Making tax digital for income tax (MTD or MTD for ITSA) is hopefully something you’ve already heard of… If not, you might want to check out some of our other MTD articles first (see links at the bottom of this one). If yes, and you’re here because you’ve got questions, then this article covers many of the tricky and pesky ones that may be on your mind.
| You can always get in touch with JVCA the friendly accountants if you prefer to talk this through. Shoot us an email at [email protected], we are always happy to help! |
Have you had a letter from HMRC about MTD?
If you’ve received a letter from HMRC telling you to change the way you report your tax… welcome to the MTD club. It means HMRC has looked at your 2024/25 income (which is over the £50k threshold), and decided you’re in (and no, it’s not a club anyone asked to join).
In short, being a part of this club means that you now have to comply with the MTD quarterly filing rules, so now that’s your thing. Sorry.
What if my turnover has dropped below the threshold?
Here’s the frustrating bit about MTD for Income Tax: it doesn’t matter if your sales have dropped below the £50,000 threshold. Once you’re in the system, you’re in for at least three years, and you still have to file under the MTD rules unless you’ve stopped having any qualifying income altogether.
So no, a quiet year won’t get you out of it. You still need to file those quarterly returns.
What if I’ve stopped trading entirely? Or have no income at all?
If you’ve sold your business, stopped being a landlord, or otherwise ceased having any self-employment or property income, then you can exit MTD for Income Tax. But you need to tell HMRC.
You can do this through your Personal Tax Account by updating your business details, or simply by giving them a ring. You’ll also need to file a final Self Assessment tax return for the year you stopped trading (showing income, expenses, and profits up to the date you stopped).
What happens if I miss a quarterly deadline?
For 2026/27, HMRC have confirmed that they won’t charge penalties for missed quarterly submissions. That’s the soft landing period. But (and this is important), you still have to file all four quarterly returns before you can submit your tax return for the year.
From April 2027, things get stricter. Miss a deadline, and you’ll get a penalty point. Collect four points, and you’ll get a fine (not a prize). Think of it like penalty points on your driving licence, except instead of losing your licence, you lose money.
| Never worry about missing a deadline! If you want us to file for you and handle all things MTD, get in touch with us at [email protected]. |
How do I actually register for MTD?
Even though you have a legal obligation to comply with MTD for Income Tax if your sales income is over the threshold, you still need to formally sign up. You can register via HMRC’s sign-up page by clicking the green button.
Accountant Tip! You’ll need to have your MTD-compatible software sorted before you register. HMRC won’t let you sign up without it.
Do I need special software?
Yes! The rules require you to use “functional software”, which is HMRC-speak for software that can communicate directly with their systems. This means no manual typing into the taxman’s computer; your MTD reporting must be computer-to-computer.
Accountant Tip! We recommend using Xero for this as it handles MTD for Income Tax smoothly. We actually use this with most clients.
Is there a deadline for registering?
HMRC want you to be signed up for MTD before your first quarterly submission is due. The good news? We can do the sign-up for you. The other good news is that there’s no specific fine for late registration, but you can’t file quarterly returns until you’re registered, and late returns mean penalty points (which could add up and lead to a fine).
What details do I need to give HMRC to sign up for MTD?
When you get to the sign-up page for MTD for ITSA, you need to provide all sorts of basic information as well as some income-specific information, and you may be asked to upload proof of your ID.
- Full name, date of birth and national insurance number are the basic information.
- The business-specific information is the business name, address and nature of the business (i.e., what it does). If your business started within the last 2 years, you will also need to provide the start date.
What are the penalties for not complying?
HMRC do love a penalty, so there are several different types that you can get. For example:
- If you don’t register for MTD ITSA, you might get a failure-to-notify penalty.
- If you don’t file your quarterly reports on time, you get a penalty point. Get four points (so four late quarterly returns) and you get a cash fine.
- If you don’t keep the mandatory electronic records, you might get a fine of up to £3,000 per quarter. This is likely to only be in extreme cases, but it’s in the legislation!
| Need help keeping proper digital records? Get in touch with us at [email protected] and we’ll handle everything for you. |
Can I be exempt from MTD?
Some people are exempt from complying with the MTD rules, but HMRC are strict about applying the get-out clauses! Our advice? Always get HMRC to confirm that you are indeed exempt.
You might qualify if your income is below the threshold, you’re digitally excluded, or you have special circumstances (trustees, ministers of religion, etc.). Check the full exemption criteria to see if you qualify.
The main takeaway
MTD for Income Tax is here, and if you’ve had a letter, you’re in. That means you need to get set up properly (think software, registration, and a system for those quarterly returns) and you’ll be fine.
| Got questions about MTD for Income Tax? Need help registering or choosing software? Get in touch; we’ll make sure you’re sorted. |
New to Making Tax Digital (MTD)? Need some background information?
Check out our other articles on MTD:
Are You One of the 354,600 Facing MTD Without an Accountant?
Where are we now with Making Tax Digital?
