 2026/27 that is 31 January 2028. Payments on account, where they apply, continue as before. HMRC has consulted on the possibility of collecting tax more frequently, similar to PAYE, but nothing has been decided as yet.

The figures sent to HMRC must be exact and must apply every tax adjustment.

Quarterly updates are not a tax return. They should be based on the best information available at the time. They do not have to include every accounting or tax adjustment, such as a private-use restriction on a mobile phone or broadband costs. That does mean HMRC’s in-year tax estimates can be imperfect. Some taxpayers will choose to include adjustments for a clearer picture. Others will keep the updates simple and deal with adjustments in the final declaration.

Ultimately, the right approach depends on cost, complexity and preference.

MTD always requires dedicated accounting software.

Not necessarily. At Goodman Jones, our default method is a spreadsheet that forms the digital record, which can then be uploaded and submitted to HMRC. Accounting software can still be useful. Bank feeds, automated reporting and secure backups all have value, but they come at a cost.

The accountant will automatically do everything.

That needs to be agreed in writing. The engagement letter should set out what the adviser will do, what the client must provide, and how fees will be charged. Because work now happens during the year as well as after it, annual tax fees will often increase.

What the first quarter has shown

After the first quarter, our experience is that the filing process itself is relatively straightforward. The harder task is keeping digital records in good order and making sure the right people are in the regime.

We filed 83% of our updates by the deadline. In one case a return could not be filed because of a technical error that HMRC is still investigating. That is a reminder that systems, as well as taxpayers, are still settling in.

The final statutory instruments were not approved until 24 March 2026, only days before the regime went live. A number of first-year exemptions were also introduced, including for people with certain trust income or residence pages on their 2024/25 return. Where an exemption was not obvious from that return, an application had to be made to HMRC. Early cases were often reviewed within 28 days, but the queue quickly lengthened and many clients were still waiting after MTD started in April 2026.

Registration itself was reasonably quick. HMRC has since moved towards automatic registration for those who have not signed up. Earlier auto-enrolment would have reduced last-minute pressure.

Professional bodies have been an important support. The ICAEW and ATT have provided webinars and have worked with HMRC to close gaps in the legislation and guidance. The Professional Conduct in Relation to Taxation (PCRT) material has also been useful. It confirms that quarterly updates are not a tax return, that they should be based on the best information available, and that they do not require full accounting or tax adjustments. The trade-off is that in-year figures, and the tax estimates based on them, will not always be a reliable guide to the final position.

What you should do next

The first step is to confirm whether you fall into one of the three MTD cohorts. If you do, the next decision is whether you will prepare the updates yourself or ask your accountant to do so.

That conversation should cover the digital record you will keep, who will submit the updates, how information will be shared during the year, and how fees will work. For many landlords and sole traders, the real question is not whether they can comply with MTD, but whether their current processes are sustainable once quarterly reporting becomes routine.

How Goodman Jones can help

We are helping clients work out whether they are in MTD, choose a practical way to keep digital records, and agree a clear basis for support through the year.

If you are unsure which cohort you fall into, or you want to review how your records and filings should work, please get in touch. A short conversation now is far easier than correcting problems after a deadline has been missed.