Last updated: May 2026
Plain-English definitions of every term you’ll meet on this site or in HMRC’s MTD documentation. We’ve focused on the words and acronyms that actually matter for sole traders, landlords, partnerships and accountants getting ready for Making Tax Digital. If you spot something missing, drop us a line.
Jump to: A · B · C · D · E · F · G · H · I · L · M · N · P · Q · R · S · T · V
A
Accruals basis
An accounting method that records income when it’s earned and expenses when they’re incurred, regardless of when cash actually moves. Most limited companies use accruals. For MTD ITSA, sole traders default to the cash basis from 2024/25 unless they opt out. See our cash basis vs accruals guide for the full picture.
Agent Services Account
The HMRC account accountants and bookkeepers use to file MTD returns on a client’s behalf. It’s separate from the older HMRC Online Services for Agents account. Setting one up is a prerequisite for any agent submitting MTD VAT or MTD ITSA. See our agent authorisation guide.
Annual Investment Allowance (AIA)
A capital allowance that lets businesses claim up to £1 million of qualifying plant and machinery purchases against profits in the year they’re bought. AIA is claimed in the Final Declaration, not the quarterly updates. More on this in our capital allowances under MTD guide.
B
Basis period reform
The 2024/25 change that aligned all sole-trader and partnership accounting periods to the tax year (6 April to 5 April). It removed overlap relief and means MTD ITSA quarterly periods line up with the tax year by default. Full detail in our basis period reform and MTD explainer.
Bridging software
Software that takes data from a spreadsheet and submits it to HMRC in the format MTD requires, without you switching to full cloud accounting. Bridging is HMRC-recognised, popular with landlords and very cost-effective. See our bridging software guide.
C
Capital Allowances
Tax relief on qualifying business assets like vehicles, equipment and certain building features. Under MTD, capital allowances are claimed at year end as part of the Final Declaration adjustments, not in quarterly updates. Our year-end adjustments guide explains how they work alongside MTD.
Cash basis
An accounting method that records income when received and expenses when paid. From 2024/25, cash basis is the default for unincorporated businesses. It’s simpler than accruals and a good fit for most sole traders. Read our cash basis vs accruals comparison.
Companies House
The UK registrar of companies. Limited companies file annual accounts and confirmation statements with Companies House separately from their HMRC tax filings. MTD doesn’t currently apply to Corporation Tax, but it does apply to VAT-registered limited companies. Background in our what is MTD guide.
D
Digital exclusion exemption
An HMRC exemption from MTD for individuals who can’t reasonably use digital tools because of age, disability, location or religious belief. Applications are decided case by case. Our MTD exemptions guide covers eligibility and how to apply.
Digital links
The MTD rule that data must move between software programs without manual re-typing. A bank feed pulling transactions into accounting software counts as a digital link. Copying figures from a spreadsheet into HMRC by hand does not. See our digital links explainer.
Digital records
The transaction-level records HMRC requires you to keep in MTD-compatible software. For VAT and Income Tax that includes the date, amount, VAT rate and category for each transaction. More in our digital records guide.
E
End of Period Statement (EOPS)
The original name for the year-end MTD ITSA submission. HMRC has since merged EOPS into the Final Declaration, so the EOPS terminology is being phased out. You’ll still see it in older HMRC documents. Background in our Final Declaration guide.
Exemptions
The categories of taxpayer that don’t have to comply with MTD: trustees, personal representatives, non-resident entertainers, those with foreign-only income, and the digitally excluded. Our exemptions and deferrals guide covers each in detail.
F
Final Declaration
The MTD ITSA equivalent of the old Self Assessment tax return. It’s submitted by 31 January after the tax year ends, alongside any year-end adjustments and other income (employment, dividends, savings). Read our Final Declaration guide.
Functional compatible software
HMRC’s umbrella term for any software that meets the MTD requirements: it can record transactions digitally, preserve digital links, and submit returns through the MTD API. Our recognised MTD software list shows every product that qualifies.
G
Government Gateway
The HMRC sign-in system used to access personal tax accounts, business tax accounts and most online services. Every MTD user needs Government Gateway credentials. See our MTD VAT login help for sign-in problems and our MTD ITSA registration guide for first-time setup.
H
HMRC
His Majesty’s Revenue and Customs, the UK tax authority. HMRC writes the MTD rules, runs the software approval process, and processes quarterly submissions and Final Declarations.
HMRC-recognised software
MTD-compatible software that HMRC has tested and added to its official list. Only recognised products can submit to the MTD API. The full list is in our HMRC-recognised MTD software roundup.
I
Income Tax (Digital Obligations) Regulations 2026
The statutory instrument that puts MTD for Income Tax into law. It sets out who’s in scope, what records must be kept and the rules around quarterly updates. Full breakdown in our MTD Regulations 2026 guide.
Income Tax Self Assessment (ITSA)
The system used by sole traders, partners, landlords and certain other individuals to declare income and calculate tax. MTD ITSA replaces the annual Self Assessment return with quarterly updates plus a Final Declaration for those above the threshold.
L
Limited company
A separate legal entity that pays Corporation Tax rather than Income Tax. MTD for Corporation Tax has been deferred to at least April 2026 with no firm start date. VAT-registered limited companies are already inside MTD VAT. See does MTD apply to limited companies?
Looping
Submitting the same quarterly update multiple times because the system didn’t acknowledge the first attempt. Looping wastes time and can trigger HMRC compliance flags. Software acknowledgements should always be checked before resubmitting.
M
Making Tax Digital (MTD)
HMRC’s programme to move UK tax filings to digital records and quarterly updates submitted through approved software. MTD started with VAT in April 2019 and extends to Income Tax from April 2026. Our what is MTD guide explains the whole programme.
Making Tax Digital for Income Tax Self Assessment (MTD ITSA)
The phased rollout of MTD to sole traders and landlords. Phase 1 starts April 2026 for those with qualifying income above £50,000, Phase 2 in April 2027 at £30,000, and Phase 3 in April 2028 at £20,000. See our MTD deadline calendar for the dates that matter.
Making Tax Digital for VAT (MTD VAT)
The original strand of MTD, mandatory since April 2022 for all VAT-registered businesses regardless of turnover. Our MTD for VAT complete guide covers the rules and the most-asked questions.
Multiple income sources
Where a taxpayer has more than one self-employment trade or property income alongside it. Each source needs its own digital records and quarterly returns under MTD. Read MTD for multiple income sources.
N
Non-UK resident landlord
A landlord who lives outside the UK but receives rental income from UK property. The Non-Resident Landlord scheme applies, and MTD obligations only kick in if qualifying income exceeds the threshold and the income is taxed under UK ITSA. Our non-UK residents and MTD guide covers the detail.
P
Penalty points system
The new MTD penalty regime that issues a point for each late quarterly update. Hit the threshold (between 2 and 5 points depending on filing frequency) and a £200 fixed penalty applies. Points expire after compliant filing. See our penalty points system explainer.
Phase 1, 2 and 3 thresholds
The three MTD ITSA income thresholds: £50,000 from April 2026, £30,000 from April 2027, and £20,000 or more from April 2028. Read our prep guides for Phase 2 and Phase 3.
Property income
Income from letting UK property, taxed under ITSA. For MTD, property income is added to self-employment income to test against the qualifying income threshold. Joint owners report their share separately. See our letting agent statements guide.
Property allowance
The £1,000 tax-free allowance for property income. Below the allowance, no Self Assessment or MTD ITSA is required. Our trading and property allowance guide shows how it interacts with MTD thresholds.
Q
Qualifying income
Gross self-employment income plus gross UK property income, calculated before expenses. HMRC tests qualifying income against your most recent Self Assessment return on file to decide whether you’re in MTD. Our qualifying income explainer walks through how it’s measured.
Quarterly update
The MTD ITSA submission of a summary of income and expenses for each three-month period. Quarterly updates are not tax returns; they’re cumulative running totals. The first one is due 7 August 2026 for Phase 1. See our first quarterly update walk-through.
R
Real-time information
The PAYE system that requires employers to report payroll on or before each pay date. RTI is separate from MTD but uses the same digital-records principle. Employees with both PAYE and self-employment income may have both regimes apply.
Rent a Room scheme
A tax relief that lets resident landlords earn up to £7,500 a year tax-free from letting furnished rooms in their main home. Income below the threshold doesn’t count for MTD ITSA. See our Rent a Room and MTD guide.
S
Self-employed / sole trader
Anyone running a business as an individual rather than through a company. Sole traders are the largest group affected by MTD ITSA. Our MTD for sole traders complete guide covers everything you need.
Self Assessment
The annual UK tax return for taxpayers outside PAYE. For those above the MTD ITSA threshold, the Self Assessment return is replaced by quarterly updates plus a Final Declaration. Read is Self Assessment ending? for the full picture.
Soft landing period
The 2026/27 tax year, during which HMRC won’t issue penalty points for late quarterly updates. The soft landing covers Phase 1 only and ends 5 April 2027. Our soft landing period guide explains what it does and doesn’t cover.
T
Tax year
The UK tax year runs from 6 April to 5 April. For MTD ITSA, all quarterly periods now align to the tax year by default following basis period reform.
Three-line accounts
A simplified income, expenses and net profit summary allowed for businesses below the VAT threshold. Three-line accounts can still be used under MTD as long as the underlying digital records exist. See our three-line accounts under MTD guide.
Trading allowance
The £1,000 tax-free allowance for self-employment or miscellaneous income. Below the allowance, no MTD obligations apply for that source. See our trading and property allowance guide.
Threshold
The qualifying income figure that brings you into MTD. £50,000 from April 2026, £30,000 from April 2027, £20,000 or more from April 2028. Use our free MTD threshold checker to see which phase applies to you.
V
VAT compatible software
Software approved by HMRC for MTD VAT submissions. Most cloud accounting tools and several bridging products qualify. Our best MTD VAT software roundup compares the main options.
VAT MTD
The VAT strand of Making Tax Digital. Mandatory since April 2022 for all VAT-registered businesses. Read our MTD for VAT complete guide for the rules and answers to the most-asked questions.
Still missing something?
If a term you’re stuck on isn’t here, get in touch. We update this glossary as HMRC publishes new guidance and as readers send through new questions. Start with our MTD guides hub for the longer-form explainers, or read what is Making Tax Digital for the big picture.
