Making Tax Digital Rules Explained: Busting the Biggest MTD Myths

MTD Myths Now It’s Live: What Has Actually Changed?

Making Tax Digital for Income Tax is no longer a future reform sitting somewhere on the horizon. For the first group of sole traders and landlords, it is now live. From 6 April 2026, those with qualifying income of more than £50,000 from self-employment, property income, or both, are required to keep digital records and submit quarterly updates to HMRC using compatible software.

That shift has created plenty of discussion, and with it, a fair amount of confusion. Some people believe MTD means paying tax four times a year. Others think quarterly updates are the same as submitting four tax returns. Some assume that if they have not heard directly from HMRC, they are not affected. Now that MTD is live, it is worth separating the myths from what has actually changed.

Myth 1: MTD changes how much tax you pay

The tax rules themselves have not changed simply because MTD has gone live. What has changed is the way affected taxpayers keep records and report income and expenses to HMRC during the year. You still calculate your final tax position after the end of the tax year, and the usual Self Assessment payment deadline remains relevant.

In practice, MTD is a reporting and record-keeping change, not a new tax charge. The benefit is that taxpayers should have a clearer view of their likely tax bill earlier, rather than discovering the figure when the January deadline is already looming.

Myth 2: Quarterly updates are four full tax returns

Quarterly updates are summaries of income and expenses from digital records. They are not intended to be full, finalised tax returns. You do not need to make every year-end adjustment before submitting each update, and HMRC will not receive every individual invoice or receipt. The software creates totals from the records you have kept, and those totals are sent as the update.

The final position is still dealt with at year end. That means quarterly updates should be accurate and based on good records, but they are not designed to replace professional review, final adjustments or the annual tax calculation process.

It is also worth remembering that anyone brought into MTD from April 2026 will still need to file their 2025/26 Self Assessment tax return by 31 January 2027, because that return relates to the tax year before MTD started for them.

Myth 3: MTD is for companies, not people like me

MTD for Income Tax is aimed at individuals in Self Assessment who have self-employment or property income above the relevant threshold. The first phase applies to sole traders and landlords with qualifying income of more than £50,000. The next phase will bring in those with qualifying income of more than £30,000 from April 2027, followed by those with qualifying income of more than £20,000 from April 2028.

This means MTD is not limited to companies or large organisations. A self-employed consultant, a tradesperson with growing turnover, a landlord with several properties, or someone combining freelance income with rental income may all need to check when the rules apply.

Myth 4: If HMRC has not contacted you, you can ignore it

HMRC may contact people who appear to be in scope, but taxpayers should not rely on receiving a letter before taking action. The threshold is based on qualifying income, broadly your gross income from self-employment and property before expenses. If you are close to a threshold, have more than one income stream, or your income fluctuates from year to year, it is sensible to check your position early.

The practical takeaway is simple: do not wait until a deadline is almost here. Check whether you are in scope, confirm your software is compatible, and make sure your records are being kept digitally from the correct start date.

So, what has actually changed?

The biggest change is behavioural. Instead of gathering records once a year, affected taxpayers now need a more regular bookkeeping rhythm. Income and expenses need to be captured digitally, updates need to be submitted every quarter, and software becomes central to the process.

For some, that will feel like extra admin. For others, it could be a useful opportunity to get better visibility over cash flow, profitability and future tax bills. The businesses that adapt best are likely to be those that treat MTD not as a last-minute compliance task, but as a prompt to tidy up how they manage money throughout the year.

Final thought: MTD is now live, but it is not something to panic about. The key is understanding what has changed, what has not, and what practical steps need to happen before the next deadline arrives.

Coconut Making Tax Digital Software

About Coconut

Coconut is an HMRC-recognised software solution designed to help self-employed individuals and landlords prepare for and comply with Making Tax Digital for Income Tax.

The platform enables users to keep digital records, track income and expenses, capture receipts and submit updates to HMRC, all through a simple and intuitive mobile and desktop experience.

Coconut supports self-employed individuals and landlords who need a straightforward way to manage their records, stay organised throughout the year and meet their Making Tax Digital for Income Tax obligations with confidence.

See more on the Coconut website

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