MTD for Income Tax: Are Quarterly Updates Worth It?
The introduction of Making Tax Digital (MTD) for Income Tax has been promoted by HMRC as a way for landlords and sole traders to stay on top of their tax obligations more easily. However, in November 2025, the ICAEW reported that MTD is expected to increase both costs and time pressures, particularly for smaller businesses – without having any benefits. Here, we explore whether quarterly updates are beneficial or merely causing admin headaches.
Quarterly updates are not tax returns
The quarterly updates that have been introduced are very different from a full tax return. They are intended to be snapshots of income and expenses at particular points throughout the financial year. Moreover, they need not be anything more than estimates, since there’s no need to make accounting adjustments or verify the completeness of the figures.
The quarterly updates are cumulative, with each covering the tax year to date rather than the most recent three months in isolation. Any missed transactions or errors can be included in the next update without the need to restate previous quarters.
When the time comes to file their annual tax return, taxpayers can use these quarterly figures together with the information HMRC already holds – such as PAYE and CIS information – to complete the form.
However, some have argued that although intended to save time on the year-end tax return, taxpayers or their accountants may find themselves having to audit and redo almost all of the work. Extensive adjustments could result in extra data provision instead of reducing the burden come year-end.
A more timely and accurate system
HMRC has been clear that MTD for Income Tax is intended to help business owners and landlords to keep more accurate records and process them frequently so that the whole job isn’t left until the weeks before the year-end tax return is due.
The UK’s estimated tax gap for Self Assessment is around £14.6 billion for 2024-25, and HMRC’s Jonathan Athow states that a “significant part…arises from poor or incomplete records, often created long after transactions have taken place.” HMRC believes that quarterly updates will help taxpayers to keep records in real time, avoiding a 21-month lag between transactions taking place and being reconstructed for the Self Assessment.
However, as AccountingWEB’s Philip Fisher notes, HMRC will be accepting minimal data with each update, the figures for which may be estimates rather than complete records. As such, many taxpayers could be facing the same problems as before the MTD rollout when it comes to constructing adjusted and complete information.
Will MTD close the tax gap?
Ultimately, only time will tell if the rollout of MTD for Income Tax will help HMRC to close the tax gap. In the meantime, some argue that it will simply increase workloads for taxpayers, their accountants and HMRC employees. However, once those transferring to the initiative have got to grips with the software, quarterly reports may become much more simple and straightforward.
If you’re eligible for MTD and need help with choosing and implementing software or preparing quarterly updates, speak to a tax accountant today.
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