What is MTD for Income Tax?

Making Tax Digital for Income Tax (MTD for IT) is HMRC’s new system designed to modernise the tax process. Instead of one annual Self Assessment tax return, you’ll keep digital records and submit updates throughout the year.

Think of it as moving from a once-a-year scramble… to a smoother, real-time system.

Who does MTD apply to?

MTD for IT applies to:

  • Sole traders and landlords with total income over £50,000 from April 2026
  • Those earning over £30,000 from April 2027

This threshold is based on gross income (turnover/rents), not profit.

Does the £50,000 threshold include all income?

Yes — but only relevant income streams:

  • Self-employment income
  • Property (rental) income

These are combined to determine if you exceed the threshold.

It does not include things like:

  • Employment income (PAYE)
  • Dividends
  • Savings interest

What do I actually have to do under MTD?

Under MTD, you’ll need to:

  1. Keep digital records of income and expenses
  2. Submit quarterly updates to HMRC
  3. Complete an End of Period Statement (EOPS)
  4. Submit a Final Declaration (replaces your tax return)

So yes — more submissions… but less stress at year-end.

What are quarterly updates?

Every 3 months, you’ll send HMRC a summary of your:

  • Income
  • Expenses

These are not tax returns — just snapshots to keep HMRC updated.

Deadlines will typically be:

  • 5 August
  • 5 November
  • 5 February
  • 5 May

Will I know how much tax I owe during the year?

Yes — and this is one of the biggest advantages.

MTD gives you a much clearer picture of your tax position throughout the year, helping you:

  • Avoid surprises
  • Plan cash flow
  • Make smarter decisions

What is the End of Period Statement (EOPS)?

This is where things get finalised.

At year-end, you’ll:

  • Adjust figures (e.g. capital allowances, accruals)
  • Confirm your taxable profit

Think of this as the “accounts adjustment stage.”

What is the Final Declaration?

This replaces your Self Assessment tax return.

It brings together:

  • Your business/property income
  • Any other income (PAYE, dividends, etc.)

And confirms your final tax liability for the year.

Will this replace the Self Assessment tax return?

Yes — completely.

Instead of one annual submission, you’ll have:

  • 4 quarterly updates
  • 1 EOPS
  • 1 Final Declaration

Can I still use spreadsheets?

Yes — absolutely. You can still use Excel under MTD… but there are a few important rules.

Your spreadsheet must link to MTD-compatible bridging software, which submits the data digitally to HMRC. This means:

  • No manual typing into HMRC
  • No copy-and-paste submissions
  • Everything must flow digitally

How will this work in practice with DMO?

We keep things simple and efficient.

For most clients, we will use your Excel CSV bank statements as the primary source of records.

That means:

  • Your bank account becomes the foundation of your bookkeeping
  • We extract income and expenses directly from your bank data
  • We categorise transactions and prepare your quarterly submissions

So rather than you maintaining complex spreadsheets… we build everything from what’s already happening in your bank.

Do I need to maintain detailed spreadsheets myself?

No — not in most cases.

As long as:

  • Your bank account is used properly (see below 👇)
  • You keep basic supporting records (receipts/invoices where needed)

We can handle the heavy lifting for you.

Why is using one bank account so important?

This is key under our Excel-based approach.

Ideally, you should:

  • Use one dedicated business bank account
  • Have all income paid into it
  • Pay all business expenses from it

This gives us:

  • A complete and accurate record
  • Cleaner reporting
  • Faster and more reliable submissions

What happens if I use multiple accounts or mix personal spending?

It’s not the end of the world — but it does make things:

  • More time-consuming
  • More complex
  • More prone to errors

You may also:

  • Increase your accounting costs
  • Need to provide more explanations and records

In short: the cleaner your bank account, the smoother MTD becomes.

What format do I need to provide my records in?

Nice and simple:

  • CSV bank statements (downloaded from your bank)
  • Provided regularly (monthly or quarterly)

We’ll take it from there.

Do I still need to keep receipts and invoices?

Yes — MTD doesn’t remove this requirement.

You should still keep:

  • Sales invoices
  • Purchase receipts
  • Key documents

But don’t worry — we’ll guide you on the easiest way to do this (and keep it minimal!).

Is this as good as using accounting software like Xero?

For many clients — yes, especially if:

  • Your business is straightforward
  • You want a low-cost, simple solution
  • You don’t need real-time dashboards

However, if you want:

  • More detailed reporting
  • Automation
  • Integration with apps

We may recommend moving to software like Xero.

What’s the benefit of this Excel-based approach?

It’s:

  • ✅ Simple
  • ✅ Cost-effective
  • ✅ Low admin for you
  • ✅ Fully MTD-compliant

Perfect for clients who want to stay compliant without overcomplicating things.

 

What software can I use?

You’ll need MTD-compliant software, such as:

  • Xero
  • QuickBooks
  • FreeAgent
  • Or bridging software for spreadsheets

We’ll help you choose the simplest and most cost-effective option for your situation.

What if I already use accounting software?

Great — you’re already ahead.

If your software is MTD-compatible:

  • You’re likely good to go

If not:

  • We’ll help you upgrade or connect it properly

Do I need to submit every single transaction?

No — HMRC only requires summary totals for each category.

However, you must still keep detailed digital records behind the scenes.

What happens if I miss a deadline?

HMRC will operate a points-based penalty system:

  • Each late submission = 1 point
  • Points build up over time
  • Once you hit the threshold → a financial penalty applies

Consistency is key — not perfection.

Can I opt out of MTD?

Possibly — but only in limited cases.

Exemptions may apply if you:

  • Don’t have access to the internet
  • Have a disability or age-related limitation
  • Have religious objections to digital tools

We can help assess whether you qualify.

What if I have multiple businesses or properties?

No problem — but it does add complexity.

You’ll need:

  • Separate records for each business/property
  • Separate quarterly updates (in some cases)

We’ll help you structure this so it’s clear, compliant, and efficient.

Will this mean more work for me?

Short term: a little bit
Long term: much less stress

Once set up properly:

  • Bookkeeping becomes routine
  • Tax becomes predictable
  • Year-end becomes easy

When should I start preparing?

Now.

Early preparation means:

  • Better systems
  • Less disruption
  • More control over your finances

Leaving it late = rushed setup + unnecessary stress.

Will you help with setup and training?

Absolutely.

At DMO Accountants, we’ll support you with:

  • Full MTD setup
  • Software selection & training
  • Ongoing bookkeeping support
  • Quarterly submissions
  • Year-end finalisation

You won’t be doing this alone.

What’s the biggest benefit of MTD?

Clarity.

You’ll always know:

  • How your business is performing
  • What tax you owe
  • Where you can improve

No more guessing. No more last-minute panic.

What should I do next?

If you think MTD applies to you — or will soon — now is the time to act.

👉 Get in touch with us and we’ll:

  • Review your situation
  • Recommend the best setup
  • Get you fully MTD-ready