Making Tax Digital (MTD): 6 months in what have we learned?

Making Tax Digital (MTD) for Income Tax has now been mandatory for almost six months. Since 6 April 2026, self-employed individuals and landlords with combined qualifying income exceeding £50,000 have been required to maintain digital records and submit quarterly updates to HMRC using compatible software.

The first quarterly submission deadline of 7 August 2026 has now passed, with more than 436,000 sole traders and landlords successfully submitting their first quarterly update. Attention is now turning to the second quarterly submission deadline on 7 November 2026, as taxpayers continue to adapt to the new reporting requirements.

With the first six months of MTD now behind us, it is a good opportunity to reflect on how MTD is working in practice, the challenges encountered by taxpayers and advisors, and the lessons that can be learned by those due to join MTD from April 2027.

6 Lessons from the First Six Months of MTD

1. Digital record keeping is key

One of the most significant changes introduced under MTD is the requirement to maintain digital records throughout the year. Previously, many taxpayers would gather receipts, invoices and other financial information shortly before preparing their annual tax return. Under MTD, record-keeping becomes an ongoing process. Those who maintain accurate digital records on a regular basis are finding quarterly submissions far easier to manage, while also reducing the risk of errors and omissions.

2. Quarterly updates are becoming the new routine

With the first quarterly submission deadline on 7 August 2026 now behind us, and the second due on 7 November 2026, taxpayers are becoming increasingly familiar with the new reporting cycle. Quarterly updates provide summary information on income and expenses from digital records and are submitted to HMRC through compatible software. They are not full tax returns, and accounting or tax adjustments do not need to be completed before each update is submitted. While no penalty points will be issued for late quarterly updates during the 2026/2027 tax year, penalties for late tax returns and late payment of tax continue to apply. As more taxpayers adapt to the regime, quarterly reporting is gradually becoming a normal part of the compliance process rather than an additional administrative burden.

3. Choosing the correct software matters

Compatible software is essential, as quarterly updates can only be submitted using HMRC-recognised software. However, there is no one-size-fits-all approach, and the most suitable software will vary depending on the nature and complexity of the taxpayer’s affairs. When selecting a software, factors such as functionality, ease of use, cost, automation features and the level of support available should all be considered. Taking the time to choose the right software from the outset can make ongoing compliance significantly more efficient and help reduce the administrative burden associated with MTD.

4. MTD does not mean paying tax every quarter

One of the most common misconceptions surrounding MTD is that quarterly reporting will result in quarterly tax payments. While taxpayers are now required to submit information to HMRC more regularly, the existing Self Assessment payment timetable remains unchanged. The end-of-year filing deadline remains 31 January. MTD alters how and when information is reported to HMRC, but it does not change the dates on which tax is due. Understanding this distinction can help reassure taxpayers who may be concerned about the impact of MTD on their cash flow and tax payment obligations.

5. MTD is as much a behavioural change as a technology change

While much of the focus has been on software and digital reporting, the first six months of MTD have shown that success depends on more than technology alone. For many taxpayers, the biggest adjustment has been moving from an annual approach to record-keeping to maintaining records throughout the year. Establishing regular bookkeeping habits and engaging with financial information more frequently can make meeting quarterly deadlines significantly easier. Those who have embraced these new routines have generally found the transition to MTD far smoother than those attempting to continue with their previous processes.

6. If you are joining MTD in April 2027, now is the time to prepare

The next phase of MTD begins on 6 April 2027 for taxpayers with self-employment and/or property income exceeding £30,000, with a further extension to those with qualifying income over £20,000 from April 2028. Those due to join MTD can learn from the experiences of taxpayers already within MTD by reviewing their record-keeping processes, selecting suitable software and familiarising themselves with the new requirements ahead of their start date.

 

When are quarterly submissions for mtd due?

The quarterly updates will be cumulative to also include the data from the quarters submitted before it, and must be submitted by the filing deadlines set out below:

Quarter	Reporting Period (Tax year quarters)	Reporting Period (calendar quarters)	Filing deadline
1	6 April – 5 July	1 April – 30 June	7 August
2	6 April – 5 October	1 April – 30 September	7 November
3	6 April – 5 January	1 April – 31 December	7 February
4	6 April – 5 April	1 April – 31 March	7 May

 

If you want your submission periods to align with month-end and your software supports it, you must elect this before submitting the first update of the relevant tax year. The election stays active until you choose to revert to standard periods. To revert, cancel the election in your software before submitting the first update of the tax year you want to switch back.

Separate quarterly updates are required for each trade being operated by the taxpayer, and one combined submission is made for all income from Land and Property. For jointly held property, only the taxpayer’s share of income (not expenses) must be reported, but the flexibility is there to submit all data if available.

A final end-of-tax-year Declaration, which will replace the current self-assessment tax return for taxpayers falling into MTD, will then need to be submitted to combine all sources of income, reliefs, and allowances to calculate the final tax liability.  The tax will continue to be due for payment by the normal 31 January deadline.

There are currently no plans to change the timing of tax payments, and the current system of making payments on account and balancing payments due by 31 January and 31 July after the end of the tax year will remain in place for now.

 

What counts as qualifying income for MTD?

Whether a taxpayer falls within MTD is determined by their qualifying income, which consists of income reported on the Self-Employment and UK Property pages of their Self Assessment tax return. The relevant tax return used will depend on the year in which a taxpayer is due to join MTD. For example, taxpayers joining MTD from 6 April 2027 will be assessed based on the qualifying income reported on their 2025/26 Self Assessment tax return.

Where the relevant tax year is the first year in which income has been received from a qualifying source, that income is annualised when assessing whether the taxpayer meets the MTD income threshold.

Income from a partnership is not included within MTD, nor are transitional profits being included on the tax return as a result of the basis period reform changes.

 

MTD penalties – a new points-based system

1 penalty point will be applied and notified to the taxpayer for each late submission made.

HMRC will maintain a separate points tally for each type of submission required they are required to make (Annual, quarterly, monthly), and a financial penalty of £200 will only be applied once a taxpayer reaches the relevant points threshold based on the type of submission being made.

However, HMRC has adopted a more lenient approach to quarterly updates in the first year of MTD, with no penalty points being charged for late submissions during 2026/27. Taxpayers must still meet their end-of-year filing obligations and tax payment deadlines, as the usual penalties continue to apply.

 

Submission frequency	Penalty threshold
Annual	2 points
Quarterly	4 points
Monthly	5 points

 

What are the 4 key requirements for MTD compliance?

To help you navigate the process smoothly, we’ve outlined the key actions you need to take to stay compliant and avoid any last-minute surprises.

1. Use MTD-Compatible Software

You are required to use software that integrates with HMRC’s systems. The software must:

• Keep digital records of income and expenses
• Provide quarterly updates
• Submit tax returns directly to HMRC

2. Keep Digital Records

You must maintain digital records of:

• Income
• Expenses
• VAT (if VAT-registered)
• Tax adjustments

3. Quarterly Updates

You must submit quarterly updates to HMRC for real-time tax tracking. For clarity, no payment of tax will be due at this point.

4. Digital Links for VAT

For VAT returns, you must establish a clear digital audit trail, ensuring that there is no manual copying of data between systems.

 

Exemptions to MTD

Taxpayers can apply for an exemption to opt out of MTD if:

• It’s unreasonable or impractical for them to use electronic communications or keep electronic records due to reasons like age, disability, or location.
• They are a practising member of a religious society whose beliefs prevent the use of electronic tools.

The application process to apply for an exemption can be found here: Apply for an exemption from Making Tax Digital for Income Tax if you are digitally excluded.

The following are automatically exempt from MTD for Income Tax and will not need to apply for an exemption:

• Non-UK Residents
• Trustees, executors, and administrators
• Foster carers
• Lloyds members, in relation to your underwriting business
• Taxpayers with no National Insurance Number on 31 January prior to the start of the tax year
• Taxpayers under insolvency procedures
• Partnerships

How can AAB help you?

Whether you’re already within MTD or preparing to join from April 2027 or April 2028, our team can help you understand your obligations and put the right processes in place.

We can help with:

• Understanding whether and when MTD applies to you
• Choosing suitable MTD-compatible software
• MTD registration and agent authorisation
• Setting up digital record keeping
• Monthly or quarterly bookkeeping
• Preparing and submitting quarterly MTD updates
• Supporting you with your end-of-year reporting requirements

We understand that moving to MTD may feel like a big change, but getting prepared early will make the transition much smoother. If you have any questions or would like to discuss how the changes may affect you, please feel free to get in touch.

Switching to MTD might seem like a hassle at first, but getting organised early will save you time and stress in the long run. If you have any questions about the changes or ensuring you’re compliant, please do not hesitate to get in contact with Kirsty Ringland, Seamus McElvanna, Sarah Sargent or your usual AAB contact.