Digital records operate cumulatively, each one effectively providing a ‘year to date’ position up to the end of the quarter. See What period do the quarters cover? under MTD requirements: Quarterly updates in our main FAQ.

Any errors discovered in the digital record for one quarter must be corrected by amending the underlying digital record as soon as possible. However, there is no need to resubmit previous quarterly updates - the amended figures will instead be filed as part of the next quarterly update.

If an error is discovered after filing the fourth quarterly update for a year, the digital record must first be updated. The figures previously submitted can then be corrected either by resubmitting the fourth quarterly update, or by adjusting the relevant figures when completing the MTD tax return. 

Taxpayers (or agents on their behalf) don’t have to create digital records until they receive the relevant underlying information, although digital records need to be created in time to file each quarterly update. 

For instance, letting agents might send summary income and expense statements every month. The taxpayer doesn’t have to add the rental income and expenses handled with by the letting agent in a month until they receive the monthly statement. However, they must ensure they have digital records in place in order to file their quarterly updates on time. 

The items of income and expenses which make up letting agent statements, or supplier statements, will need to be categorised when creating digital records, unless the income is from jointly-owned property, or the taxpayer chooses to use ‘three line accounts’, or both, and the taxpayer makes use of the Simplification options explained in our main FAQ.

Where a statement just shows an amount net of fees deducted by the agent, we understand that the net figure may be used for digital records and quarterly updates if the detail of gross income and amounts deducted is not available during the year. However, adjustments will be needed at or before the MTD tax return stage in order to declare gross income and the expenses netted off (again, unless any Simplification options are used). 

Yes, bank feeds can be used to create digital records, but items of income and expenses will need categorising (unless any Simplification options are used). However, data from the bank feed is likely to need adjusting in order to comply with MTD. For instance:

• Any non-taxable income or items of personal expenditure will need to be stripped out or disallowed.
• Any income received net of fees or charges will need to be adjusted at or before the MTD tax return stage in order to declare gross income and expenses netted off.
• Bank feeds will not accommodate accruals and prepayments, so are unlikely to be suitable unless the taxpayer is using the cash basis. 

The digital record keeping requirements are in addition to normal record keeping requirements. Digital records alone are not sufficient – taxpayers must ensure they have the original financial information (invoices, bank statements etc) from which the digital records were made, and that they retain these for the appropriate period. 

Digital links must be maintained from the point at which digital records are first created. Exactly when this occurs will vary depending on the circumstances. For taxpayers with agents, the agreed working approach between the client and their agent(s) will affect when digital links are first required.

For example, a client might collate individual invoices into a spreadsheet. The spreadsheet is the beginning of their digital records, so digital links are required from that point onwards. If the client sends the spreadsheet to their agent to file the quarterly updates, it must be imported into the agent’s software using digital links (eg as a .CSV file).

The data from the spreadsheet must not be manually retyped or copied/pasted into the agent’s software. If the agent cannot import or otherwise digitally link the spreadsheet into their software, they will need to go back to the underlying records (invoices etc) in order to create the necessary records in their software.

By contrast, if the client simply sends invoices to the agent for them to add into their software, the requirement for digital links will only start once the agent records the invoice information in their software.  The information does not need to be digitally transferred from the invoices to the agent’s software, and can be manually keyed in.

Digital links are one way, so if a client prepares digital records using a spreadsheet, based on which their agent submits quarterly updates, the client’s spreadsheet has to be digitally linked to the agent’s software. But if the agent corrects the client’s MTD records in their software, the client’s spreadsheet does not have to be updated via digital links. 

Our understanding is that best practice would be for the client to manually update their digital records in order to correct the error which the agent identified, so that the client holds correct records. However, we understand this is not mandatory – the composite digital record, as held by the agent, will include the correction. Formal guidance from HMRC is expected to follow. 

Claims and tax adjustments are made manually through software in MTD, in much the same way as you would make them for taxpayers in ‘classic’ Self-Assessment.

Software which supports the year-end MTD tax return filing process should allow such claims to be made. Digital links are one-way, so the requirement to use digital links in respect of such claims only applies from the point they are made – ie for the onward submission to HMRC once the return has been approved. We understand there is no need to record the year-end claims in the underlying digital records from which the quarterly updates were made. 

Under MTD, calculation of the tax due is carried out by HMRC rather than by the agent or taxpayer’s software. Their software will ‘call’ for a tax calculation by transferring the relevant data to HMRC, and a tax calculation should be returned and displayed in the software for the agent/taxpayer to check.

Assuming the tax calculation is correct, the tax return is ready to be reviewed and approved by the client/taxpayer. Any suspected errors in the tax calculation will need to be discussed with HMRC.

Guidance on obtaining client approval is available on the ATT’s Professional Conduct in Relation to Taxation webpage. 

Once approved, the agent/taxpayer will need to make a declaration to HMRC which will be similar to Self-Assessment – effectively to confirm that the submission is correct and complete to the best of their (client’s) knowledge and belief.

HMRC have published further guidance on submitting MTD tax returns on GOV.UK.

The cash basis is the default accounting method for unincorporated trading or property businesses (subject to limited exceptions). However, taxpayers are free to use the accruals basis if they choose to.

This applies equally to taxpayers in MTD – by default, the cash basis applies (subject to the exceptions referred to above), but taxpayers in MTD can choose to use the accruals basis, with the necessary election made via their MTD tax return.

Taxpayers in MTD will need to keep digital records under their chosen accounting method, recording the date, amount and category of income and expenses consistently on either the cash or accruals basis. The choice of accounting method will only affect the date of each item. No basis of determining the date is specified under MTD regulations, but HMRC guidance says it must be determined in a consistent manner. 

For the purposes of the MTD income thresholds, no account is taken of amendments to a self-assessment return that increase a taxpayer’s income where the amendment is made after the start of the relevant tax year.

For example, if a sole trader’s 2024/25 tax return declares gross income of £48,000 that individual does not need to comply with MTD from April 2026 as their qualifying income is below £50,000. If an error is discovered, and the return is later amended to declare more than £50,000 of sole trade income, whether or not they need to comply with MTD will depend on when the amendment is made.

If the amendment is made before 6 April 2025, the individual will be obliged to join MTD from April 2026. If the amendment is submitted after 6 April 2026, MTD obligations will not apply retrospectively for 2026/27. They might need to join MTD from April 2027 but that will be determined by the qualifying income declared on their 2025/26 tax return.

Suppose a sole trader’s 2024/25 tax return declares gross income of £52,000. That individual needs to comply with MTD from April 2026 as their qualifying income is more than £50,000.

If an error is discovered, and the return is later amended to declare less than £50,000 of sole trade income, the taxpayer will not need to remain in MTD, and can ask HMRC to remove them if they have already registered. It does not matter when the amendment is submitted (subject to the normal time limit). 

Our engagement letters page contains guidance on letters of engagement, and accompanying schedules. These include an MTD schedule, prepared in conjunction with other professional bodies, for use by members with clients who have to comply with MTD. 

Whilst inaccuracy penalties will not apply to quarterly update submissions, under PCRT “a member should take care not to be associated with the presentation of facts they know or believe to be incorrect or misleading” (Help Sheet A paragraph 13).

Further guidance is available on the ATT’s Professional Conduct in Relation to Taxation webpage

The principles applicable to ‘classic’ Self-Assessment returns apply equally to finalising the MTD tax return. As for Self-Assessment clients, agents should ensure their clients in MTD review and approve the year end return before submission, and the agent should keep evidence of that approval.

Further guidance is available on the ATT’s Professional Conduct in Relation to Taxation webpage. 

Functionality varies between software packages, so it is important for taxpayers and agents to check the HMRC's MTD software choices page carefully. HMRC's MTD software finder tool may also be useful in identifying suitable software. 

Software will need to enable the taxpayer (or agent on their behalf) to comply with the full MTD ‘journey’ (keeping digital records, submitting quarterly updates, sending the MTD tax return – all supported by digital links as necessary). This might involve one software product, or a number of products which can work together to meet these requirements.

Taxpayers with unusual income types, particular queries or unusual circumstances may find a more limited range of software available, and may need to speak to software providers about their requirements. For instance, not all MTD software can support year-ends  which do not align with the tax year (or 31 March), so taxpayers and agents using non-aligned accounting dates will need to check software specifications carefully when considering MTD software. 

Under HMRC’s Minimum Functionality Standards for MTD software, software users (including agents or taxpayers) have to be able to retain ownership of the digital records created in software, so software has to allow digital records data to be exported.

If a user changes software package during the tax year, they may be able to import the digital records extracted from their old software, thereby retaining digital links. If importing is not possible, we understand that the digital records will need to be recreated from underlying records (not retyped from the old digital records, as that would not comply with the requirement for digital links).

If a user changes software package when a new tax year begins, they do not need to import previous years’ data into the new software package, or recreate the old digital records. They must, however, export and retain access to previous years’ digital records.

Formal guidance from HMRC on these scenarios is expected to follow. 

Agents will be accustomed to seeing a client list in their (legacy) Government Gateway accounts. The ASA does not currently offer this facility. Instead, agents will need to search for clients within their ASA individually using the client’s National Insurance number.

Discussions are ongoing with HMRC regarding the possibility of a client list being added to the ASA, but we understand some developers have built the facility to view a client list and payments/credit balances/filing status etc within the software.

Linking the Government Gateway with the ASA allows client authorisations to map across to the ASA for existing clients, and any new ones authorised via the Government Gateway account – see How to transfer existing client authorisations in the Agent Services Account in the agent section of our main FAQ.

However, only clients who are registered for MTD will be visible in the ASA (on searching for their NINO). If you cannot access all your existing clients via the ASA, it doesn’t mean the accounts aren’t linked, it is likely to be because they are not all registered for MTD.

We understand some software packages will display this type of information fed from the client’s HMRC record without the user needing to log in separately to any HMRC services.

This type of information is also available via the ASA. The amount of information and services available within the ASA  depends on whether the agent has been appointed as a main agent or as a supporting agent. See How does multiple agents work for MTD? within the agent section of our main FAQ, and HMRC’s comparison chart of authorised actions for main and supporting agents for further details of these authorisation levels. 

Most taxpayers and agents can now either register for the 2025/26 tax year (voluntarily, for testing) or register in advance for taxpayers needing to comply with MTD from April 2026. However, there are currently some restrictions which mean taxpayers with certain circumstances are unable to register for MTD - see below. 

The registration service does not currently support some taxpayers, particularly those with circumstances not supported by the testing phase. Affected taxpayers can’t register yet for MTD – either for the current year, or in advance where they will need to comply with MTD from April 2026. We understand this currently includes taxpayers:

• preparing accounts to any date other than 31 March or 6 April.
• with partnership income
• with trust income
• who may want to claim profits averaging (farmers or creative artists)

HMRC have published details of further restrictions on signing up for MTD in advance. We are awaiting confirmation from HMRC as to when these restrictions will be lifted. 

If a taxpayer in MTD ceases their only source of qualifying income (winds up a sole trade or stops letting property completely), they will be able to leave MTD. Once they’ve submitted the quarterly update covering the period to cessation of their trade or property business, they will need to notify HMRC before the next quarterly update is due, stating the cessation date of their business. It is not yet known how that notification will be made.

Taxpayers with more than one source of qualifying income (say a sole trade and a rental property) who cease one source will need to remain in MTD for the remaining source unless or until the gross income from that source falls below the MTD threshold for three consecutive years. If the income from the remaining source is sufficiently low, an application for exemption from MTD may be possible before the three year period ends – see "What if a taxpayer in MTD reduces their qualifying income below the MTD threshold" below. 

If a taxpayer reduces their sole trade or property income to the extent that their qualifying income falls below the MTD threshold, they will normally only become exempt if their qualifying income falls below the MTD income threshold for three consecutive tax years.

However, if their qualifying income falls to a sufficiently low level, it may be possible to apply to HMRC for exemption from MTD on the grounds it is ‘not reasonably practicable’ for them to comply with MTD. They would need to convince HMRC that they meet the requirements for this exemption – for example because they are winding down their business and have very low profits which are extinguished by the costs of complying with MTD.

A taxpayer’s MTD start date is determined by the qualifying income declared on the tax return which is due by 31 January prior to that mandation date. For instance, 2024/25 tax returns will be due for submission by 31 January 2026. If a taxpayer’s 2024/25 tax return reports gross qualifying income of more than £50,000, that individual will have to join MTD from April 2026, even if their income has subsequently dropped below the £50,000 MTD income threshold for that year.

Suppose a taxpayer’s 2024/25 tax return declared £60,000 of gross self-employment income, but they cease their sole trade in 2025/26 and become an employee (all income then taxed via PAYE). Based on the qualifying income declared on their 2024/25 tax return, they will need to comply with MTD from April 2026. However, by April 2026 they will have no sole trade or property income. We understand that as long as the qualifying income source has ceased before the expected MTD start date, the taxpayer will not need to register for MTD. So, in the example above, the taxpayer will not need to register for MTD because their sole trade ceased before April 2026 and they had no continuing source of qualifying income.

Not currently. MTD  is intended to be rolled out to partnerships and LLPs at some point in the future, but no timescales have been proposed yet. 

Members of partnerships and LLPs are outside the scope of MTD in respect of their partnership income.

However, they may need to comply with MTD if they have other sources of qualifying income (self-employment or property income outside the partnership). For individuals who have qualifying income outside the partnership, their partnership income is ignored when looking at the income thresholds for MTD. 

Partners whose non-partnership qualifying income is above the relevant MTD threshold will not need to include their partnership income in their quarterly updates.  Instead, they will report their share of partnership profits/losses as part of the process of preparing their MTD tax return, along with other non-MTD sources of income, such as employment income, dividends, interest, pensions etc.

No additional HMRC compliance powers have been introduced for MTD specifically.

HMRC compliance checks (commonly known as enquiries) into MTD tax returns will continue to be made under existing legislation for taxpayers in MTD. HMRC’s powers to obtain information, make discovery assessments and charge interest on late payments remain the same as under ‘classic’ Self-Assessment. A new penalty regime for late filing and late payment applies for MTD taxpayers – see the penalties section of our main FAQ.

There are no specific powers for HMRC to open enquiries into quarterly updates, or the underlying digital records. However, if HMRC were to request access to a taxpayer’s digital records as part of an enquiry into that individual’s MTD tax return, they might impose penalties for failure to keep digital records if the underlying digital records were not kept to adequate standards. 

We  understand HMRC will expect taxpayers in MTD to consistently apply an exchange rate method when compiling their digital records. 

If it is not possible to apply your preferred exchange rate method when creating digital records (for instance if you would normally use a year-end average rate), we understand using an alternative method (eg spot rates, or monthly average rates) in order to compile the digital records will be acceptable, with an adjustment to the relevant figures submitted after the end of the tax year - either by updating and resubmitting the fourth quarterly update, or as part of completing the MTD tax return. 

Further guidance on the application of exchange rates is in HMRC's Business Income Manual at BIM39500. 

Under Basis Period Reform, additional profits brought into account could be spread over up to five years. ‘Spread’ profits are not counted as ‘qualifying income’ for MTD purposes, so do not count towards the relevant income threshold from which taxpayers have to join MTD. 

As explained under the Registration section of our main FAQ, HMRC are sending ‘MTD information letters’ to taxpayers who declared sole trade and/or property income of close to or above £50,000 on their 2023/24 tax returns, advising them that they may need to comply with MTD from April 2026. Copies of those letters are available via the main FAQ.

2023/24 was the transition year for basis period reform, meaning taxpayers whose sole trade businesses did not have a 31 March or 5 April year end needed to report more than 12 months of income on their 2023/24 tax returns.

We understand that the income used to determine who receives an ‘MTD information letter’ from HMRC includes transition profits. It is therefore possible that some recipients of these letters will not need to comply with MTD when only 12 months of income is considered. 

DIMF and IBCI both form part of qualifying income, so count towards the income threshold form which an individual needs to comply with MTD.

In practice, both types of income tend to be calculated after the year-end. For the purposes of digital record keeping and the quarterly updates, individuals are likely to have to record £nil income from these sources. They will need to adjust the income reported after the year-end, once the figures for DIMF and IBCI are available. We are awaiting confirmation from HMRC as to whether this adjustment should be made by resubmitting the fourth quarterly update, or via an adjustment on the MTD tax return.

The digital records would also need to be updated after the year end, once the relevant information is available.