Do you need to be MTD compliant?

Qualifying income is your gross income (turnover) from self-employment and/or UK property combined — before deducting any expenses. So if you bill £55,000 and spend £15,000 on costs, your qualifying income is still £55,000, not your profit of £40,000. HMRC uses this figure from your most recent Self Assessment return to determine whether MTD applies.

Three things change once MTD applies to you. One: keep digital records of all income and expenses in HMRC-compatible software (paper records no longer count). Two: send four quarterly updates per tax year (deadlines: 7 August, 7 November, 7 February, 7 May). Three: complete a Final Declaration after the tax year, which replaces the old Self Assessment return.

Not for Income Tax. MTD for Income Tax applies only to sole traders and landlords, not limited companies. However, if your Ltd is VAT registered, you must already follow MTD for VAT. HMRC originally planned MTD for Corporation Tax but scrapped those plans in July 2025; instead they are exploring a different approach to modernising corporate tax administration.

HMRC uses a points-based penalty system. Each missed deadline = 1 point. Hit 4 points (so 4 missed quarters) and you get a £200 penalty. Each further late submission costs another £200 until you reset by filing on time. A “soft landing” applies for taxpayers entering MTD in April 2026 — no penalty points for the first four quarterly updates. This easement does NOT apply to later cohorts.

Yes, in limited cases. Automatic exemptions apply to some specific situations like trust/estate income on Self Assessment, certain non-residence claims, or claims for farmers averaging relief. You can apply for exemption if you are “digitally excluded” — due to age, disability, location with no internet, or genuine religious objections to using computers. Most ordinary sole traders and landlords will NOT qualify for exemption.

HMRC publishes a list of recognised software at gov.uk. Major options include Xero, QuickBooks, FreeAgent and Sage. Important note: software recognised for MTD VAT is not automatically recognised for MTD Income Tax — check both separately. We use and recommend Xero, which is fully compatible with both.

We handle everything for you. Xero setup and migration from your current method (paper, spreadsheet or other software). Digital record-keeping done monthly so your books are always MTD-ready. Quarterly updates prepared and submitted to HMRC on your behalf. Final Declaration filed by the 31 January deadline. We are HMRC Agent authorised so we can act for you directly, and Xero Certified across all six credentials.