MTD myths
The new year is bringing new changes to taxation, with over 800,000 taxpayers having to negotiate the transition to Making Tax Digital (MTD) for Income Tax from April. However, rumours continue to fly around regarding whether MTD is going ahead and how much of a challenge it presents. Here, we bust four myths about HMRC’s digital initiative.
Myth 1: MTD won’t happen
MTD for Income Tax has been delayed several times, most recently in April 2024. The original plan was to roll it out in 2018, but a combination of the pandemic and a desire to give businesses more time to prepare have seen it shift to 2026.
However, that doesn’t mean it will be delayed again, or scrapped completely. MTD for businesses paying VAT became mandatory in 2022, and HMRC has made its digitisation plans clear. Those with qualifying income of over £50,000 will be required to comply with the new regulations from April 2026, and the initiative will be rolling out to those earning £30,000 and £20,000 in 2027 and 2028 respectively.
Myth 2: There are no benefits to MTD
Some businesses feel that MTD won’t benefit them, but there are advantages to the system. For example, it will give both HMRC and business owners clearer visibility of tax liabilities, keeping the picture up to date and helping landlords and the self-employed plan for their tax bills better. For those with multiple income streams the system is particularly helpful, combining everything into a single view with a live tax calculation. It should also help to reduce errors, meaning less chance of an investigation from the tax authority.
Myth 3: There’s going to be extra work
Many individuals hear about the quarterly updates and, understandably, worry that this means a lot of extra work. After all, gathering information and documents and filing a tax return online once a year can take hours of your time. But experts suggest that rather than creating extra work, MTD will simply spread the same work over the course of a year. The initiative will break down the data gathering into manageable chunks – and with accounting software it will be easier to manage.
Myth 4: It’s not worth being on MTD testing
If your accountant has offered testing, it’s worth engaging with this. Testing will ensure that come April 2026, those eligible for MTD will have had the chance to try different software and find which works best, as well as iron out any issues with signing up. Testing is also an opportunity to speak to HMRC for guidance, as come late March and early April, phone lines are likely to be busy with those who have left signup to the last minute.
If you don’t have the help of an accountant, it’s worth speaking to a reputable firm for assistance. They can help you to register, choose compatible accounting software, understand the new process of providing quarterly updates and a final tax return, and navigate any issues that arise as you get used to the system.
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