Making Tax Digital FAQs: Your Questions Answered

Mark & Tom have put together the following questions and answers to help you.

From this month, HMRC’s Making Tax Digital (MTD) for income tax will come into force for sole traders and landlords with a turnover above £50,000. This equates to more than four million self-employed people, and landlords must adopt digital records and quarterly reporting.

These Making Tax Digital FAQs state that the first quarterly update is due by August 2026 and that penalties apply for each late submission.

What Is Making Tax Digital and Who Does It Affect?

Making Tax Digital is HMRC’s initiative to digitise the tax system. Businesses that meet certain turnover thresholds must keep digital tax records and submit updates using compatible tax software. VAT-registered businesses already have to follow MTD for VAT.

From April 2026, income tax and quarterly reporting will become mandatory for many self-employed people and landlords. The goal is to reduce errors and increase transparency. Instead of a single annual return, businesses submit a quarterly summary.

This gives HMRC a clearer picture of your earnings and helps you see your tax position throughout the year. If you are a sole trader or landlord with a turnover over £50,000, you must be ready by April 2026. If your income is between £30,000 and £50,000, you have until April 2027. Those with lower earnings do not have to move to digital reporting yet, but the option is there. A Norfolk landlord we worked with switched to MTD-compatible software in 2025 and now completes each quarterly update in under an hour, compared to the full day it used to take for his annual paper return.

Making Tax Digital FAQs: Deadlines and Penalties

Missing that deadline incurs a penalty point. After that, you submit every three months, followed by a final end-of-year declaration. A points-based penalty system applies.

Each late submission earns a point. Once you reach the threshold, you pay a fixed penalty: four points for quarterly reports triggers a £200 fine.

For annual submissions, two points incur the same fine. Points expire after 12 months of full compliance. For example, if you miss the August 2026 and November 2026 deadlines, you will have 2 points; 2 more within the next 6 months would trigger the £200 penalty. Accuracy matters too. Repeated mistakes in digital tax records can also lead to penalties. HMRC expects you to take reasonable care.

Using reliable tax software reduces the risk – We can help with Accounting Software

How to Prepare for Making Tax Digital

You need three things: digital tax records, tax software, and digital links between software components. Digital tax records mean you keep income and expenses electronically. A spreadsheet counts, but software that syncs with your bank is better. Cloud accounting tools, like those we offer through our cloud accounting services, make this straightforward. Tax software must be MTD-compatible. HMRC maintains a list of approved packages.

Most major providers offer plans for sole traders and landlords. When you choose a package, check that it can handle VAT returns and quarterly reporting if you do both. Digital links ensure that data flows directly from one piece of software to another, eliminating the need for manual copying and pasting.
For VAT returns, businesses often link their accounting software to bridging software. For income tax, similar requirements apply. You cannot download a CSV and re-enter it. The system expects seamless integration.
Our team provides MTD compliance support to help you choose software, set up digital links, and file your quarterly updates. We also handle the end-of-year process.

Common Questions About Tax Software and Digital Links

Can I use a spreadsheet? Yes, but only if it meets the digital link requirements. You need to be able to export the data in a format that HMRC’s system can read. Many find dedicated tax software simpler. What about bridging software? That is a popular option. It sits between your spreadsheet and HMRC, creating the digital link. For example, you can record transactions in Excel, then use bridging software to submit your quarterly report. This works for both VAT returns and income tax. Some businesses worry about cost. Tax software subscriptions usually cost around £15-£30 per month.

Compare that with the time saved and the reduced risk of MTD penalties. Many packages offer free trials. For landlords with multiple properties, digital tax records become particularly valuable. You can track income and allowable expenses per property. Our landlord accounting services include MTD-ready software setups.

How MTD Affects Different Business Types

MTD does not apply equally to everyone. If you run a limited company, you already file corporation tax online. HMRC has not yet announced a date for MTD for corporation tax. But for VAT and income tax, the rules are clear.

For agricultural businesses, the seasonal nature of income can make quarterly reporting tricky. You may have no income for months, then a large payment at harvest. That is fine. You still submit a nil return for quiet quarters. Our agricultural accountants can guide you through that. For dental practices and other professionals, the transition is similar. You need to ensure your practice software integrates with MTD-compliant systems. Many dentists use separate accounting tools, so check compatibility early.

Staying Compliant: Tips for Avoiding MTD Penalties

HMRC will apply penalty points from the first missed deadline, so test your software and processes in advance. Set up your digital tax records now, even if your mandatory start date is 2027. Run a few test submissions to check that the digital links work correctly.

Keep your records up to date. Do not wait until the end of the quarter. Enter transactions weekly. That makes the final quarterly report much easier. A helpful habit is to set a recurring calendar reminder for the 7th of the month after each quarter ends, giving you time to review and correct any errors before submission. If you use an agent, like us, we can submit on your behalf. You just need to provide accurate and timely information. We help with the digital links and ensure everything connects properly. The points-based penalty system resets after a period of good compliance. One late submission does not ruin you. But repeated errors add up.

Key Facts in a Table: MTD Deadlines by Group

Business Type	Turnover Threshold	MTD Start Date	Reporting Frequency
VAT-registered businesses	Already above the VAT threshold	Already in force	Quarterly
Sole traders and landlords	Over £50,000	April 2026	Quarterly plus final declaration
Sole traders and landlords	£30,000 to £50,000	April 2027	Quarterly plus final declaration
Sole traders and landlords	Under £30,000	No mandatory date	Optional

Frequently Asked Questions

Do I need to sign up for MTD now?

If you are VAT-registered, you should already be enrolled. For income tax, you do not need to sign up until 2026 at the earliest. But you can volunteer earlier. Volunteering earlier gives you time to fix any software issues before mandatory deadlines apply.

What happens if I miss a quarterly deadline?

You receive a penalty point. Accumulating four points for quarterly returns triggers a £200 fine. Points expire after 12 months of full compliance. For annual submissions, the threshold is two points.

Can I use any accounting software?

Only software listed on HMRC’s recognised supplier list qualifies. Most popular cloud accounting packages are on it. Always double-check before purchasing.

Will MTD apply to income tax for limited companies?

Not yet. HMRC plans to extend MTD to corporation tax in the future, but no date has been confirmed. For now, only VAT and income tax (for sole traders and landlords) are included.

How can Eastfield Accountants help me with MTD?

We offer end-to-end support, from choosing the right tax software to setting up digital links and filing quarterly reports. We also handle the annual finalisation.

The steps are clear: set up digital records, choose compatible software, and establish digital links. If you need hands-on help, our chartered certified accountants in Norfolk can manage the entire process, from software selection to filing the first quarterly update. Starting now means you can avoid the rush closer to the immediate deadline.