Lesson 1: What MTD for Income Tax Is and What It Changes

Welcome: What This Course Is (and Is Not)

Making Tax Digital (MTD) for Income Tax is HMRC's new way for many sole traders and landlords to keep records and report income. It began on 6 April 2026 for the first group of people, and more people will join over the next few years.

This course is educational only and is not tax advice. It explains HMRC's published rules in plain language. Your own situation may have details this course cannot cover. Where that happens, we will tell you to speak to an accountant or tax adviser.

What to do now: Keep a notepad or a document open. At the end of this level you will fill in a short checklist.

The Three Main Parts of MTD for Income Tax

MTD for Income Tax has three parts. Learn them in this order, because the year runs in this order.

1. Keep digital records. You record your business or property income and expenses in software, not in a paper notebook or a shoebox of receipts.
2. Send quarterly updates. Every three months, your compatible software sends HMRC a summary of your income and expenses. Each update is cumulative. It covers everything from the start of the tax year (6 April) to the end of that quarter. For example, the first standard update covers 6 April to 5 July and is due by 7 August.
3. Send a final declaration by 31 January after the tax year ends. You confirm your figures, add any other income, claim reliefs and declare that everything is correct and complete. GOV.UK now calls this step submitting your tax return. Many accountants and software providers still call it the "final declaration".

Analogy: Think of the current system as one big end-of-term exam. MTD is more like coursework handed in during the term, followed by a final sign-off. The final mark still comes at the end, but you show your progress along the way.

What Changes Compared with Today's Self Assessment

Under the usual Self Assessment system, most people gather a year's figures and file one return. Under MTD, these things change:

• Records must be digital. You keep them in MTD-compatible software, or in spreadsheets linked to bridging software that sends the data to HMRC.
• You report four times a year. Quarterly updates are summaries, not tax returns.
• You file through software. You submit your tax return from your MTD software instead of HMRC's online Self Assessment service.
• You see estimates during the year. After each update, HMRC can give you an estimate of your tax bill, which helps you plan ahead.
• Late submissions are dealt with by penalty points. A points-based system applies. A later level covers it.

Recent change to know about: Earlier designs of MTD included a separate "End of Period Statement" for each income source. HMRC dropped that requirement. The year is now finalised in one step, the final declaration (tax return).

What Stays the Same

Many things do not change:

• The 31 January deadline for the tax return after the tax year ends.
• How and when you pay tax. HMRC says MTD will not change the way you pay tax or the dates payments are due. You do not pay tax with each quarterly update.
• The tax year still runs from 6 April to 5 April.
• Your tax is calculated under the same tax rules. MTD changes how you report, not what is taxable.

Worked example

Priya is a self-employed graphic designer who has to use MTD.

1. From 6 April she logs every invoice and expense in her MTD software.
2. On 1 August she reviews her figures for 6 April to 5 July and sends her first quarterly update, before the 7 August deadline. She pays no tax at this point.
3. She repeats the process for the next three updates. Each update includes everything since 6 April.
4. By 31 January the following year she submits her tax return (final declaration) through her software and pays any tax due on the usual dates.

Check yourself: Cover the list above and say Priya's four stages out loud in the right order.

Your Checklist: Keep Going, and When to Get Professional Help

Answer each question with yes or no.

Keep going with this course if:

• You are a sole trader, a landlord, or both, or you help someone who is.
• You currently file, or expect to file, a Self Assessment tax return.
• You want to understand MTD before deciding how to prepare.

Consider an accountant or tax adviser if:

• You have several income sources, such as self-employment, property and overseas income.
• You are in a partnership, or your affairs involve trusts or a company.
• You are unsure whether a rule applies to you, or you have had HMRC penalties before.
• You have a deadline coming up and your records are incomplete.
• You want someone else to submit to HMRC for you. A later level covers authorising an agent.

How to check it: If you ticked any box in the second list, write down one question to ask a professional. If you ticked none, carry on to the next level. Later levels explain who must join and when.

Key Takeaways

• MTD for Income Tax started on 6 April 2026 for the first group of sole traders and landlords.
• It has three parts: digital records, quarterly updates through compatible software, and a final declaration (tax return) by 31 January after the tax year.
• Quarterly updates are cumulative summaries. You do not pay tax with them.
• The 31 January deadline, payment dates and tax rules stay the same.
• The separate End of Period Statement has been removed.
• This course is educational, not tax advice. Get professional help when your situation is complex or uncertain.