Integrating MTD Software With Your Annual Self Assessment Tax Return Filing Process
- Atlas Tax
- Aug 22
- 13 min read
Integrating MTD Software With Your Annual Self Assessment Tax Return Filing Process
Making Tax Digital for Income Tax (MTD IT) became mandatory on 6 April 2026 for sole traders and landlords with qualifying income above £50,000, and it does not run alongside the old Self Assessment return, it replaces it. Once you are mandated, you stop filing a single annual SA100 and instead submit four quarterly updates plus a year-end final declaration, all through HMRC-recognised software. For the 2026/27 tax year, this is now the live, operational process for anyone who crossed the £50,000 threshold on their 2024/25 tax return, and the threshold drops to £30,000 from April 2027 and £20,000 from April 2028.
I have spent a good part of the last year helping clients move onto this properly, and the confusion is rarely about the concept. Most people grasp fairly quickly that HMRC wants more frequent digital reporting. The confusion is almost always practical: which software to buy, how it fits with the bookkeeping they already do, what actually happens each quarter, and whether the year-end process still resembles the Self Assessment return they are used to. That is what this article covers.
Who Is Actually Mandated for 2026/27
MTD IT applies based on qualifying income, meaning gross income from self-employment and property, before expenses, from the relevant earlier tax year. According to HMRC's guidance on when you need to use Making Tax Digital for Income Tax, if your qualifying income was over £50,000 on your 2024/25 tax return, you were required to start using it from 6 April 2026. If it was over £30,000 on your 2025/26 return, you join from 6 April 2027, and if it is over £20,000 on your 2026/27 return, you join from 6 April 2028.
Two points catch people out here. First, the threshold is based on gross income, not profit. A sole trader turning over £55,000 with £30,000 of costs and a taxable profit of £25,000 is still mandated, because it is the £55,000 figure that matters. Second, the test looks at your total qualifying income across all self-employment and property sources combined, not each source separately. A landlord with £28,000 of rental income who also does a bit of consulting work bringing in £24,000 has £52,000 of combined qualifying income and is mandated from April 2026, even though neither income stream alone reaches £50,000.
Limited companies and partnerships are not currently in scope. If you trade through a company, MTD IT does not apply to you personally in respect of that income, though this may change for partnerships in a future phase that HMRC has not yet timetabled.
What Actually Changes in the Filing Process
The clearest way to understand the shift is to see what replaces what. The old process was one submission a year: the SA100 return, due by 31 January following the end of the tax year, with all your income, expenses, and claims entered at once. The new process spreads that reporting across the year and then finishes with a year-end submission that does the same job the SA100 used to do.
Under MTD IT you submit five things a year through your software: four quarterly updates and one final declaration. A quarterly update is not a mini tax return and does not calculate any tax due. It is a digital summary of income and expenses for each of your qualifying income sources, built from your digital records and sent to HMRC by the 7th of the month following the end of each quarter. Using standard tax-year quarters, that means:
Quarter | Period covered | Deadline |
Q1 | 6 April to 5 July | 7 August |
Q2 | 6 July to 5 October | 7 November |
Q3 | 6 October to 5 January | 7 February |
Q4 | 6 January to 5 April | 7 May |
A detail worth understanding properly because it trips people up constantly: quarterly updates are cumulative. Each submission is a year-to-date total, not just the figures for that three-month window, and each new submission effectively supersedes the last. If you spot an error in your Q1 figures after you have already submitted Q2, you correct it by adjusting the running total in your Q3 submission rather than going back and amending Q1 directly. This is genuinely useful once you are used to it, since it means minor errors self-correct as the year progresses, but it is also why software with decent audit trails matters. If you cannot see what changed between one quarterly update and the next, working out why your year-to-date profit jumped unexpectedly becomes a guessing exercise.
After the fourth quarterly update, you submit a final declaration, due by 31 January following the end of the tax year, the same deadline that applied to the old SA100. This is where the process still looks familiar: you confirm your year's figures, add any income that falls outside the quarterly reporting, such as dividends, savings interest, pension income, or employment income taxed under PAYE, claim reliefs and allowances, and finalise your tax liability. Any tax owed is still due by 31 January, and payments on account, where they apply, are unaffected and still fall due on the usual 31 January and 31 July dates. What has changed is not when you pay, only how the figures leading up to that payment get reported.
What this Widget is About: This interactive visual explainer helps UK sole traders and landlords understand how Making Tax Digital for Income Tax (MTD IT) replaces the traditional annual Self Assessment return with four quarterly updates plus a final declaration, all submitted through HMRC-recognised software. It clearly sets out who is mandated from April 2026, 2027 and 2028 based on qualifying income thresholds, what actually changes in the filing process, and the key deadlines you need to meet. Use the tabs at the top to move between sections on eligibility, the new reporting rhythm, software choices, the first-year soft landing and practical tips for staying organised. Expand the accordion panels for extra detail on points such as CIS deductions, landlord rules and working with your accountant. Everything is written in plain language so you can quickly check your own position and prepare with confidence.
A Common Misunderstanding Worth Correcting
A fair number of clients come to me assuming that quarterly updates mean quarterly tax bills. They do not. HMRC uses your cumulative year-to-date figures to give you a running estimate of your tax position as the year progresses, which is genuinely helpful for budgeting, but no tax is calculated or collected at quarterly update stage. The actual liability is only fixed at the final declaration, exactly as it was under the old annual return. If your business has a strong Q1 and a weak Q4, your estimated tax position will move around during the year, and that is normal, not a sign something has gone wrong.
Choosing and Setting Up MTD-Compatible Software
You cannot submit quarterly updates manually or through the old Government Gateway self-assessment portal once you are mandated. HMRC's guidance on choosing the right software for MTD for Income Tax sets out that you need either a full record-keeping package that also files directly with HMRC, or bridging software that connects existing records, including spreadsheets, to HMRC's systems.
This is the decision point that genuinely matters, and it depends on how you currently keep your books.
If you already use accounting software such as a standard cloud bookkeeping package for invoicing and expense tracking, check whether it has MTD IT functionality built in or planned before it becomes mandatory for you. Most established packages have added this. The integration is usually straightforward because your existing transaction data flows directly into the quarterly update without re-entry.
If you keep records on a spreadsheet, and plenty of straightforward sole traders and single-property landlords manage perfectly well this way, you do not have to abandon the spreadsheet. You need bridging software that links the spreadsheet to HMRC's systems and submits the totals for you. This is often the lower-cost route for someone with simple affairs, though it does mean more manual discipline in keeping the spreadsheet accurate and up to date each quarter, since there is no automatic bank feed doing the categorising for you.
If your turnover is below the VAT registration threshold, currently £90,000, you are permitted to report your income and expenses as consolidated totals in your quarterly updates rather than breaking them down into detailed categories. This is a genuine simplification for smaller traders and is worth confirming your software supports, since not every package defaults to it cleanly.
A practical point from doing this with clients over the past year: the software decision is easier to make well before your first deadline than in the fortnight beforehand. Setting up digital links between a spreadsheet and bridging software, or migrating years of records into a new bookkeeping package, both take longer than people expect, and rushing it in July ahead of a first quarterly update due on 7 August tends to produce mistakes in the opening balances that then have to be unpicked in later quarters.
MTD for Income Tax Rollout and Filing Requirements
Threshold Phase | Qualifying Income Threshold | Mandatory Start Date | Submission Requirements |
Phase 1 | Over $£50,000$ | 6 April 2026 | Digital record-keeping, quarterly updates (cumulative year-to-date summaries), an End of Period Statement (EOPS), and a Final Declaration by 31 January using MTD-compatible software or bridging tools. Three-line accounts are supported for turnover under $£90,000$. |
Phase 2 | Over $£30,000$ | 6 April 2027 | Digital record-keeping, quarterly updates (cumulative year-to-date summaries), an End of Period Statement (EOPS), and a Final Declaration by 31 January using MTD-compatible software. Three-line accounts are supported for turnover under $£90,000$. |
Phase 3 | Over $£20,000$ | 6 April 2028 | Digital record-keeping, quarterly updates, an End of Period Statement (EOPS), and a Final Declaration using MTD-compatible software. Requirements are currently proposed or subject to HMRC confirmation. |
Pilot / Voluntary Phase | Varies based on eligibility | 6 April 2024 | Voluntary testing of digital record-keeping and quarterly submission software before mandatory dates. Includes summary updates and final declarations. |
Making the Quarterly Rhythm Work With Your Existing Process
If you have historically done your bookkeeping in one sitting each January before your accountant files your return, MTD IT does not really allow that any more, at least not without risk. The most workable approach I see clients settle into is treating each calendar month as a small close: bank transactions categorised, invoices matched, receipts logged, roughly monthly rather than quarterly. That gives you three tidy months of data sitting ready by the time each quarterly deadline arrives, rather than a scramble to reconstruct three months of activity from memory and a shoebox of receipts in the final week.
For a construction subcontractor working under the Construction Industry Scheme, this has a particular wrinkle worth flagging. CIS deductions taken by contractors need to be recorded and reconciled against your quarterly self-employment figures, and if your software does not handle CIS deduction statements cleanly, you can end up with a quarterly update that understates your income because deductions were netted off in a way HMRC's system does not expect. It is worth checking specifically with your software provider, or your accountant, that CIS income is being reported gross with the tax deducted shown separately, rather than net.
For landlords, the equivalent point is that UK properties are reported as one combined quarterly submission covering all UK properties together, while any overseas property income needs a separate quarterly submission per country. Mortgage interest on residential property also needs to be kept as a distinct category in your records, since the tax relief for it is given differently to other property expenses and your software needs that distinction to calculate the final position correctly.
What this Widget is About: This interactive visual explainer helps UK sole traders and landlords understand how Making Tax Digital for Income Tax (MTD IT) replaces the traditional annual Self Assessment return with four quarterly updates plus a final declaration, all submitted through HMRC-recognised software. It clearly sets out who is mandated from April 2026, 2027 and 2028 based on qualifying income thresholds, what actually changes in the filing process, and the key deadlines you need to meet. Use the tabs at the top to move between sections on eligibility, the new reporting rhythm, software choices, the first-year soft landing and practical tips for staying organised. Expand the accordion panels for extra detail on points such as CIS deductions, landlord rules and working with your accountant. Everything is written in plain language so you can quickly check your own position and prepare with confidence.
The First-Year Soft Landing, and Where It Does Not Help You
HMRC confirmed at the Autumn Budget 2025 that taxpayers mandated into MTD IT from April 2026 will not receive penalty points for late submission of their first four quarterly updates, during the 2026/27 tax year. This soft landing was designed to give the first cohort room to adjust to the new rhythm without immediate penalty exposure.
It is a genuinely useful concession, but it has firm limits, and I would not want a client to rely on it more than intended. It covers quarterly updates only. It does not extend to the final declaration for 2026/27, which is still due by 31 January 2028 under the normal rules, and a late final declaration still attracts a penalty point in the usual way. It has also not been confirmed to apply to the cohorts joining in April 2027 or April 2028, so if you are due to join at the £30,000 or £20,000 threshold, do not assume the same easement will be there for you without checking HMRC's position closer to the time.
Once the soft landing period ends, the penalty regime works on a points basis broadly similar to the one already used for VAT. Each missed quarterly deadline earns one penalty point, with a maximum of one point per quarter even if you have several income sources each requiring their own submission. Once you accumulate four points, a £200 penalty is triggered, and each further missed deadline after that adds another £200. Late payment penalties and interest run on a completely separate track and are not covered by the soft landing at all: HMRC charges interest on unpaid tax from day one, with an additional grace period of thirty days in the first year of the new penalty system before the first late payment penalty applies, reducing to fifteen days in subsequent years.
What This Means for Your Year-End Process With Your Accountant
If you use an accountant, the practical shift is less about you personally logging into new software and more about making sure the digital record-keeping happens continuously rather than being reconstructed at year end. Your accountant can still prepare and submit both the quarterly updates and the final declaration on your behalf, provided they hold MTD-compatible software and you have authorised them, but the raw data still has to exist digitally throughout the year for that to work. An accountant cannot turn a shoebox of paper receipts into a compliant quarterly update the way they might once have turned it into an annual return, because the deadlines simply do not allow for that kind of end-of-year reconstruction four times over.
This is worth raising directly with whoever prepares your return, if you have not already: ask specifically how the handover of records will work quarter by quarter, not just once a year. Some practices set clients up with direct bank feeds into shared software so the accountant can see transactions in close to real time. Others prefer clients to keep their own spreadsheet and send it across a few days before each deadline. Either can work, but it needs to be agreed and set up before your first quarterly deadline, not discovered when it is missed.
FAQs
Do I still submit a Self Assessment tax return once I am on MTD for Income Tax?
No. The final declaration submitted through MTD-compatible software replaces the SA100 tax return. Once you join MTD IT, you can no longer file through the Government Gateway self-assessment route for that income; the whole submission goes through your chosen software instead.
Is a quarterly update the same as paying tax four times a year?
No. A quarterly update reports your cumulative year-to-date income and expenses so HMRC can give you a running estimate, but no tax is calculated or collected at that point. Your actual tax liability is fixed and paid through the final declaration by 31 January, exactly as under the old system.
Can I still use a spreadsheet to keep my records under MTD?
Yes, provided it is linked to HMRC through bridging software that can send the required digital submissions. You do not need full accounting software, but the spreadsheet and bridging software together must form a digital link with no manual re-typing of totals between them.
What happens if I miss a quarterly update deadline in the 2026/27 tax year?
For taxpayers mandated from April 2026, HMRC has confirmed no penalty points apply to late quarterly updates during the 2026/27 tax year as part of a soft landing. This does not cover the final declaration, which still attracts a penalty point if filed late.
Does MTD for Income Tax apply to my rental income if I also have a full-time PAYE job?
Only your self-employment and property income counts towards the qualifying income threshold; PAYE salary is excluded from that calculation. However, once you are mandated, your PAYE income still needs to be included in your final declaration, in the same way it would have appeared on a Self Assessment return.
What counts as qualifying income for the MTD thresholds?
Qualifying income is your gross income from self-employment and property before expenses are deducted, taken from the relevant earlier tax year's return. It is the total across all your self-employment and property sources combined, not assessed separately for each one.
Do I need separate quarterly updates for each rental property I own?
No, if all your properties are in the UK you submit one combined quarterly update covering all UK property income together. Overseas property income needs its own separate quarterly submission for each country the properties are in.
If my accountant currently files my return, do I need to change anything?
Your accountant can continue to prepare and file both your quarterly updates and final declaration if they hold MTD-compatible software and you authorise them to act on your behalf. What changes is that your underlying records need to be kept digitally and shared with them regularly through the year, rather than handed over once at year end.
What happens to Class 2 and Class 4 National Insurance under MTD for Income Tax?
MTD IT changes how your income is reported to HMRC, not how National Insurance is calculated. Class 2 and Class 4 contributions are still worked out and confirmed as part of your final declaration in the same way they were calculated on the old Self Assessment return.
Will the soft landing on penalties apply again when the threshold drops to £30,000 in April 2027?
This has not been confirmed by HMRC. The soft landing announced at the Autumn Budget 2025 was specific to the cohort joining in April 2026, and taxpayers joining at the lower thresholds in 2027 and 2028 should not assume the same penalty relief will automatically apply to them.
Disclaimer
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