If you have received a letter from HMRC advising that you need to register for MTD, you should take action now. Whether you intend to manage the process yourself, seek professional advice, or believe you may qualify for an exemption, it is important to establish your position as early as possible.
What you Need to Know
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) becomes mandatory from April 2026 for many landlords and sole traders with qualifying income over £50,000. The regime will then expand to those with income over £30,000 from April 2027 and over £20,000 from April 2028.
If you have received a letter from HMRC, you should not ignore it. Even if you believe you may be exempt, exemptions are limited and should be confirmed as soon as possible. Eligibility for MTD in 2026/27 is based on your 2024/25 tax return, meaning some taxpayers may still be required to comply even if their circumstances have changed since then.
Key Points
- The first quarterly reporting period for 2026/27 ends on 5 July 2026.
- The first filing deadline is 7 August 2026.
- Quarterly filing does not currently mean quarterly tax payments.
- Compatible software is required to comply with MTD.
- HMRC will only receive summary totals, not individual transactions.
- Quarterly updates do not replace your year-end filing; a Final Declaration will still be required.
- While 2026/27 is a soft-launch year with no immediate filing penalties, late submissions will still be recorded by HMRC.
- Taxpayers entering MTD from 2027/28 onwards are currently expected to move directly into the standard penalty regime.
- If you are already VAT registered, it may be worth considering aligning your VAT quarters with MTD reporting periods to reduce administrative burden.
Acting early will provide more time to implement software, establish processes and address any issues before reporting deadlines arise.
What is MTD for ITSA?
Making Tax Digital for Income Tax Self Assessment is HMRC’s initiative to modernise the tax system by moving businesses and landlords away from paper-based record keeping and annual reporting towards a fully digital process.
The primary aims are to:
- Reduce errors in tax reporting.
- Close the UK’s tax gap.
- Provide taxpayers with greater visibility of their tax position throughout the year.
- Enable more efficient digital interaction with HMRC.
Rather than preparing information once a year for a Self Assessment tax return, taxpayers within MTD will maintain digital records and submit quarterly updates to HMRC using compatible software.
Who Will Be Affected?
From the 2026/27 tax year, MTD for ITSA becomes mandatory for individuals with qualifying income exceeding £50,000 per year.
This applies to:
Sole Traders
Landlords
Individuals with multiple sole trader businesses
Individuals with both property and trading income
The threshold is based on the combined total of qualifying income sources rather than profit.
For example, if you have rental income of £30,000 and self-employment income of £25,000, your total qualifying income would be £55,000 and you would fall within the regime.
Importantly, eligibility for the 2026/27 tax year is based on information reported in your 2024/25 Self Assessment tax return. This means that even if you have since reduced your income or restructured your affairs, you may still be required to comply with MTD during its first year.
The scope of MTD will continue to expand:
| Tax Year | Qualifying Income Threshold |
| 2026/27 | Over £50,000 |
| 2027/28 | Over £30,000 |
| 2028/29 | Over £20,000 |
HMRC has not yet confirmed whether the threshold will reduce further in future years.
All your questions answered
Making Tax Digital for Income Tax: Frequently Asked Questions
Are There Any Exemptions?
Some taxpayers are currently exempt from MTD, including certain individuals with trust income and those involved in formal partnerships.
However, these exemptions are expected to be temporary, with many of these groups likely to be brought into the regime from 2027/28 onwards.
One of the main permanent exemptions is digital exclusion.
HMRC may grant an exemption where it is not reasonably practical for an individual to use computers or compatible software. Examples may include:
- Long-term health conditions.
- Age-related limitations.
- Living in areas with poor or unreliable internet access.
- Certain religious beliefs that prevent the use of technology.
Exemptions are not automatic and must generally be agreed with HMRC.
If you believe an exemption may apply, we recommend seeking advice as soon as possible.
Compatible Software is Required?
Under MTD, taxpayers must maintain digital records and submit returns using HMRC-compatible software.
HMRC maintains a list of approved software providers, with solutions available to suit different business sizes and requirements.
At Menzies, our preferred platform is Xero due to:
- Our extensive experience supporting clients on the platform.
- Its user-friendly interface.
- Competitive pricing.
- Strong MTD functionality.
Clients are welcome to use alternative software solutions. However, where other systems are used, our ability to provide support and troubleshooting assistance may be more limited.
Common Misconceptions
“Quarterly filing means quarterly tax payments”
Not currently.
Income tax payment dates remain unchanged. Most taxpayers will continue to make payments in January and July based on the existing Self Assessment framework.
The quarterly submissions are reporting requirements only.
One advantage of MTD is that the software can provide an estimate of your likely tax liability throughout the year, helping you plan ahead and manage cash flow more effectively.
The estimated liability can also incorporate information that HMRC already holds from other sources, such as employment income, pensions and certain investment income.
“HMRC will see every transaction”
No.
The quarterly updates contain only summary totals of income and expenses.
HMRC will not receive copies of individual transactions or have visibility over personal expenditure recorded within your accounting software.
“The quarterly submissions replace my year-end tax return”
Not entirely.
Quarterly updates are designed to provide HMRC with ongoing information throughout the year.
At the end of the tax year, a Final Declaration must still be submitted. This process replaces the current Self Assessment tax return and confirms your final taxable income and tax liability.
While quarterly updates should be prepared as accurately as possible, the Final Declaration remains the submission that determines your final tax position.
Planning Ahead: Consider Aligning Your Reporting Dates
For taxpayers who are already registered for VAT, it may be worth reviewing whether your VAT reporting periods align with your future MTD for Income Tax quarterly obligations.
Where VAT and MTD for Income Tax quarters fall on different dates, businesses may find themselves working towards two separate compliance deadlines throughout the year. This can increase administration time and create unnecessary duplication of effort.
In many cases, much of the information required for an MTD for Income Tax quarterly update will already have been gathered as part of the VAT return preparation process. Aligning VAT quarters with MTD reporting periods can therefore create a more efficient “two-in-one” approach to compliance and reduce the number of separate reporting exercises required throughout the year.
Similarly, some businesses and landlords may still prepare accounts to dates that do not align with the tax year. While the recent Basis Period Reform changes have largely moved taxpayers towards a tax-year basis, there may still be circumstances where reviewing accounting dates could simplify future compliance obligations.
Aligning accounting periods, VAT reporting periods and MTD reporting obligations can help reduce complexity and make ongoing compliance easier to manage.
What About Penalties?
Under MTD, taxpayers must maintain digital records and submit returns using HMRC-compatible software.
The 2026/27 tax year is being treated as a soft-launch period for MTD.
HMRC has confirmed that late filing penalties will not generally be charged during this first year of mandatory implementation.
However, late submissions will still be recorded.
Taxpayers can expect:
- Correspondence from HMRC regarding missed deadlines.
- Notes being added to their tax records.
It is also important to understand that the soft-launch period only applies to taxpayers entering MTD in 2026/27.
Those who become mandated in 2027/28 are currently expected to move directly into the standard penalty regime.
The penalty regime is expected to operate in a similar way to VAT, whereby taxpayers accumulate penalty points before financial penalties are applied.
Beta Participants Should Already Be Complying
Clients who volunteered for HMRC’s MTD pilot programme are already fully within the MTD regime.
This means they should already have submitted quarterly updates for 2025/26 and will be required to submit their Final Declaration through the MTD system rather than the traditional Self Assessment process.
How Ready Are Taxpayers?
Despite MTD for Income Tax being only weeks away for many taxpayers, adoption remains relatively low.
HMRC expects approximately 864,000 taxpayers to fall within the scope of MTD for Income Tax from April 2026. However, current estimates suggest that only around 20–25% of those taxpayers have registered for the new regime so far.
This highlights the importance of taking action early. Implementing software, reviewing processes and understanding reporting requirements can take longer than many taxpayers anticipate.
At Menzies, we have been working proactively with affected clients and are pleased to have already onboarded approximately 20% of our anticipated MTD client population, with all clients who have engaged with us successfully set up on Xero ahead of the first quarter end.
Why Acting Now Matters
If you are within the scope of MTD for the 2026/27 tax year, the first quarterly reporting period is already nearing completion and the first filing deadline is 7 August 2026.
For many businesses already registered for VAT, this deadline may closely align with existing VAT reporting obligations.
If you have received a letter from HMRC advising that you are required to register, action should be taken now. This may involve:
- Registering for MTD.
- Confirming whether an exemption applies.
- Selecting and implementing suitable software.
- Speaking with your adviser about the most appropriate approach.
Even if you are not due to enter MTD until 2027/28 or later, now is the ideal time to start preparing.
Implementing software, establishing digital record-keeping processes and becoming familiar with quarterly reporting requirements before penalties become applicable can significantly reduce stress and minimise errors.
How Can Menzies help?
We have already contacted clients we believe will be affected in the first year of MTD implementation.
However, if you are unsure whether MTD applies to you, or whether it may affect you in future years, we strongly recommend speaking to your tax adviser.
Menzies can provide support at a range of levels, including:
- Initial advice and planning.
- Software selection and setup.
- Xero onboarding and training.
- Reviewing quarterly submissions prepared by you.
- Ongoing compliance support.
- Full bookkeeping and outsourced finance services.
Whether you want to manage the process yourself or would prefer us to take care of it on your behalf, we can help you find the right solution.
Get in Touch
If you have any questions about Making Tax Digital for Income Tax Self Assessment, please contact your usual Menzies adviser, David Truman, your Private Client team, or Jennie Millar in Systems Advisory.
We will be happy to discuss your circumstances and help you prepare for the transition to MTD.
