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Making Tax Digital (MTD) is HMRC’s mandatory programme requiring businesses and landlords to keep digital records and submit tax information quarterly using MTD-compatible software — and by April 2026, it will affect hundreds of thousands more sole traders and limited company directors than ever before. If you’ve been putting this off, the time to act is now. Non-compliance carries automatic penalties, and the software learning curve is steeper than HMRC’s guidance suggests. Zak Partnership helps sole traders and limited companies across the UK navigate MTD from initial registration through quarterly submissions — without the confusion, the fines, or the last-minute scramble.
| April 2026 MTD for ITSA Goes Live Income over £20,000 threshold | £200+ Penalty Per Late Submission Points-based system from HMRC | 4× per year Quarterly Updates Required Plus one end-of-period statement | 2.1m More Businesses Affected Wave 2 roll-out 2026–2027 |
What Is Making Tax Digital — And Why Does It Matter in 2026?
Making Tax Digital is not a single event — it is a phased programme that HMRC has been rolling out since 2019. The phases most relevant to Zak Partnership’s clients in 2026 are:
- MTD for VAT — already mandatory for all VAT-registered businesses since April 2022. If you are VAT-registered and not yet using MTD-compatible software, you are already non-compliant.
- MTD for Income Tax Self Assessment (ITSA) — the big change coming in April 2026 for sole traders and landlords with income above £20,000 per year.
- MTD for Corporation Tax — pilot schemes underway; expected mandatory rollout from 2026–2027 for limited companies, with wider implementation from 2027 onwards.
For most sole traders and limited company directors, MTD for ITSA is the most pressing concern. Here is a clear breakdown of what changes, and when:
| Business Type | Income Threshold | MTD ITSA Start Date | What Changes |
| Sole traders & landlords | Above £50,000/year | April 2026 | Quarterly updates + digital records |
| Sole traders & landlords | £20,000–£50,000/year | April 2027 | Quarterly updates + digital records |
| Sole traders & landlords | Below £20,000/year | TBC (expected 2028+) | Exempt for now |
| Limited companies (Corp Tax) | All sizes | Pilot 2026; mandatory 2027+ | Digital record-keeping + quarterly returns |
| VAT-registered businesses | All sizes | Already mandatory | Ongoing MTD for VAT compliance |
The penalty system has also changed. Under the old regime, a single missed return triggered a £100 fine. Under the new points-based system, each missed quarterly update earns one penalty point. Accumulate four points (one full year of missed submissions) and HMRC issues a £200 fixed penalty — followed by additional £200 charges for every subsequent missed update. The points reset — but only after 24 consecutive months of full compliance.
| Key Takeaway MTD is not optional, and the penalties are not trivial. If your income exceeds £20,000 and you haven’t registered for MTD for ITSA yet, speak to Zak Partnership now — the sooner you get set up with compatible software and a submission routine, the smoother your transition will be. |
MTD for Sole Traders: A Practical Step-by-Step Guide
Sole traders are at the sharp end of MTD for ITSA. Unlike limited companies, which submit accounts through Companies House and file corporation tax separately, sole traders report all their business income through Self Assessment — which is precisely what MTD transforms. Here is exactly what the process looks like under the new regime:
Step 1: Register for MTD for ITSA
You must register directly with HMRC — you cannot simply switch your existing Self Assessment software to an MTD mode. Registration requires your National Insurance number, UTR (Unique Taxpayer Reference), and the start date of your accounting period. Zak Partnership handles registration on behalf of our clients, ensuring the process is completed correctly and on time.
Step 2: Choose MTD-Compatible Software
HMRC maintains a list of approved MTD-compatible software, ranging from full accounting packages (Xero, QuickBooks, Sage) to bridging software that connects your existing spreadsheets to HMRC’s API. The right choice depends on your business complexity, existing systems, and budget. The critical requirement is that your software can:
- Store digital records of all income and expenses as they occur
- Produce quarterly updates in the correct format
- Submit directly to HMRC via the approved API — email attachments and paper submissions are not acceptable under MTD
Zak Partnership helps clients select and configure the right software for their circumstances — and provides training where needed. We partner with Xero and QuickBooks as our preferred platforms, both of which are HMRC-compliant and integrate seamlessly with our bookkeeping and review processes.
Step 3: Keep Digital Records Throughout the Quarter
Under MTD, every transaction must be recorded digitally at the point it occurs — not at the end of the quarter, and not summarised from a paper receipt pile in January. This is the change that catches most sole traders off guard. The records must include: date of transaction, amount, category (income or specific expense type), and any VAT information if applicable.
The good news is that modern MTD software makes this straightforward. Many packages connect directly to your bank account, automatically importing transactions and requiring only a quick category confirmation. Zak Partnership reviews our clients’ records quarterly to catch miscategorisations and flag anything that needs attention before the submission deadline.
Step 4: Submit Your Quarterly Updates
MTD for ITSA requires four quarterly updates per tax year, plus a final End of Period Statement (EOPS) and a Final Declaration (which replaces the traditional Self Assessment return). The quarterly deadlines follow the standard quarters:
| Quarter | Period Covered | Submission Deadline |
| Q1 | 6 April – 5 July | 5 August |
| Q2 | 6 July – 5 October | 5 November |
| Q3 | 6 October – 5 January | 5 February |
| Q4 | 6 January – 5 April | 5 May |
| End of Period Statement | Full tax year | 31 January following tax year end |
| Final Declaration | Full tax year | 31 January following tax year end |
| Key Takeaway The quarterly update is not a payment — it is a summary of income and expenses for that period. HMRC uses these updates to build a running picture of your tax liability throughout the year. Your actual tax bill is still calculated and paid through the Final Declaration by 31 January. |
MTD for Limited Companies: What Directors Need to Know Now
Limited companies operate under a different tax framework to sole traders — Corporation Tax rather than Income Tax Self Assessment — but MTD is coming for them too. The current position for limited company directors in 2026 is:
Corporation Tax: Pilot Phase in 2026
MTD for Corporation Tax entered its voluntary pilot phase in 2024 and is expected to become mandatory for accounting periods beginning on or after April 2026 for larger businesses, with broader rollout from 2027. The requirements under MTD for Corporation Tax will mirror those for ITSA: digital record-keeping, quarterly updates via compatible software, and a final declaration replacing the annual CT600 return.
VAT: Already Mandatory — Are You Fully Compliant?
If your limited company is VAT-registered, you are already required to keep digital VAT records and submit VAT returns via MTD-compatible software. Many directors assume their accountant handles this automatically — but the legal obligation sits with the business. Zak Partnership conducts an MTD VAT compliance review for all new clients to ensure records are being kept correctly and returns are being submitted through the approved API, not manually rekeyed into HMRC’s portal (which is not MTD-compliant).
Director Self Assessment: The Overlap Many Miss
Limited company directors who take dividends from their company are typically required to submit a personal Self Assessment return to report that income. If total personal income (salary + dividends + any other income) exceeds £20,000, directors will fall within the MTD for ITSA scope from April 2026 or April 2027 — even though the company itself files Corporation Tax separately.
This catches many directors off guard. You may need to register for MTD for ITSA personally, while your company simultaneously transitions to MTD for Corporation Tax. Zak Partnership maps out the full picture for each director, ensuring both obligations are addressed on the right timeline.
| Obligation | Who It Affects | Status in 2026 | Action Required |
| MTD for VAT | All VAT-registered companies | Already mandatory | Confirm digital records & API submission |
| MTD for ITSA (personal) | Directors with income >£20k | Mandatory from April 2026/27 | Register & set up MTD software |
| MTD for Corporation Tax | All limited companies | Voluntary pilot; mandatory 2026–2027 | Begin digital records now |
The 5 Most Common MTD Mistakes — And How Zak Partnership Prevents Them
Mistake 1: Waiting Until the Deadline to Register
HMRC’s registration system has processing times, and software setup takes longer than expected. Clients who register in March for an April start date often find themselves scrambling. Zak Partnership proactively contacts affected clients 6 months before their MTD start date to begin the registration and software setup process.
Mistake 2: Using Bridging Software as a Long-Term Solution
Bridging software allows existing spreadsheets to connect to HMRC’s API and is technically compliant. However, it introduces an additional step in your workflow, increases the risk of manual errors, and provides none of the categorisation, bank feed integration, or reporting benefits of full MTD accounting software. Bridging software is a short-term solution, not a strategy.
Mistake 3: Miscategorising Expenses
MTD software requires every transaction to be assigned a category — and HMRC’s categories do not always map neatly onto how business owners think about their costs. Common errors include coding personal expenses as business costs, splitting mixed-use assets incorrectly, and applying the wrong VAT treatment to supplies. Zak Partnership reviews all client records quarterly specifically to catch these errors before they compound across four quarters into a larger correction.
Mistake 4: Assuming Quarterly Updates Are Tax Returns
The quarterly update is a summary, not a payment or a return. HMRC uses it to track your income and expenses in real time. The actual tax calculation and payment obligation is determined at the Final Declaration stage. Many business owners submit their quarterly updates and then are surprised to receive a tax bill they haven’t planned for. Zak Partnership provides quarterly tax projections alongside each submission, so there are no surprises in January.
Mistake 5: Not Telling Their Accountant They’ve Changed Software
MTD software integrations are accountant-specific. If you switch from QuickBooks to Xero, or from Sage to FreeAgent, without telling Zak Partnership, we lose visibility of your records until the connection is re-established. Always inform us of any software change before it happens — we can migrate your data, re-establish the connection, and ensure there is no gap in your compliance timeline.
How Zak Partnership Makes MTD Work for You
Zak Partnership’s MTD service covers every stage of the process, from initial assessment through to ongoing quarterly management:
| Service | What We Do | Benefit to You |
| MTD Impact Assessment | Review your income, structure, and current systems to confirm your obligations and timeline | Clarity on exactly what applies to you — no guesswork |
| HMRC Registration | Handle your MTD for ITSA and VAT registration directly with HMRC | Correct registration first time, on the right timeline |
| Software Selection & Setup | Recommend and configure the right MTD-compatible software for your business | Software that fits your workflow, not generic advice |
| Bank Feed Integration | Connect your business bank accounts to your accounting software | Automatic transaction import, minimal manual data entry |
| Quarterly Record Review | Review your records each quarter before submission to catch errors | Accurate submissions, no penalty points |
| Quarterly Tax Projection | Calculate your estimated tax liability based on the quarter’s data | No surprises on 31 January |
| Final Declaration | Prepare and submit your end-of-year Final Declaration | Complete MTD compliance from start to finish |
| Key Takeaway MTD is not just a compliance exercise — it is an opportunity. Businesses that make the transition properly gain real-time visibility of their tax position, cleaner financial records, and better data for business decisions. Zak Partnership turns MTD from a burden into a business advantage. |
Frequently Asked Questions About Making Tax Digital
Do I need to register for MTD if I’m a sole trader earning under £20,000?
No. HMRC has confirmed that sole traders and landlords with gross income below £20,000 are exempt from MTD for ITSA, at least until a further phase of rollout is announced. However, if you are VAT-registered, MTD for VAT already applies to you regardless of income level. Speak to Zak Partnership to confirm your specific position.
Can I still use spreadsheets under MTD?
Yes, but only with bridging software that connects your spreadsheet to HMRC’s API. Emailing a spreadsheet to your accountant or uploading it manually to HMRC’s portal is not MTD-compliant. We generally recommend transitioning to full accounting software rather than relying on bridging software long-term.
What happens if I miss a quarterly MTD submission?
You receive one penalty point. Four points within a 12-month period triggers a £200 fine, with additional £200 penalties for each missed submission thereafter. Points can only be reset after 24 consecutive months of full compliance. The lesson: it is far easier to build a quarterly submission habit than to recover from a points accumulation.
Does my limited company need to do anything about MTD right now?
If you are VAT-registered, yes — MTD for VAT is already mandatory. If you are a director drawing income above £20,000 personally, you will need to register for MTD for ITSA. MTD for Corporation Tax is in pilot phase and expected to become mandatory from 2026–2027 — starting digital record-keeping now puts you ahead of the curve. Zak Partnership will assess your full picture and create a clear action plan.
How much does MTD compliance cost with Zak Partnership?
Our MTD service is included within our standard accounting packages for sole traders and limited companies. There is no separate MTD surcharge. If you are not yet a Zak Partnership client, contact us for a free initial consultation and a clear quote based on your specific circumstances.
| Ready to Get MTD-Compliant Without the Headache? Zak Partnership manages the full MTD process for sole traders and limited companies — from registration and software setup through quarterly submissions and year-end declarations. Book a free consultation today. |
