Making Tax Digital for Income Tax is now live.
If you’re a sole trader or landlord with qualifying income above £50,000, the new rules apply to you from 6 April 2026. If you’re not yet set up, this matters, and it matters now.
The threshold drops to £30,000 in April 2027, and again to £20,000 in April 2028. That means even if you’re not in scope today, you very likely will be soon, so it’s well worth understanding what’s changing.
At Chorus, we work with sole traders and small business owners across Christchurch and the surrounding area, and we’re already seeing how much confusion there is around what MTD actually involves. While there is a lot of focus on software and quarterly reporting deadlines, most challenges arise from not being fully prepared, rather than from the rules themselves.
Here are some of the most common mistakes we’re already seeing businesses make.
Assuming MTD Is Just “Quarterly Tax Returns”
This is one of the biggest misconceptions we see.
MTD isn’t just about sending your tax figures four times a year instead of once.
It changes how you keep and organise records, manage your bookkeeping, handle receipts and invoices, track your income and expenses, and monitor your finances throughout the year. It also replaces the annual Self Assessment tax return with a Final Declaration.
You’ll still complete this at year-end, but your software will already have all the information from your quarterly updates, so there’s no last-minute scramble for records or receipts.
If you still rely mainly on year-end bookkeeping, you may find quarterly reporting much more difficult than expected.
Not Monitoring Qualifying Income Properly
Another common error is assuming the MTD thresholds are based on profit.
The thresholds are based on your qualifying gross income before expenses, not on profit.
That includes:
- Self-employment income
- Property income
It excludes:
- Limited company income
- Employment income
- Partnership income (currently)
If you’re close to the threshold, it’s important to review your position carefully. One thing people miss: registration is not automatic. HMRC may contact you to confirm you need to sign up, but you are responsible for doing so.
If you haven’t registered yet, please get in touch with us, and we can guide you through the process.
Underestimating the Administrative Workload
Quarterly submissions mean you’ll need to review your records more often and stay organised all year round. If your bookkeeping is less organised, the extra workload can feel significant at first, but good systems make it easier over time.
Ignoring the Cash Flow Impact
MTD itself doesn’t increase your tax bills; more frequent reporting does mean you’ll have better visibility of your tax position throughout the year. For some businesses, this can highlight cash flow pressures that used to go unnoticed until year-end. Better visibility means more effective planning.
How the New HMRC Penalty System Works
Alongside Making Tax Digital, HMRC is introducing a new points-based penalty system. This is one of the most important changes to be aware of.
Missed Deadlines Create Penalty Points
Every late submission adds a penalty point to your account. Once you reach a certain number of points, you’ll face financial penalties.
For businesses required to submit quarterly under MTD, the threshold is:
Four penalty points = £200 fine
After reaching four points:
- A £200 penalty is issued
- Every further late submission means another £200 penalty
This means repeated late filing can quickly become very expensive.
Quarterly Filing Deadlines
Businesses within MTD will generally need to submit quarterly updates by:
- 7 August
- 7 November
- 7 February
- 7 May
If you joined MTD from 6 April 2026, your first quarterly update covers the period from 6 April to 5 July 2026 and must be submitted by 7 August 2026.
That deadline is already approaching. Missing any of these deadlines will add a penalty point.
Penalty Points Do Not Immediately Reset
Points don’t disappear straight away once you’ve been fined. To reset your points, you need to submit four consecutive quarterly returns on time.
For quarterly filers, this means:
- Four consecutive quarterly submissions filed on time
That’s why repeated late filing can cause ongoing problems.
Late Payment Penalties
HMRC is also tightening up late payment penalties.
Under the new rules, the penalties are:
- Day 15 – A 3% penalty applies to any unpaid tax.
- Day 30 – Another 3% penalty is added.
- Day 31 Onwards – Daily penalties then start at 10% per year.
From April 2027, these charges will increase to 4%.
Interest will also be charged separately.
Is There Any Soft-Landing Period?
Yes, there will be a soft-landing period.
In the first year of MTD (2026–27), HMRC will not apply penalty points for late quarterly submissions. However, this grace period applies only to quarterly updates; it does not apply to late tax payments or the Final Declaration.
However:
- You still need to pay on time
- Late payment penalties still apply
- Your systems still need to be compliant
So don’t use this as a reason to delay getting ready for MTD.
MTD is ultimately helping businesses move toward more real-time financial management. Free software options are available, and once your income and expenses are recorded, the software generates a simple summary to send to HMRC. If you’re unsure which software is right for you, we can help you choose.
MTD is already here. The sooner you have the right systems in place, the smoother the rest of the year will be.
How Chorus Can Help
We’re a Christchurch-based accountancy firm working with sole traders and small business owners across the local area.
We’re already helping our clients make the switch to MTD by:
- Reviewing qualifying income
- Helping you choose the right software
- Improving bookkeeping systems
- Preparing you for quarterly reporting
- Supporting you with ongoing compliance
If you’d like to have a chat about how MTD affects you, give us a call or drop us a message. We’re based right here in Christchurch, and we’d love to help you get sorted.
