Making Tax Digital for Accountants: A Practice-Wide Strategy for 2026/27 

Making Tax Digital (MTD) for Income Tax is HMRC’s phased mandate requiring qualifying sole traders and landlords to keep digital records, submit quarterly updates, and complete an annual finalisation process through compatible software. For accountancy firms, the change is less about filing a tax return differently and more about managing a continuous digital compliance workflow across a diverse client base. 

The first phase is mandatory from 6 April 2026 for clients with qualifying income above £50,000. Practices that manage MTD as a bulk technology deployment are likely to underestimate the operational challenge. The firms that transition most effectively will be those that treat it as a workflow, staffing, and client communication problem — as much as a software one. 

Sources: HMRC GOV.UK MTD for Income Tax guidance; HMRC Budget 2025 penalty announcement 

MTD for Income Tax: Rollout Summary 

Qualifying income means gross income from self-employment and UK property combined — not profit after expenses. The threshold is assessed per individual, not per business. 

What are the MTD for Income Tax deadlines and thresholds? 

The qualifying income threshold determines when a client must join MTD for Income Tax. The threshold is based on gross income from self-employment and UK property, assessed using the figure reported on the relevant Self Assessment return. Clients who meet the threshold in one phase cannot opt out in a later year if their income changes; they must follow the correct HMRC cessation process. 

The four quarterly submission deadlines are fixed regardless of the client’s accounting period: 

• 7 August — Quarter 1 (April to June) 
• 7 November — Quarter 2 (July to September) 
• 7 February — Quarter 3 (October to December) 
• 7 May — Quarter 4 (January to March) 

Clients using the calendar quarter option — where periods run January to March, April to June, July to September, and October to December — retain the same four submission deadlines but report against different period dates. This option requires HMRC approval and is not available to all clients. 

The annual finalisation and final declaration must be submitted following the end of the tax year. This replaces the traditional Self Assessment return for clients within scope and is where all income sources are confirmed, adjustments made, and the tax liability settled. The End of Period Statement is not a required submission under the current MTD framework following the Autumn 2023 consultation outcome. 

📅  Year-one penalty soft landing for 2026/27 

HMRC confirmed at Budget 2025 that no penalty points will be issued for late quarterly updates during the 2026/27 tax year. The legal obligation to submit still applies. Practices should treat this as a structured bedding-in period, not a reason to delay preparation. The soft landing does not apply to: late payment penalties, or record-keeping failure penalties. 

Who is in scope for MTD for Income Tax, and who is not? 

MTD for Income Tax applies to self-employed sole traders and UK property landlords whose qualifying income exceeds the relevant threshold. For practice purposes, this means reviewing every client’s income sources individually rather than relying on high-level indicators. 

Which clients are in scope? 

• Sole traders with gross trading income above the relevant threshold 
• UK property landlords with gross rental income above the relevant threshold 
• Clients with mixed income — qualifying income is calculated across all self-employment and UK property sources combined 

Which clients are not in scope? 

• Clients whose qualifying income is below the threshold for their phase 
• Clients whose income comes entirely from employment, investment, pension, or other non-qualifying sources 
• Partnerships — not in scope for the 2026, 2027, or 2028 phases under current legislation (note: HMRC has indicated partnerships may be brought into scope in a future phase; this position should be monitored) 

What are the common edge cases practices need to manage? 

Several client scenarios create classification complexity that requires active management rather than a simple threshold check: 

• Jointly owned property: where rental income is owned jointly, the qualifying income attributable to each individual is assessed separately. The total gross rental receipts are not split automatically; the share depends on the legal ownership structure and any declaration made to HMRC. 
• High turnover, low profit: qualifying income is based on gross receipts, not net profit. A sole trader with £55,000 turnover and £45,000 expenses has qualifying income of £55,000 and is in scope from 6 April 2026. This is one of the most frequently misunderstood aspects of MTD scoping. 
• Clients near the threshold: clients whose qualifying income is close to the applicable threshold may move into or out of scope as income fluctuates. Practices should flag these clients for annual review and should not apply a static scope assessment. 
• New business starts: a client who begins a new trade or property business after the mandation date must register for MTD from their first period of account if qualifying income is expected to exceed the threshold. If the threshold is only breached in a later year, MTD applies from the start of the tax year following the year in which the threshold is first exceeded, based on a reasonable estimate. Practices should flag new start clients in their portfolio explicitly. 
• Cessation: a client who ceases trading or whose qualifying income falls below the threshold is not required to continue under MTD, but must notify HMRC and follow the correct cessation process. Simply stopping submissions is not compliant. 
• Multi-agent authorisation: where a practice manages MTD submissions alongside a bookkeeper or another agent, each party requires separate HMRC authorisation for their specific MTD functions. Practices should audit their authorisation position before April 2026 and build a process for obtaining and maintaining authorisations across the client base. 

How should a practice prepare for MTD? A five-step workflow 

Step 1: Segment your client base by MTD start date 

The starting point for every practice is a structured client segmentation exercise, not a software purchase. Pull qualifying income data from 2024/25 Self Assessment returns and classify each client across three dimensions: their MTD start date (April 2026, 2027, or 2028), their current bookkeeping approach (software, spreadsheet, or paper), and their complexity level (single income stream, mixed income, or edge case). 

This produces a working list of clients who need active management now, clients who need preparation in the next twelve months, and clients who require only monitoring. Without this foundation, every subsequent step in the MTD workflow is being designed without knowing the real shape of the problem. 

Step 2: Review your technology stack and digital record controls 

MTD for Income Tax requires digital records to be kept in software that is compatible with HMRC’s requirements and can submit data digitally. Spreadsheets can remain part of a compliant process only where they are connected to compatible submission software through a digital link — a direct, unbroken data flow with no manual re-keying. A spreadsheet that is manually copied into a separate submission tool does not meet the digital link requirement. 

Practices should assess each client’s current record-keeping setup against this standard. Where gaps exist, the choice is to migrate the client to compatible software or to implement a bridging solution that creates the required digital link. The former is usually the more sustainable approach for the majority of the client base. 

Step 3: Build a standard quarterly submission workflow 

A repeatable quarterly workflow reduces error risk and allows practices to scale across multiple clients simultaneously. A workable model for most practices involves the following sequence: 

1. Data collection: obtain transaction records from the client or their bookkeeping software for the quarter, by a specified date before the submission deadline. 
2. Review and reconciliation: check records for completeness, consistency, and obvious errors. Identify any missing categories or unexplained items. 
3. Adjustments: apply any necessary in-period adjustments. Note that significant adjustments are better addressed at the annual finalisation stage where full-year context is available. 
4. Submission: submit the quarterly update through compatible software. Confirm receipt and retain a record of the submission date and content. 
5. Client communication: notify the client that the update has been submitted and flag any outstanding items for the next quarter. 

The workflow must be standardised across the team, not left to individual judgement. Practices that allow ad hoc approaches to quarterly submissions will face inconsistent quality, difficulty covering absences, and challenges in demonstrating compliance in an HMRC review. 

Step 4: Map the annual finalisation and final declaration process 

MTD does not remove the annual compliance obligation. At the end of the tax year, the practice must complete an annual finalisation process that consolidates all quarterly updates, incorporates other income sources outside the scope of quarterly reporting (such as employment income, dividends, and savings interest), and produces a final declaration that replaces the traditional Self Assessment return for clients within scope. 

The final declaration is where the tax liability is calculated and confirmed. It is the moment at which all year-end adjustments, allowances, and reliefs are applied. Practices should treat it as an equivalent in scope and complexity to the current SA return, not as a minor addendum to the quarterly process. The End of Period Statement is not a required submission under the current MTD framework; the workflow moves directly from quarterly updates to the annual finalisation and final declaration. 

Step 5: Create a client communication plan 

Client readiness is the most common bottleneck in practice-wide MTD delivery. A structured communication plan should address four questions for every client in scope: 

• What does MTD mean for you? A plain-language explanation of the change and why it applies to their situation. 
• When do you need to be ready? Their specific mandatory start date based on their qualifying income level. 
• What do you need to do? The specific actions required — software setup, record-keeping changes, and communication with the practice. 
• What will the practice handle? A clear statement of which parts of the MTD process the firm will manage on their behalf and at what cost. 

Communications should be segmented: clients joining in April 2026 need active onboarding now; clients in the 2027 cohort need awareness building this year and detailed preparation in early 2026. A single round-robin communication is not sufficient for a mixed-phase client base. 

What is the operational impact of MTD on an accountancy practice? 

MTD for Income Tax does not simply add four new filing dates to the calendar. It changes the fundamental rhythm of practice operations. The table below compares the traditional annual compliance model with the MTD quarterly model across the dimensions that affect practice capacity and risk. 

The most significant operational risk for many practices is not the technology. It is the increase in client-facing work that results from quarterly data collection, and the reduction in tolerance for incomplete or late client records. A client who routinely delivers their records in February for a January-return practice can no longer operate that way under MTD. The practice that has not addressed this behavioural change with its client base before April 2026 will face a difficult transition. 

Example: managing a mixed-phase client base 

This example is illustrative. It shows how a practice might segment a simplified client base across MTD phases. A practice with 120 sole trader and landlord clients reviews their 2024/25 SA data and identifies: 

• 18 clients with qualifying income above £50,000 — mandatory from 6 April 2026 
• 34 clients with qualifying income between £30,001 and £50,000 — mandatory from 6 April 2027 
• 41 clients with qualifying income between £20,001 and £30,000 — mandatory from 6 April 2028 
• 27 clients below £20,000 or with non-qualifying income only — not currently in scope 

Of the 18 April 2026 clients: 11 already use cloud bookkeeping software compatible with MTD; 

5 use spreadsheets and need a bridging or migration solution; 2 have no digital records at all and require a full onboarding process. The practice builds three parallel workstreams: an active onboarding programme for the April 2026 cohort (now); an awareness and preparation programme for the April 2027 cohort (starting Q3 2025); and a monitoring process for near-threshold clients whose qualifying income may change. This segmentation determines staffing requirements, software procurement, and communication scheduling for the next 24 months. 

What are the MTD for Income Tax penalties, exemptions, and risk areas? 

MTD introduces a points-based penalty regime for late submissions, alongside separate penalties for late payment and for record-keeping failures. Practices need to understand all three and communicate clearly to clients that they are distinct obligations. 

Points-based late submission regime 

Each missed quarterly update generates a penalty point. Once a taxpayer accumulates enough points to reach the threshold (four points for quarterly filers), a £200 fixed penalty is charged. Points expire after a period of compliance, but the accrual process means a consistent pattern of late submissions can result in a penalty even where no single filing is critically late. 

The year-one soft landing for 2026/27 means no penalty points will be issued for late quarterly updates during the first year of mandation. This was confirmed at Budget 2025. The obligation to submit still applies, and the soft landing should not be communicated to clients as a form of dispensation. Late payment penalties and record-keeping failure penalties are not covered by the soft landing. 

Late payment penalties 

Late payment penalties apply where the tax liability arising from the final declaration is not settled on time. These follow a separate schedule from the filing penalty regime and are not affected by the 2026/27 soft landing. Practices should ensure clients understand that paying on time is a separate obligation from submitting updates on time. 

Record-keeping failure penalty 

A taxpayer who fails to maintain digital records as required by MTD legislation faces a separate fixed penalty. This applies regardless of whether quarterly updates were submitted on time, because the obligation to maintain digital records is an independent statutory requirement. Timely submission alone does not cover all compliance obligations under MTD. 

Practices should advise clients explicitly on what constitutes adequate digital record keeping and should not assume that connecting to compatible software at submission time is sufficient if the underlying records are not being maintained digitally throughout the quarter. 

Exemptions and deferrals 

HMRC provides for exemptions and deferrals in specific circumstances, including for individuals who are digitally excluded (those without internet access or where digital record keeping is not reasonably practicable), and for clients in certain hardship situations. Practices should identify digitally excluded clients early and begin the exemption application process before the relevant mandation date. Assumptions about who will or will not qualify for exemption should be tested against the HMRC criteria rather than made on the basis of age or technology confidence alone. 

Why will a once-a-year compliance workflow not work under MTD? 

A practice built around annual compliance runs on specific rhythms: a burst of activity at year end or at tax return season, followed by a quieter period for planning work. MTD breaks that model. 

Quarterly submissions create a constant throughput of data collection, review, and submission work with no extended quiet periods. Client data that was acceptable when reviewed once a year — incomplete expense categories, missing receipts, bank feeds not reconciled for months — becomes a recurring problem that surfaces four times per year rather than once. The correction cost multiplies accordingly. 

The practice that does not change its operating model faces four specific pressure points: 

• More frequent client contact that is not currently priced into the engagement fee 
• Less tolerance for incomplete records that previously would have been resolved in a single annual effort 
• Greater dependence on standardised software leaving practices that use mixed tools and manual workarounds exposed to submission failures 
• No central visibility across the client base meaning missed deadlines are discovered reactively rather than managed proactively 

These are structural problems, not technology problems. Software improves the execution of a well-designed process; it does not compensate for the absence of one. 

What is the cost of not changing before MTD mandation? 

For a practice managing 50 MTD-in-scope clients quarterly, the non-billable cost of chasing missing records, correcting late-submitted data, and managing ad hoc client queries outside the submission cycle can easily exceed two full days of senior staff time per quarter. Across a year, that is eight to ten days of skilled capacity consumed by reactive administration rather than advisory work. 

Missed filing deadlines — even during the 2026/27 soft landing period — create client service failures that damage the practice’s reputation and, from 2027/28, will generate real penalty costs for clients. The reputational risk of appearing unprepared for a regulatory change that has been known about for several years is harder to quantify but should not be underestimated. 

Inconsistent client data — resulting from a mix of paper records, spreadsheets, disconnected apps, and varying levels of client engagement — means every quarterly submission involves a non-standardised review process. The time cost per submission is higher, the error rate is higher, and the firm’s ability to scale the MTD service across a growing client base is limited. 

How does IRIS help practices manage MTD for Income Tax? 

IRIS offers a set of connected tools designed to support different practice models and client types. The right combination depends on how the practice operates, how clients currently manage their records, and how much of the MTD workflow the firm wants to own versus support. 

IRIS Elements 

IRIS Elements is a cloud-based hub that gives practices a centralised view of MTD tasks, client submission statuses, and compliance workflows. It allows practices to manage MTD deadlines across multiple clients from a single interface, flag at-risk submissions before the deadline, and integrate with client-side bookkeeping tools. 

IRIS Elements supports both accountant-led workflows — where the practice collects data and manages submissions on behalf of the client — and client-led workflows where the client has visibility and input. It is suited to practices that want to scale their MTD service without adding headcount proportionally. 

IRIS Accountancy Suite 

IRIS Accountancy Suite provides MTD-compliant submission capability for practices operating desktop-led or spreadsheet-heavy workflows. It supports the digital link requirements that allow spreadsheet-based records to form part of a compliant process, and provides the submission infrastructure that practices using more traditional tools need to meet HMRC’s technical requirements. 

KashFlow 

KashFlow is cloud-based bookkeeping software for clients who need to maintain digital records and submit data directly. It is suitable for clients who want to manage their own records and work collaboratively with their accountant on the quarterly review and submission process. It connects directly to the practice’s workflow, reducing the data collection overhead at each submission deadline. 

No single product covers every practice configuration or client type. The practices that manage the MTD transition most effectively are those that match the right tool to each part of their client base, rather than deploying a single solution uniformly across a diverse portfolio. 

MTD for Accountants: Frequently Asked Questions 

What specific software is needed for MTD for Income Tax? 

Compatible software must be capable of keeping digital records, creating and submitting quarterly updates to HMRC, and completing the annual finalisation and final declaration. HMRC publishes a list of compatible software on GOV.UK. Spreadsheets can form part of a compliant process only where they are connected to a compatible submission tool via a digital link — meaning no manual re-keying of data between the spreadsheet and the submission software. Manual-only processes, including paper records transcribed into a spreadsheet, do not meet the digital link requirement. 

What penalties apply if MTD submissions are late? 

MTD uses a points-based penalty regime for late quarterly updates. Each missed submission generates a penalty point. When points accumulate to the threshold level (four points for quarterly filers), a £200 fixed penalty is charged. Points expire after a period of compliance. During 2026/27, a soft landing applies: no penalty points will be issued for late quarterly updates, though the submission obligation still stands. 

Late payment penalties are separate from the filing penalty regime and are not affected by the soft landing. A record-keeping failure penalty applies independently where a taxpayer does not maintain digital records as required, regardless of whether submissions are made on time. 

How does MTD for Income Tax affect basis period reform? 

Basis period reform, which moved all unincorporated businesses to a tax-year basis of assessment from 2024/25, and MTD for Income Tax are distinct legislative changes. However, they interact in practice: clients who were affected by basis period reform will now be reporting on a tax-year basis, which aligns with the quarterly update periods under MTD. Practices should consider both changes together when designing client workflows, particularly for clients with complex accounting periods or significant transition-year adjustments still working through the system. 

Can spreadsheets still be used under MTD for Income Tax? 

Yes, but only within a defined technical boundary. Spreadsheets may form part of a compliant MTD process if they are connected to compatible submission software through a digital link — meaning data flows directly from the spreadsheet to the submission tool without manual re-keying. A spreadsheet that is printed, typed into a portal, or emailed to a colleague who manually uploads it does not constitute a digital link and does not meet HMRC’s requirements. For most clients, migration to purpose-built bookkeeping software is a more sustainable approach than maintaining spreadsheet-based workflows through a bridging solution. 

Who is excluded from MTD for Income Tax? 

Individuals below the qualifying income threshold for their phase are not required to join MTD. Clients whose income comes entirely from employment, savings, investments, or pension sources are not in scope. Partnerships are not required to join MTD under the current 2026, 2027, or 2028 mandation timetable, though individual partners may be in scope based on their personal qualifying income from other sources. 

Individuals who are digitally excluded — those for whom it is not reasonably practicable to maintain digital records or use compatible software — may apply for an exemption. HMRC also provides for deferrals in specific hardship circumstances. Practices should assess each client against the criteria rather than applying assumptions about who will or will not qualify. 

What are the quarterly submission deadlines for MTD for Income Tax? 

The four quarterly submission deadlines are: 7 August (Quarter 1, April to June), 7 November (Quarter 2, July to September), 7 February (Quarter 3, October to December), and 7 May (Quarter 4, January to March). These apply to the standard April-to-March tax year quarters. Clients using the calendar quarter option report against January-to-December quarter dates but submit by the same four deadlines. 

Will my client face penalties if they miss a quarterly MTD update in 2026/27? 

HMRC confirmed at Budget 2025 that no penalty points will be issued for late quarterly updates during the 2026/27 tax year. This soft landing is designed to give clients and practices time to establish their processes in the first year of mandation. The legal obligation to submit still applies. Practices should treat this as a structured transition period, not a dispensation from the requirement. 

The soft landing applies only to the points-based late submission penalty for quarterly updates. Late payment penalties and record-keeping failure penalties are not covered and apply in full from 6 April 2026. 

Do partnerships need to comply with MTD for Income Tax? 

Partnerships are not in scope for MTD for Income Tax under the current mandation timetable covering the 2026, 2027, and 2028 phases. The partnership entity is not required to submit quarterly updates under MTD. However, individual partners who have qualifying income above the relevant threshold from other sources — such as separate self-employment, property income, or a share of partnership profits that is assessed as qualifying income in their own right — must comply in their individual capacity. 

HMRC has indicated that partnerships may be brought into scope in a future phase. This position should be monitored and communicated to partnership clients as guidance develops. 

When does a new business need to start using MTD for Income Tax? 

A client who starts a new trade or property business after the mandation date must register for MTD from their first period of account if their qualifying income is expected to exceed the relevant threshold at that time. If qualifying income only exceeds the threshold in a later year, MTD applies from the start of the tax year following the year in which the threshold is first breached, based on a reasonable estimate of qualifying income. 

Practices should flag any new business starts in their client portfolio explicitly and build the MTD registration and software setup into their new client onboarding process. 

What happens if a client stops trading or their income drops below the MTD threshold? 

A client who ceases trading is no longer required to submit quarterly updates from the date of cessation, but must complete a final declaration for the period up to cessation. A client whose qualifying income falls below the relevant threshold in a subsequent year may be able to exit MTD, but must follow the correct HMRC process and notify HMRC accordingly. Simply stopping submissions without notification is not compliant and may result in penalty points accruing. 

Practices should track income changes across their client base annually and act promptly where a cessation or threshold exit changes a client’s MTD obligations. 

Can an accountant be authorised to manage MTD submissions for multiple clients? 

Yes. Agents must hold a valid HMRC authorisation for each client for whom they submit MTD updates. This is a client-specific authorisation, not a blanket agent registration. Where a client uses more than one agent — for example, a bookkeeper managing records and an accountant submitting quarterly updates and the final declaration — each agent must hold separate authorisation for their specific MTD functions. Practices should audit their authorisation position across their client base well before April 2026 and build a process for obtaining, renewing, and managing authorisations as client relationships change. 

How do I identify which of my clients are in scope for MTD from April 2026? 

For the first mandation wave, HMRC will determine eligibility based on qualifying income reported in the 2024/25 Self Assessment return. Practices should run a client segmentation exercise using 2024/25 return data to identify which clients have qualifying income above £50,000. Where 2024/25 returns have not yet been filed, use the most recent available data as a working estimate and revisit once returns are complete. 

Clients with qualifying income close to £50,000 should be flagged for monitoring. Income fluctuations could affect whether they are required to join in April 2026 or whether they fall into a later phase. This group requires a different communication approach from clearly in-scope clients: they need to be aware of the position and prepared to act quickly if their 2024/25 return confirms they are above the threshold.