From April 2026, the new system of quarterly reporting under Making Tax Digital for Income Tax (MTD for IT) comes into effect. It should be as easy as ABCDEF:
- Are you in the first group of people needing to submit?
- Bookkeeping records should be kept digitally
- Choose your software
- Digital submissions on a quarterly basis
- Errors and late submissions
- Final declaration
Are you in the first group of people needing to submit?
From April 2026, individuals with sole trade and/or rental income over £50,000 must submit their first quarter income and expenditure digitally in July 2026, covering income and expenses from 6 April to 5 July.
The income threshold drops to:
- £30,000 from April 2027
- £20,000 from April 2028
To be ready, you’ll need a digital system in place. You can manage this yourself, ask your accountant or get help from a bookkeeper.
Bookkeeping records should be kept digitally
Your records must be up to date each quarter. If you’re VAT registered, you’re likely already using software like Xero with Dext.
Ensure your settings are ready to submit data for both VAT and MTD for IT. If your VAT quarters do not align with the MTD for IT periods, it might be worth switching them to March, June, September and December to avoid duplicate record requests.
If you are over the MTD for IT limit but not VAT registered, now is the time to act and see what is best for you.
Tips for better record keeping:
- Using a separate bank account - It is a good idea to ensure you have a separate bank account for business and rental transactions to avoid personal transactions being recorded incorrectly.
- Dext can read the detail from sales and purchase invoices and it will store information for around ten years in the cloud.
- Dext Solo can handle the submission. It is easy to use and can cope with having two income streams for a sole trade and rental properties. At the end of the tax year, everything can be exported for consolidation with other income (eg. dividends, interest, salary) for the final tax return.
- Xero Simple licence is also designed for simple bookkeeping recording from a bank feed to also be able to submit differing income stream each quarter.
For those who have difficulty with internet connections, most accountants will have a bridging software option if you keep a spreadsheet. They will be able to convert your data to an HMRC readable version for submission.
Choose your software
Choosing the right software from those available will depend on the records you currently keep. Your UHY accountant will be able to advise which would be most suitable for you.
Should you sell through Etsy or other online sites, these can easily be imported/direct link to Dext and Xero.
As long as you can record your income and business expenses by the end of each quarter, these can be reviewed by your accountant to ensure correct allocations.
Digital submissions on a quarterly basis
Each quarter must be submitted by the deadline. Any late entries will roll into the next update.
Quarterly update 1:
- Period covered: 6 April to 5 July
- Filing deadline: 7 August
Quarterly update 2:
- Period covered: 6 April to 5 October
- Filing deadline: 7 November
Quarterly update 3:
- Period covered: 6 April to 5 January
- Filing deadline: 7 February
Quarterly update 4:
- Period covered: 6 April to 5 April
- Filing deadline: 7 May
Errors and late submissions
MTD for IT is subject to the same penalty points system as MTD for VAT.
For every filing deadline missed, you'll accrue one penalty point. Once you reach a certain points threshold, you'll receive a £200 fine. For MTD for IT, the penalty points threshold is four points.
Penalties are also in place for late MTD for IT payments. If tax is unpaid after 15 days, you'll pay 3% on the outstanding amount. If any of this tax is still unpaid after 30 days, you'll pay 3% on the outstanding amount after 15 days, plus 2% on the outstanding amount at day 30.
And, if there's still tax left to pay after day 31, you'll be subject to an additional penalty that accrues on a daily basis, at 10% per year on the outstanding amount.
If paying your income tax bill is a struggle, you can contact HMRC to set up a payment plan. At the time of writing this blog, payment dates remain 31 January and 31 July.
Final declaration
The final declaration will be due by 31 January, following the end of the tax year.
For MTD for IT, the tax year 2026/27 will finish on 5 April 2027, so the final declaration deadline will be 31 January 2028.
This declaration will be similar to the current tax return whereby all income is declared.
The items listed below are not included on the quarterly return and will be required for the final figures:
- salary
- pension
- interest
- dividends, and
- pension contributions.
The next step
If you have questions or need help preparing, please contact Alison Martin or your local UHY cloud accounting adviser.
