10 Common Myths About Making Tax Digital for Income Tax
Last updated: February 2026
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is one of the biggest changes to the UK tax system in a generation. With the first phase starting on 6 April 2026, confusion is widespread. Some of it comes from outdated information that was accurate years ago but has since been superseded. Some comes from genuine misunderstanding of what HMRC is asking people to do.
This article tackles the ten most common myths head-on. Each one is something we hear regularly from sole traders and landlords preparing for MTD. If you have been putting off preparation because of something you read online, there is a good chance it falls into one of these categories.
Myth 1: “MTD means filing five tax returns a year”
This is the myth that causes the most anxiety, and it is completely wrong. Under MTD ITSA, you submit four quarterly updates and one final declaration. That is five submissions in total, but the quarterly updates are not tax returns.
A quarterly update is a summary of your income and expenses for a three-month period. You are not calculating tax, claiming allowances, or making adjustments. You are simply telling HMRC the raw numbers: how much came in, how much went out. Your MTD-compatible software handles the formatting and submission. The whole process should take minutes if your records are up to date.
The final declaration, submitted by 31 January following the end of the tax year, replaces the existing Self Assessment return. That is the point where adjustments, reliefs, and tax calculations happen. In practice, the workload is spread more evenly across the year rather than being crammed into January.
Myth 2: “You have to pay tax quarterly”
Submitting information quarterly does not mean paying quarterly. MTD does not change payment dates at all. You still pay your tax bill through the existing Self Assessment payment schedule: 31 January for the balancing payment and first payment on account, and 31 July for the second payment on account.
HMRC has stated this repeatedly. The quarterly updates are an information-reporting requirement, not a payment requirement. Your tax liability is still calculated once a year through the final declaration. Nobody is being asked to pay tax four times a year because of MTD.
Myth 3: “You need expensive software”
The cost of MTD software is lower than most people expect. Bridging software such as VitalTax starts at £30 plus VAT per year, which works out to less than £3 per month. That is the cheapest route and it lets you keep using your existing spreadsheet.
Full cloud accounting platforms start at around £7 per month (Xero Simple) and go up to £15 per month for more features. Some tools are genuinely free: Landlord Studio offers a free tier for landlords with up to two properties, and Zoho Books has a free plan for businesses under £35,000 turnover. HMRC maintains a list of all compatible software where you can compare options. The idea that MTD requires hundreds of pounds a year in software is simply not true.
Myth 4: “Spreadsheets are no longer allowed”
Spreadsheets remain perfectly valid for MTD record-keeping. What you cannot do is keep a spreadsheet and then manually type figures into HMRC’s system. There must be a digital link between your records and the submission.
In practice, this means pairing your spreadsheet with bridging software. The bridging tool reads the relevant cells from your spreadsheet and transmits the data to HMRC electronically. You do not need to abandon Excel or Google Sheets. You just need a compatible bridge. Several bridging tools, including VitalTax and 123 Sheets, are designed specifically for spreadsheet users. For a full comparison, see our compatible software guide.
Myth 5: “The threshold is based on profit”
This misconception catches people out because the Self Assessment threshold for filing a return is based on different criteria. The MTD ITSA threshold is based on qualifying income, which HMRC defines as gross self-employment income plus gross UK property income. That means turnover, not profit.
The distinction matters enormously for anyone with high turnover but modest profit.
Worked example: why gross income matters
Fatima is a freelance graphic designer in Leeds. In the 2025/26 tax year, her business invoices total £54,000. After deducting £31,000 in legitimate business expenses (studio rent, equipment, software subscriptions, subcontractor fees), her taxable profit is £23,000.
If the MTD threshold were based on profit, Fatima would fall below the £50,000 Phase 1 threshold and would not need to join MTD until April 2028 at the earliest. But because the threshold is based on gross income, her qualifying income is £54,000. She is above the £50,000 mark and must comply from 6 April 2026.
This applies to landlords too. A landlord collecting £52,000 in gross rent but spending £28,000 on mortgage interest, repairs, and management fees has a profit of £24,000. Their qualifying income for MTD purposes is still £52,000. HMRC’s eligibility checker confirms that qualifying income means gross amounts before any deductions.
Myth 6: “MTD applies to limited companies”
Making Tax Digital for Corporation Tax has no mandatory start date. HMRC has not announced when, or even whether, it will be introduced. Any article or adviser telling you that your limited company needs to prepare for MTD Corporation Tax is wrong.
MTD ITSA applies only to individuals: sole traders and landlords who file Self Assessment returns. If you operate through a limited company and draw a salary and dividends, your company’s Corporation Tax filing is unaffected. Your personal Self Assessment may still be affected if you also have sole trade or property income outside the company, but the company itself is not within scope.
Myth 7: “Everyone earning over £10,000 is affected”
The £10,000 figure appeared in early HMRC consultations and draft legislation from several years ago. It was never implemented. The thresholds that actually apply are:
- 6 April 2026 — qualifying income above £50,000
- 6 April 2027 — qualifying income above £30,000
- 6 April 2028 — qualifying income of £20,000 or more
These thresholds were confirmed in the 2024 Autumn Budget and represent a significant change from the original proposals. If you read that everyone over £10,000 must sign up, the information is years out of date. Our MTD Income Tax guide has the current details.
Myth 8: “The soft landing means no penalties at all”
HMRC has confirmed a soft-landing period for the first year of MTD ITSA (2026/27), but it does not mean a free pass on all obligations. The soft landing applies specifically to late submission penalties for quarterly updates. During 2026/27, you will not receive penalty points for late quarterly updates.
Other penalties still apply. Late payment surcharges, late filing of the final declaration, and inaccuracies in submitted data are all outside the soft-landing protection. If you file your final declaration after 31 January 2028, or if you submit incorrect figures, the standard penalty regime applies in full.
The soft landing is a recognition that the first year will involve a learning curve. It is not an excuse to ignore the deadlines entirely. Building good habits from the start means fewer problems when the full penalty regime kicks in for 2027/28.
Myth 9: “Your accountant cannot help anymore”
Some sole traders believe MTD means they must handle everything themselves through software, with no role for an accountant. The opposite is true. HMRC’s agent services allow accountants to submit quarterly updates and final declarations on behalf of their clients, just as they currently submit Self Assessment returns.
In fact, having an accountant may become more valuable under MTD. Quarterly submissions create four additional touchpoints per year where an accountant can review your figures, spot errors early, and ensure your records are compliant. Rather than seeing everything in a single January rush, your accountant gets a rolling view of your tax position throughout the year.
If you are concerned about managing MTD alongside running your business, practising chartered accountants such as our team at Jack Ross can handle the entire process. Our Xero team can also set up your software, connect it to HMRC, and manage submissions on your behalf.
Myth 10: “MTD starts for partnerships too”
General partnerships were originally planned to join MTD ITSA alongside sole traders. That is no longer the case. HMRC has deferred MTD for partnerships and has not set a new start date. If you operate as a partnership, you are not required to sign up for MTD ITSA at this stage.
This applies to general partnerships, limited partnerships, and limited liability partnerships. Individual partners who also have separate sole trade or property income above the thresholds may still be caught by MTD for those non-partnership income sources. But the partnership itself, and partnership income reported through the partnership return, remains outside MTD for now.
The facts at a glance
| Myth | Reality |
|---|---|
| Five tax returns a year | Four brief quarterly summaries plus one final declaration |
| Quarterly tax payments | Payment dates are unchanged |
| Expensive software required | Options from £30/year; some free |
| Spreadsheets banned | Allowed with bridging software |
| Threshold based on profit | Based on gross income (turnover) |
| Limited companies included | No Corporation Tax MTD date set |
| £10,000 threshold | Never implemented; now £50K/£30K/£20K |
| No penalties in soft landing | Only quarterly update penalties waived in year one |
| No role for accountants | Agents can submit on your behalf |
| Partnerships included | Deferred with no date set |
Frequently asked questions
Do I need to submit quarterly updates if my income drops below the threshold?
If your qualifying income falls below the relevant threshold, you may be able to opt out. However, you should check with HMRC or your accountant before stopping submissions, as opting out mid-year may not be straightforward.
Can I still file a paper tax return?
If you are within scope of MTD ITSA, your final declaration must be submitted digitally through compatible software. Paper returns are not accepted for those mandated into MTD. If you are below the thresholds, existing Self Assessment rules continue to apply.
What happens if I miss a quarterly update deadline?
Under the points-based penalty system, each late quarterly update adds one penalty point. Once you accumulate four points, you receive a £200 fine. During the 2026/27 soft-landing period, penalty points for late quarterly updates are not applied, but this protection does not extend to the final declaration or payment deadlines.
Is MTD ITSA the same as Self Assessment?
No. MTD ITSA is a new digital reporting requirement that runs alongside Self Assessment. The final declaration under MTD replaces the Self Assessment return, but the quarterly updates are an additional obligation. Your tax calculation and payment obligations remain the same.
Need help with MTD?
If you are unsure whether these myths have been affecting your preparation, or you want someone to handle MTD compliance on your behalf, contact Jack Ross for a no-obligation conversation about your options.
