Login
Making Tax Digital (MTD) is one of the most significant changes to UK tax administration in decades. But, whilst it may seem daunting, early preparation and the right support can turn this challenge into a strategic advantage.
To help you get prepared we’ve pulled together some of our most frequently asked questions to help you clarify just what Making Tax Digital means for you.
Q: What is MTD?
A: Making Tax Digital is HMRC’s flagship initiative to modernise the UK tax system. It requires businesses and individuals to maintain digital records and submit tax returns using compatible software. The aim is to improve accuracy, reduce errors, and make tax administration more efficient. MTD began with VAT and is now expanding to Income Tax Self-Assessment (ITSA).
Q: Who will be affected by MTD for Income Tax and when?
A: MTD for Income Tax will be rolled out in stages:
- From April 2026: Sole traders and landlords with gross income over £50,000 must comply.
- From April 2027: The threshold drops to £30,000.
- From April 2028: It will apply to those earning over £20,000.
Qualifying income includes self-employment profits and property rental income, both UK and foreign. Importantly, this is gross income before expenses too, so even if your net profit is below the threshold, you may still be required to comply.
Q: What are the key requirements under MTD for Income Tax?
A: Those that qualify for MTD must:
- Keep digital records using HMRC-approved software.
- Submit quarterly updates to HMRC summarising income and expenses.
- Submit a final declaration at year-end to confirm accuracy and make any adjustments.
Quarterly updates are due one month after each quarter ends. For example, the first quarter (6 April–5 July) must be submitted by 7 August.
Q: What’s the best software to use for MTD?
A: You’ll need to use MTD-compatible software that can link directly to HMRC’s systems. Popular options include Dext, Xero, QuickBooks, and FreeAgent, among others. We can help you choose the right solution based on your business size, complexity, and budget. But there’s also a useful software finding tool on the gov.uk website to help you decide.
Q: Are there any exemptions from the scheme?
A: Yes. You may be exempt if:
- You do not have a National Insurance number.
- It is not reasonably practicable for you to comply (e.g., due to age, disability, or remote location).
- You are a specific care provider (e.g., foster carers).
- Or your religious beliefs prevent you from using digital tools.
You can apply directly to HMRC if you believe you are digitally exempt, even if you’ve already signed up for MTD but your circumstances have changed.
Q: What are the benefits of MTD?
A: MTD is more than just a compliance requirement, it also offers numerous advantages:
- Improved accuracy through automated calculations
- Real-time visibility of your financial position
- Reduced admin and paperwork
- Fewer errors and missed deadlines
- Better cash flow
All of which allow you to make smarter financial decisions to support the ongoing growth of your business.
Digital record-keeping also helps avoid the hassle of tracking down receipts or manually entering data. And for many of our clients, MTD has been a catalyst for modernising their financial systems.
Q: How to prepare for Making Tax Digital?
A: Here’s five practical steps you can take to get prepared:
- Assess your income to determine when you’ll be affected.
- Choose your MTD-compatible software and start using it early.
- Digitise your records and move away from spreadsheets or paper.
- Speak to your accountant to understand your obligations.
- Train your team or get support to manage quarterly submissions.
Q: What happens if I don’t comply?
A: HMRC will introduce penalties for non-compliance, including for late submissions and failure to maintain digital records. While the exact penalty structure hasn’t yet been finalised, it’s clear that businesses who delay set up or don’t comply will risk fines and increased scrutiny.
Q: As a landlord, do I need to set up a dedicated bank account?
A: While not a legal requirement, a separate bank account for rental income and expenses is strongly recommended. A dedicated account:
- Simplifies digital recordkeeping
- Helps segregate personal and business finances
- Makes quarterly updates under MTD more straightforward
- Reduces the risk of errors or omissions
All of which is especially helpful when using software that links directly to bank feeds, ensuring transactions are automatically imported and categorised.
Q: Can I form a Partnership with a spouse to avoid MTD?
A: At present, partnerships are not included within the MTD changes. Therefore, forming a partnership with a spouse might seem like a workaround to delay or avoid MTD obligations. But it’s important to understand:
- HMRC will eventually bring partnerships into MTD, though the start date is yet to be confirmed.
- Artificially restructuring ownership solely to avoid MTD could raise compliance concerns.
- Any partnership must be genuine, with shared responsibilities and profit entitlement.
We’d always recommend seeking tailored advice before making any structural changes to your business.
Q: Can’t I just use Excel?
A: You can use Excel – but with caveats. HMRC allows the use of spreadsheets only if they are linked to bridging software that can maintain digital records and submit quarterly updates and final declarations.
So this approach can be clunky and is open to errors. That’s why most people find that using MTD-compatible software (like Dext Solo or FreeAgent) is more efficient and less stressful in the long run.
We’re here to help
With offices across East Anglia, and a dedicated outsourcing team, we’re committed to helping businesses of all sizes to navigate MTD with confidence.
Our services include:
- MTD-readiness assessments
- Software setup and training
- Quarterly reporting support
- Ongoing compliance monitoring
- Strategic tax planning in a digital-first environment
We’ve already helped numerous clients to transition to MTD with tailored support, specialist bookkeeping services, training, and software recommendations to get ready well before the deadline.
Because we see MTD not just as a regulatory change, but as an opportunity to enhance efficiency, strengthen client relationships, and future-proof your business.
To discuss your MTD readiness in more detail, get in contact with Graham or one of our specialist tax team by calling 0330 058 6559 or email hello@scruttonbland.co.uk
Back