What Is Making Tax Digital?
Making Tax Digital (MTD) is a key part of the government’s tax administration strategy – a 10-year plan with the aim of building a ‘trusted and modern’ tax system.
It will eventually require all businesses to keep digital records via MTD compatible and HMRC-approved software and then submit their figures every quarter.
Key reasons for the government digitising the UK tax system include:
- Bringing the tax system closer to real time.
- Making it easier for both individuals and businesses to get their taxes right and avoid making errors that could lead to fines.
- Making it so that people can integrate tax management with a range of business processes via software.
- Contributing to wider productivity gains for businesses by encouraging digitalisation.
- Helping to reduce the amount of tax lost to avoidable errors.
When Will MTD Affect Me?
There’s been an ongoing phased rollout of MTD since 2019, with VAT-registered businesses being the first to test out the system, so there will be some individuals who are already familiar with the process.
MTD for Income Tax Self-Assessment (ITSA) is the next step in digitising the tax system and is estimated to affect around 900,000 individuals in the first wave, which starts on 6th April 2026.
The year that MTD for ITSA becomes mandatory for individuals depends on earnings, so if you are self-employed or a landlord, you will be affected from:
- 6th April 2026, if you have an annual business or property income of more than £50,000
- April 2027, if you have an annual business or property income of more than £30,000
- April 2028, if you have an annual business or property income of more than £20,000
MTD Late Submission Penalties
It’s worth noting that the first year, so the 2026/27 tax year, will be treated as a ‘soft landing’ period, which means you won’t face penalties for late quarterly updates.
However, you will still need to keep digital records and send your quarterly updates before you can submit a tax return.
These quarterly deadlines are as follows:
- 7th August
- 7th November
- 7th February
- 7th May
For the tax years after 2026/27, for each quarterly update or tax return deadline you miss, you’ll get a penalty point.
The penalty point threshold is 4 points. If you reach this figure, you will face a:
- £200 penalty
- £200 penalty each time you miss another submission deadline
For those who are also VAT registered, MTD for ITSA penalty points are separate from VAT penalty points.
If you receive penalty points but you’re below the threshold, each point will be removed 24 months after the missed deadline; however, if you reach the threshold, these will only be removed once you have:
- sent quarterly updates and submitted your tax return on time for the next 12 months, and
- sent any outstanding quarterly updates and submitted any outstanding tax returns for the previous 24 months.
MTD Late Submission Penalties
Late payment penalties will not be points-based; instead, they will be time-based.
This means that the penalty amount depends on how long it takes to pay what you owe, so the quicker you pay, the lower the penalty.
You won’t receive a penalty for up to 15 days of missing payment; however, late payment interest starts from the first day that your payment is late.
If you are:
- 16 to 30 days late paying – the penalty is 3% of the tax owed on day 15 in the 2026/27 tax year and 4% in 2027/28. If it’s your first year, then you won’t receive a penalty.
- 31 days or more late paying – the penalty is 3% of the tax owed at 15, and 3% of the tax owed at day 30 (2026/27) and 4% of the tax owed at 15, and 3% of the tax owed at day 30 (2027/28).
There will also be an annual rate of 10% per year on the outstanding amount, which will be charged daily from day 31 until the owed tax is paid, or for up to two years.
Do I Need to Hire an Accountant?
A good accountant will be able to give you expert advice and guidance on Making Tax Digital and will help to put your mind at ease if you’re unsure of how it all works.
An accountant can also help in other areas, with many self-employed professionals using their expertise to:
- File tax returns, saving you time and leaving you to concentrate on other aspects of your business.
- Help you to keep on top of your financial responsibilities and deadlines.
- Provide you with financial advice that could save you money in the long run.
If you do want to hire an accountant, make sure you do your research, looking at reviews and asking colleagues and friends for recommendations.
Find a professional company with a good reputation and preferably one that offers fixed packages to avoid any unexpected bills at the end of the year.
If you have any further questions, our team of experts are available to answer any queries, so give us a call on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com. Alternatively, contact us via live chat.
MTD Timeline
- March 2015 – MTD announced in Spring Budget
- July 2017 – Review results in a scale back to VAT-registered businesses first
- April 2019 – MTD for VAT mandatory for large businesses only
- April 2022 – MTD for VAT mandatory for all
- April 2024 – MTD for ITSA delayed due to self-employed professionals and landlords already facing a ‘challenging economic environment’
- April 2026 – MTD for ITSA mandatory for sole traders and landlords earning over £50,000
- April 2027 – MTD for ITSA mandatory for sole traders and landlords earning over £30,000
- April 2028 – MTD for ITSA mandatory for sole traders and landlords earning over £20,000
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