MTD for Income Tax: Three Months In — What We Have Learned

Making Tax Digital for Income Tax has been live since April, and the first proper wave of quarterly submissions is due on 7 August, four weeks away. Some people have already filed. One of our own clients was part of HMRC’s beta programme, so we have already made four full quarterly submissions for her and are now preparing her year end accounts and 2025/26 tax return. We have also now filed first quarter returns for a number of other clients who were not part of the beta, so this is not just one case study. It is a pattern we are already seeing repeat.

We got every other client in scope ready for MTD well before it went live, and nobody has come to us worried about whether their return will be correct or filed on time. We have also been comparing notes with other accountants across the profession, whose experience has been a bit more mixed. What follows draws on all of it.

A Quick Recap on Who Is in Scope

MTD for IT applies to sole traders and landlords, not partnerships, LLPs or limited companies. The threshold for this first wave is gross income over £50,000, based on your 2024/25 tax return, and gross means gross. If you are a landlord using a letting agent, that is your rental income before the agent’s commission comes off, not after.

If you crossed the threshold on your 2024/25 return, you are in MTD now. Once you are in, you generally stay in for a minimum of three years, even if your income drops below £50,000 in the meantime. We covered the full detail of who qualifies, and exactly how the threshold is worked out, in our original Making Tax Digital blog. If you have not read it yet, or could do with a refresher before your first submission, it is worth going back and having a look.

What Our Early Experience Has Told Us

Having a client through four full quarters and into her year end has been genuinely useful. It has shown us how the quarterly figures feed into the final declaration in practice, not just in theory, and it means the processes we built for every other client in scope have already been tested on someone going through the whole cycle rather than just the first submission.

We made sure records were digital, software was compatible, and the habit of updating things regularly was in place well before anyone’s first submission was due. Nobody has come to us with a problem, or with a worry about whether their submission will be right or on time. Now that we have filed first quarter returns for several other clients too, the same pattern is holding: no problems and no last minute panics.

That is not the full picture across the profession, though. Talking to other accountants, the businesses finding it hardest are the ones that had been keeping loose, end of year books and are now discovering that MTD needs accurate figures every three months rather than once a year. A messy shoebox once a year is a habit. A messy shoebox four times a year is a much bigger problem, and it is exactly the sort of thing other practices have told us they are having to fix from scratch.

Three Things Worth Watching For

Categorising income and expenses consistently

Software makes it easy to record a transaction quickly and move on. It does not stop you recording the same type of cost under three different categories across three different quarters. Other accountants we have spoken to say this is one of the most common issues they are catching before it becomes a problem, and it matters because HMRC is looking at a rolling picture of a business rather than a single annual snapshot.

Treating the quarterly update as the final answer

A quarterly submission is a running total, not a tax calculation. Several accountants we have compared notes with have had to explain to clients that the tax estimate HMRC sends back after each submission is not their actual liability. It does not include capital allowances, disallowable expenditure or reliefs, and it will not include student loan repayments or the High Income Child Benefit Charge either. Those all get dealt with at the year end declaration. Treating the quarterly figure as final is a quick way to either underpay or panic unnecessarily.

Jointly owned and multiple properties needing an organised approach

This is one where our own landlord clients have not had problems, because we handle their bookkeeping ourselves, have their software set up correctly from the start, and understand exactly what MTD requires from a property business. But we know from other practices that this is an area catching a lot of people out. UK and overseas property are treated as separate businesses, each needing its own submission, and jointly owned properties add a further layer, since costs are often shared across multiple properties that may have different owners. Getting that split right needs a particularly organised approach, and it is not something to leave to chance.

If You Are Still Not Registered

If your 2024/25 gross income was over £50,000 and you have not yet registered for MTD, the priority now is speed, not perfection. Registration is not automatic, and someone needs to sign you up and appoint your accountant as your agent at the same time. There are two types of agent under MTD: a supporting agent, who can file the quarterly updates, and a main agent, who is the only one who can file the year end declaration. Composure acts as main agent for all our clients, and we handle the whole registration process for you rather than leaving you to work through it alone.

We also sign every client up for MTD free of charge, so that it is done properly from the outset rather than something bolted on later once problems have already crept in.

With four weeks until the first deadline, this is entirely achievable if we get started now. What is not achievable is leaving it until the last few days of July and hoping software, records and registration all fall into place at once.

How We Keep This Painless for Our Clients

For our clients, this comes down to how we handle their bookkeeping behind the scenes. We reconcile little and often rather than leaving everything until the days before a deadline, so a quarterly submission is a straightforward job rather than a stressful reconstruction exercise. It is the same discipline that underpins everything else we do, and it is why we keep bookkeeping in house rather than handing it to someone working separately from the accounts.

For clients who are also VAT registered, we make sure their VAT quarters line up with their MTD quarters. Without that alignment, you can end up with a submission of some kind due in two out of every three months, VAT one month and MTD the next. Getting the two quarters to match means one clear run of paperwork each quarter rather than a rolling treadmill of deadlines, and it also means we can charge less for the work than if we were juggling two separate sets of quarterly deadlines all year round.

We also keep an eye on the tax estimate HMRC sends back after each submission and flag it to clients as we go, so nobody is caught out by four quarters of estimates that should have told them what was coming.

What Missing 7 August Will Actually Cost

MTD is moving to a points based penalty system, but it is being phased in gradually rather than applying to every missed submission from day one. That does not mean a missed deadline is free of consequence. Late submissions build a poor compliance history with HMRC, they make the year end declaration harder because you are reconstructing a quarter’s worth of data under time pressure, and they remove the main benefit of MTD altogether, which is knowing where you stand as you go rather than being surprised in January.

The practical cost of missing a deadline is rarely the penalty itself. It is the scramble that follows, and the loss of the early warning that a properly run quarterly system is supposed to give you.

Where This Leaves You

Three months into MTD, and with our first client already through a full cycle of submissions, the picture is already reasonably clear. The businesses that were disciplined about their bookkeeping before MTD are the ones that are ready for it now. If your records are in good shape, the run up to 7 August should be uneventful. If they are not, this is the moment to fix the underlying records, not just the next submission.

If you have not yet registered, or you are not confident your software and records are ready for 7 August, get in touch. We will get you compliant before the deadline and keep the quarters that follow as straightforward as they should be, in the same way we do for our own clients.

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