With the rollout of Making Tax Digital (MTD) gathering momentum, many are now focusing not only on preparing for the transition but also on understanding what’s required once they’re officially “in.” In a recent webinar, tax expert Carl Bayley outlined the key components of MTD, clarified common concerns, and offered practical advice for managing the ongoing requirements.

The Three Pillars of MTD: What You Must Do

Once inside the MTD system, you are responsible for three essential tasks:

1. Digital Record Keeping
2. Quarterly Updates to HMRC
3. A Final Declaration (Replacing the Self-Assessment Tax Return)

Of these, quarterly updates represent the biggest shift for most businesses. Digital record keeping and the final declaration are more evolutionary than revolutionary—especially for those already using accounting software.

1. Digital Record Keeping

Although you can still receive paper receipts, the essential change is that once a transaction enters your business records, it must do so digitally. This requires:

• Functional compatible software: Either full MTD-compliant software or spreadsheets combined with “bridging software” that maintains digital links.
• No manual re-entry of data: Once in digital form, figures must flow electronically without being manually typed again.

This rule ensures the integrity of your digital records, preventing transcription errors and maintaining audit trails.

2. Quarterly Updates

This is the new burden for many small businesses.

• What to report:
• Income and expense data categorized per HMRC’s classifications.

• If income exceeds the VAT threshold, you must break down each category.

• If below the threshold, only total income and total expenses are needed.

• Joint landlords only need to report income—not expenses—on quarterly updates.
• Timelines:
• Quarterly updates operate cumulatively—first 3 months, then 6, then 9, then 12.

• First required update: Quarter ending 5th July 2026 (or elect calendar quarters).

• First submission deadline: 7th August 2026.
• Flexibility in correction: Errors or omissions in quarterly updates can be corrected in the next quarter or in the final declaration. Importantly, quarterly updates do not have to be accurate, but they must be on time.

3. Final Declaration

This replaces the traditional self-assessment tax return and carries similar responsibilities:

• Must be accurate and on time.
• Used to report all other income sources outside MTD, such as:
• Employment income

• Dividends

• Pensions
• Also includes:
• Accounting adjustments

• Claiming capital allowances

• Reporting joint property expenses

Penalties still apply for late, negligent, or deliberately incorrect submissions under this new system.

Key Takeaways and Advice

• Get started early: Waiting until the first submission deadline (7 August 2026) is risky. Start setting up your software and digital processes now.
• Understand your obligations: Know which categories apply to your income and what your deadlines are.
• Stay compliant, not perfect: For quarterly updates, timeliness matters more than accuracy. But don’t abuse the system—integrity is key.

Looking Ahead

Making Tax Digital marks a significant change in how small businesses and landlords interact with HMRC. While parts of it streamline and modernize tax administration, others—especially quarterly updates—add new layers of responsibility.

As Carl Bayley pointed out, “Don’t take the mickey.” You don’t have to be perfect, but you do have to be diligent, timely, and transparent.

With early preparation and the right tools, MTD can become just another part of doing business in the digital age.

For the full webinar, please click here. Topics covered include:

• Who will be caught and when?
• What will they have to do?
• How can you help them?
• Making it worthwhile for your practice
• What exemptions are available?
• What happens to the old self-assessment tax return?

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.