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Making Tax Digital (MTD) – Questions & Answers

 

📅 Quarterly Reporting Basics

  • Why quarterly reporting?

    • Reduces errors by reviewing shorter time periods (3 months).

    • Encourages real-time record keeping and planning.

  • Will this increase accounting costs?

    • Possibly, but taxpayers can manage updates themselves using software. Accountants are not required for quarterly updates.

  • Do I still need to submit an annual tax return?

    • Yes. Quarterly updates are summaries; the final tax return remains due annually.

  • What are the quarterly update deadlines?

    • You must submit updates by the 7th of the month following the quarter:

      • Q1 (Apr–Jun): Due 7 August

      • Q2 (Jul–Sep): Due 7 November

      • Q3 (Oct–Dec): Due 7 February

      • Q4 (Jan–Mar): Due 7 May

  • Can I align MTD with VAT quarters?

    • Yes. You may elect to report using calendar quarters.

💼 What Income Counts?

  • Qualifying income includes:

    • Self-employment income

    • UK property income

    • Foreign property income

  • What’s not included in quarterly reporting?

    • PAYE income

    • Pension income

    • Bank interest

    • Dividends

    • Personal pension contributions

  • Does income mean turnover or profit?

    • It refers to gross income (turnover), before deducting expenses.

  • If I earn £50K but deduct £20K into a pension, do I qualify?

    • Yes. The threshold is based on gross income, not net.

  • If I’m in a partnership or jointly own property, how does that work?

    • Each person is responsible for their share of income. MTD is not yet mandatory for partnerships, but individuals may be mandated based on income.

🔢 Income Thresholds & When MTD Applies

  • What are the thresholds and timelines?

    • Over £50K: MTD applies from April 2026

    • Over £30K: MTD applies from April 2027

    • Under £30K: Expected from April 2028 (TBC)

  • If my income drops below the threshold?

    • You must remain in MTD for 3 years after qualifying unless consistently below the threshold during that period.

  • If I earn under £20K?

    • You are currently not mandated, but you can opt in voluntarily.

🧾 Software & Digital Record Keeping

  • Do I need special software?

    • Yes. You must use MTD-compatible software.

  • Can I use Excel?

    • Yes, with bridging software to submit updates.

  • Is software free?

    • Some free options are available. Others may be paid. Check the GOV.UK software choices page.

  • Can I use my current software or work with my accountant's software?

    • Yes. You don’t need to match software with your accountant, but coordination is helpful.

  • Is software cost an allowable business expense?

    • Yes.

  • What is bridging software?

    • A tool that connects spreadsheets (e.g., Excel) to HMRC’s system to submit updates.

👥 Special Cases & Common Scenarios

  • If I’m both self-employed and employed (PAYE)?

    • Only self-employed/property income counts towards MTD thresholds and updates.

  • Joint property owners (e.g., spouses)?

    • Threshold applies to each person’s share, not the total property income.

  • Partnership income?

    • Not yet in scope for MTD for Income Tax.

  • Limited companies?

    • Also not in scope — this MTD is only for Income Tax Self Assessment.

  • Pensioners, older individuals, or people with digital difficulties?

    • No automatic exemption by age, but you may apply for exemption due to digital exclusion or other valid reasons.

  • Can I still report using the cash basis?

    • Yes.

  • Do I need to digitize receipts?

    • You don’t need to scan all receipts, but digital records must include key transaction data.

  • Can I still see my info on GOV.UK?

    • Yes, though tax return submission must be done via MTD software once you’re in scope.

📘 FAQs on Transitioning to MTD

  • Can I start early to get used to the system?

    • Yes, you can sign up voluntarily.

  • Is there HMRC support during onboarding/testing?

    • Yes, early joiners get access to dedicated MTD support.

  • Do I need to sign up for each business I own?

    • No, one sign-up covers all your self-employment/property sources, but you must submit separate quarterly updates for each business.

  • Can I file the final return manually if I do quarterly updates digitally?

    • No, both quarterly updates and end-of-year returns must be submitted using MTD-compatible software.

  • Will HMRC provide templates for Excel users?

    • Templates come from bridging software providers, not HMRC.

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