Common mistakes to avoid when filing your MTD
Making Tax Digital is one of the biggest changes to the UK tax system in years. HMRC wants landlords and sole traders to move away from paper records and annual returns in favour of digital bookkeeping and quarterly reporting. With MTD for Income Tax Self Assessment kicking in from April 2026 for those earning over £50,000, there’s no time to waste.
The trouble is, plenty of people who think they’re ready are still making avoidable mistakes. Wrong software, missed deadlines, confusion over qualifying income, these slip-ups can land you with penalties you didn’t see coming.
At Affinity Associates, we work with sole traders, landlords, and businesses across the UK every day, and we’ve seen first-hand what goes wrong. Here’s what to watch out for.
Mistake 1: Using non-compliant software
Many people assume that because they already use an accounting tool or a spreadsheet, they are covered. They are not.
MTD requires software that is specifically approved by HMRC and capable of submitting data directly via HMRC’s API. A standard Excel spreadsheet does not qualify on its own unless it is paired with HMRC approved bridging software. To stay compliant:
- Check HMRC’s official list of approved MTD compatible software;
- Confirm your chosen tool covers your specific obligation, whether that is VAT, Income Tax, or both and double check it complies with MTD requirements – HMRC has official software for a number of its requirements but they won’t all cover MTD;
- If you use spreadsheets, make sure you have bridging software that maintains a full digital link
- Do not assume that software marketed as “accounting software” is automatically MTD ready.
Not all compliant products cover every step either. Some handle quarterly updates but do not support the final year end tax return submission, so always check before committing.
Mistake 2: Not registering with HMRC for MTD
Using compliant software is not enough on its own. You also need to formally sign up with HMRC for Making Tax Digital. If you do not, your submissions will not be recognised, even if they are technically correct and submitted on time.
Here is what the registration process involves:
- Sign up through your Government Gateway account
- Wait for confirmation from HMRC before your first submission is due
- Make sure your agent or accountant is also linked to your MTD account if they are filing on your behalf
Do not leave this to the last minute. Registration delays can leave you in a difficult position when your first quarterly deadline arrives.
Mistake 3: Misunderstanding what "qualifying income" means
A lot of people check their net earnings to work out whether MTD applies to them. That’s not how HMRC calculates it. MTD for Income Tax is based on your gross qualifying income from self-employment and UK property, before expenses, tax, or allowances. Multiple income streams are combined, so a freelancer who also rents out a flat needs to add both together.
The current thresholds are:
- From April 2026: qualifying income above £50,000
- From April 2027: qualifying income above £30,000
- From April 2028: qualifying income above £20,000
If you started a new income source mid-year, HMRC will annualise that figure, which can pull you into the MTD bracket sooner than you’d expect.
Mistake 4: Treating quarterly updates like full tax returns
It’s an easy thing to get wrong, and it tends to push people one of two ways: they either overthink it or avoid it altogether. Quarterly updates are not mini tax returns. Here’s what they actually require:
- A running summary of your income and expenses for that quarter
- Cumulative year-to-date figures, not standalone snapshots
- No accounting adjustments, reliefs, or final tax calculations
The full calculation happens at the year-end declaration stage, submitted by 31 January. Keep quarterly updates simple and consistent.
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Mistake 5: Missing quarterly deadlines
MTD operates on a points based penalty system, and it is worth understanding how quickly things can escalate.
- Every missed quarterly update or tax return deadline earns one penalty point
- Reach four points within two years and you will face a £200 financial penalty
- Further missed deadlines after that point carry additional financial penalties
- Points are only removed after 24 months, or after a 12 month clean compliance period once you have hit the threshold
In the first year of MTD, late submission points will not apply to quarterly updates. But from 2027 onwards, the full penalty regime applies.
Do not let the grace period create bad habits. Set calendar reminders ahead of each deadline, or ask your accountant to track them for you.
Mistake 6: Breaking the digital link
HMRC requires data to flow digitally from your original records through to submission, with no manual re-entry at any point. This is the “digital link” requirement, and it’s non-negotiable. Common ways people break it:
- Copying figures from accounting software and re-typing them into a spreadsheet
- Using copy and paste between disconnected systems
- Manually adjusting totals before submission
- Exporting data to a separate, unconnected platform
Penalties for poor digital record-keeping can reach up to £3,000. Use fully integrated software that handles everything in one unbroken journey.
Mistake 7: Forgetting the year-end declaration
Submitting four quarterly updates doesn’t mean you’ve filed your return. Once your updates are done, you still need to complete a year-end declaration. This is where you:
- Confirm your final tax position for the year
- Make any necessary accounting adjustments
- Claim your allowances, reliefs, and deductions
It must be filed by 31 January and carries its own separate penalty regime. Don’t treat it as an afterthought.
Mistake 8: Assuming you're exempt without checking
There are legitimate MTD exemptions, but you cannot simply assume one applies to you. Exemptions may be available if:
- You are digitally excluded due to age, disability, or remoteness of location
- Your business is run by members of a religious society whose beliefs are incompatible with electronic communications
- You claimed averaging relief or qualifying care relief on a recent tax return, which may trigger a 12 month deferral.
In most cases, you need to formally apply to HMRC, which has 28 days to grant or deny the request. If you think you qualify, apply early and keep thorough records of your application and HMRC’s response.
A final word: Don't leave it all to January
Old habits die hard. MTD doesn’t give you the luxury of a January catch-up. Keep your records tidy throughout the year, log transactions as they happen, and check each submission before it goes in.
At Affinity Associates, our tax advisers, accountants, and IT consultants are here to help you every step of the way. Get in touch today to find your local branch.
Author
Mukund is a founding member of the Affinity Associates Group and has been with the practice for nearly 40 years. After completing his degree in Accounting and Finance, he went on to qualify with both ACCA and ICAEW in 1991. Over the years, he’s built deep expertise in consultancy, tax, business development, and corporate group structures. Mukund is known for helping clients make sense of complex financial challenges and turning them into opportunities for sustainable growth.
