18. March 2026
Making Tax Digital for Income Tax - debunking the myths
Myth: I'll have to file four tax returns a year. Fact: You will send four quarterly updates of your income and expenses, but these are not full tax returns. Think of these as snapshot summaries of your business figures. You will still submit one final declaration at the end of the year to finalise your tax position.
Myth: I'll have to pay my tax four times a year. Fact: The payment schedule is not changing. You will not be paying tax quarterly; you will only be submitting updates. Tax payments will continue as always i.e. 31 January, and 31 July (if you’re making payments on account).
Myth: Spreadsheets are banned/I need expensive software. Fact: You can still use spreadsheets, but they must be connected to HMRC via "bridging software" to submit data digitally. You cannot simply copy and paste entries from a manual spreadsheet. Many low-cost MTD-compatible software options are available.
Myth: MTD is only for big businesses. Fact: MTD is being phased in. The first phase starts in April 2026 for sole traders and landlords with a combined gross income of more than £50,000. This reduces to £30,000+ in April 2027, and £20,000+ in April 2028.
Myth: MTD will mean I pay more tax. Fact: MTD is a procedural change to reporting, not a change to tax rates or rules. It aims to reduce errors and close the tax gap, not increase tax bills.
Myth: I don't need to do anything until 2026. Fact: While it is not mandatory until April 2026, delaying the move will likely cause a stressful scramble. Starting early allows you time to select the right software and to become accustomed to digital record-keeping.
Myth: I won't need an accountant anymore. Fact: Many people will find accountants even more helpful for setting up the digital process, reviewing submissions, providing software, and peace of mind.
Myth: One little mistake means an instant fine. Fact: HMRC is focusing on a "soft landing" approach, prioritising support and education rather than issuing immediate penalties for genuine mistakes. A new points-based system is being introduced rather than instant fines.
Myth: I can use HMRC's free software to file. Fact: Unlike current Self-Assessment, HMRC will not provide free, comprehensive software for MTD for Income Tax. You will need to use third-party, HMRC-recognised software.
Myth: My income is only from property, so I am exempt. Fact: Landlords with income over the threshold (£50,000 from 2026) must comply in the same way as self-employed professionals.
Myth: It's all about making money for software companies. Fact: MTD is a government initiative introduced by HMRC to modernise an outdated, inefficient system.
The bottom line? MTD is happening, so start now. You’ll have fewer mistakes, less stress, and more time to run your business.
