HMRC Making Tax Digital
Making Tax Digital — complete guide for UK businesses
MTD for VAT is already mandatory. MTD for Income Tax Self Assessment (ITSA) is now live — the first phase (income over £50,000) took effect in April 2026. Here is what every sole trader, landlord and small business needs to know — and what compliant software must do.
What is Making Tax Digital?
Making Tax Digital (MTD) is HMRC's programme to move UK tax records and submissions entirely digital. Businesses must keep records digitally and file tax returns through HMRC-recognised software. MTD for VAT is mandatory for all VAT-registered businesses. MTD for Income Tax Self Assessment began phasing in in April 2026 and is now in force for sole traders and landlords with income over £50,000; lower thresholds follow in 2027 and 2028.
MTD ITSA — rollout timeline
HMRC is introducing Making Tax Digital for Income Tax Self Assessment in three waves based on gross income from self-employment or property.
April 2026
Income over £50,000
Sole traders and landlords with gross income above £50,000 from self-employment or property.
April 2027
Income over £30,000
Sole traders and landlords with gross income above £30,000.
April 2028
Income over £20,000
Sole traders and landlords with gross income above £20,000.
Who needs MTD-compatible software?
Sole traders
If you are self-employed with gross income above the threshold, you must use MTD-compatible software to keep quarterly digital records and submit updates to HMRC.
Landlords
Landlords with rental income above the threshold are included in MTD ITSA. Each property business must be recorded digitally; quarterly updates are submitted to HMRC.
VAT-registered businesses
All VAT-registered businesses must already use MTD for VAT. If your taxable turnover exceeds the VAT registration threshold (£90,000), MTD VAT is already mandatory for you.
Construction & CIS subcontractors
Self-employed subcontractors under CIS with qualifying income above the threshold must also comply with MTD ITSA — on top of existing CIS obligations.
What MTD-compatible software must do
Digital record-keeping
Record all income and expenses digitally throughout the year. Spreadsheets bridged manually no longer satisfy MTD ITSA requirements.
Quarterly updates
Submit a summary of income and expenses to HMRC at least four times a year — within one month of each quarter end.
End-of-period statement
Confirm final figures and make adjustments at the end of the tax year, replacing the traditional annual Self Assessment return.
Direct HMRC API connection
Software must connect directly to HMRC's APIs. Finovo files MTD VAT and MTD ITSA directly through HMRC's official APIs — no bridging software, no manual re-keying.
MTD penalties — how the points system works
Late submission penalties for Making Tax Digital for Income Tax are points based, not a flat fine per miss. You accumulate a point for each missed deadline and only pay once you hit the threshold.
- No penalties in the 2026 to 2027 tax year
- HMRC is not charging late submission penalties for missed quarterly update deadlines in the 2026 to 2027 tax year. You must still keep digital records and send your quarterly updates — you cannot file your tax return until you have.
- One point per missed deadline
- From the 2027 to 2028 tax year onwards, each quarterly update or tax return deadline you miss earns a single penalty point. You cannot get more than one point for the same deadline.
- The threshold is 4 points
- Points only turn into a charge once you reach 4. Below the threshold, each point is removed automatically 24 months after the deadline you missed.
- At the threshold, points stop expiring
- Once you hit 4 points, individual points no longer drop off on their own. You have to meet two conditions set by HMRC to clear the whole balance.
- Late payment is charged separately
- Late payment interest runs from the first day a payment is late. In your first year under the new rules you get 30 days from the due date to pay or contact HMRC before penalties start; after that first year it drops to 15 days.
Source: GOV.UK — Penalties for Making Tax Digital for Income Tax
Quarterly update deadlines
A quarterly update is due one month and two days after the end of the period it covers. For the standard quarters that produces the same four dates every year.
- 6 April – 5 July
- Due 7 August.
- 6 July – 5 October
- Due 7 November.
- 6 October – 5 January
- Due 7 February.
- 6 January – 5 April
- Due 7 May.
- A quarterly update is not a tax bill
- You are sending cumulative totals of income and expenses, not a final calculation. Nothing is due to pay on the back of a quarterly update, and figures can be corrected in a later submission.
Who is exempt from Making Tax Digital
Exemption is not automatic and it is not granted on the basis of preferring paper. You apply to HMRC on the grounds that you are digitally excluded.
- Digitally excluded by circumstance
- You can apply if your age, disability, health condition or location makes it unreasonable for you to use a computer, tablet or smartphone to keep digital records and submit updates.
- Religious grounds
- You can apply if you are a practising member of a religious society or order whose beliefs are incompatible with using digital communications or keeping digital records.
- Your circumstances can change
- Exemption is assessed against your situation at the time. If your circumstances change you may become exempt — or stop being exempt — and you should tell HMRC.
Can I still use Excel for MTD?
Yes, but not on its own. A spreadsheet is not compatible software, and emailing or retyping figures into HMRC is not a valid submission.
- Excel plus bridging software is allowed
- You can keep your records in Excel or Google Sheets provided the totals reach HMRC through bridging software that submits them digitally.
- The digital link must be unbroken
- Copying and pasting or manually retyping figures between your records and your submission breaks the digital link the rules require.
- Where full software wins
- Bridging keeps you compliant but leaves you doing the bookkeeping by hand. Software that captures bank transactions and receipts as they happen is what removes the quarterly scramble.
How to sign up for MTD for Income Tax
Signing up is a deliberate step — being over the threshold does not enrol you automatically.
- Choose compatible software first
- You need software that can keep digital records and connect to the HMRC API before you can complete sign-up.
- Sign up on GOV.UK
- You sign up through the Making Tax Digital for Income Tax service using your Government Gateway details.
- Your accountant can do it for you
- An authorised agent can sign you up and submit quarterly updates on your behalf.
Source: GOV.UK — Sign up for Making Tax Digital for Income Tax
This page is general information, not tax advice. Rules change — check the linked GOV.UK guidance, or speak to an accountant about your own circumstances.
Not sure if MTD applies to you?
Answer three quick questions to find out whether you need MTD-compatible software and when your deadline falls.
Making Tax Digital — frequently asked questions
- Is MTD for VAT already mandatory?
- Yes. MTD for VAT has been mandatory for all VAT-registered businesses since April 2022. You must keep digital records and file VAT returns through HMRC-recognised software — bridging spreadsheets or manual re-entry do not comply.
- What is MTD for ITSA and when does it start?
- MTD for Income Tax Self Assessment (ITSA) replaces the annual Self Assessment return with quarterly digital updates. It has applied to sole traders and landlords with income over £50,000 since April 2026, and extends to income over £30,000 from April 2027 and over £20,000 from April 2028.
- Can I still use a spreadsheet for MTD?
- Spreadsheets alone do not qualify for MTD ITSA. You need software that connects directly to HMRC's APIs. Some bridging tools can link a spreadsheet for MTD VAT, but MTD ITSA requires full digital record-keeping in recognised software from the start of your obligation date.
- Does MTD ITSA apply if I am both employed (PAYE) and self-employed?
- MTD ITSA thresholds apply only to your gross income from self-employment and property. PAYE employment income is not counted. If your self-employed or rental income exceeds the threshold, you need MTD software regardless of your PAYE income.
- Is Finovo recognised by HMRC for Making Tax Digital?
- Finovo connects directly to HMRC's MTD APIs for VAT and Income Tax Self Assessment — submitting quarterly updates and end-of-period statements with no bridging software or manual steps. (Our HMRC software-recognition listing is in progress.)
- Will I be fined if I miss a quarterly update in the first year?
- No. HMRC is not charging late submission penalties for missed quarterly update deadlines in the 2026 to 2027 tax year. You still have to keep digital records and send the updates, because you cannot submit your tax return until you have.
- How many penalty points before I am charged?
- Four. Each missed quarterly update or tax return deadline earns one point, and a charge applies once you reach the threshold of 4 points. Below the threshold, points are removed automatically 24 months after the missed deadline.
- When are MTD quarterly updates due?
- One month and two days after the end of the period. For the standard quarters that is 7 August, 7 November, 7 February and 7 May.
- Can I be exempt from Making Tax Digital?
- Only if you are digitally excluded. You can apply to HMRC if your age, disability, health condition or location makes using digital tools unreasonable, or if you are a practising member of a religious society whose beliefs are incompatible with digital record keeping.
- Can I use Excel for Making Tax Digital?
- Yes, if it is connected to bridging software that submits your figures to HMRC digitally. A spreadsheet on its own is not compatible software, and manually retyping figures breaks the digital link the rules require.
MTD-ready from day one
Start a free trial. Finovo keeps digital records, files quarterly VAT updates and submits directly to HMRC — MTD VAT live now, MTD ITSA support coming.