What Is Making Tax Digital?
Making Tax Digital (MTD) is part of a long-term plan to modernise and bring the tax system closer to real time.
Eventually, all businesses will need to keep digital records via MTD compatible HMRC-approved software and then submit their figures every quarter.
These changes should make it easier for individuals and businesses to get their taxes right the first time and avoid making errors that could lead to fines, as well as help to reduce the amount of tax lost to avoidable mistakes.
Who is Affected by Making Tax Digital?
VAT-registered businesses will already be familiar with this system, with MTD for VAT introduced between 2019 and 2022.
MTD for Income Tax Self-Assessment (ITSA) came into effect from the 6th April of 2026 and will follow another phased rollout, becoming mandatory for individuals once they reach the earnings threshold.
So, if you are a sole trader 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
What Are My Making Tax Digital Responsibilities?
If you are part of the first wave of sole traders and landlords affected by the changes, you will need to:
- Keep digital records of your income and expenses using HMRC-compatible software.
- Submit quarterly updates to HMRC on: 7th August, 7th November, 7th February and 7th May. These will give you an estimated tax bill as you go, which can be corrected later if needed and do not trigger payments.
- Complete a final end-of-year declaration – you’ll do this after your fourth quarterly update. This replaces the traditional self assessment return and is where everything is checked, corrected and finalised.
The deadline date for a return, or end-of-year declaration, remains the same and is still due by the 31st of January following the end of the tax year.
Making Tax Digital Penalties
Late Submission Penalties
It’s worth noting that the first tax year is being treated as a ‘soft landing’ period – there will be no penalties for late quarterly updates in the first tax year (2026/27).
But, to submit your final declaration, you’ll still need to have kept digital records and sent your quarterly updates.
After the first tax year, the penalties for late quarterly updates will work on a points-based system.
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
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.
Late Payment Penalties
Penalties for late payments will work on a time-based system – the quicker you pay the amount owed, 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.
Penalties will work in the following way:
- 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.
- If you are 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.
Making Tax Digital – How We Can Help
At Dolan Accountancy, our package provides everything you need to meet your MTD requirements.
We can help to:
- Set up compliant digital bookkeeping through FreeAgent
- Manage your quarterly submissions
- Keep your records accurate and up to date
- Ensure you stay fully compliant and stress-free
Our MTD package includes everything you need and is just £25 +VAT per month.
If you’re an existing client, we charge an additional £10 + VAT per month to take care of your MTD needs.
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.
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