Most UK business owners assume they’re fine.
They’ve got software. They’ve got records. They’ve been filing on time for years.
And then April arrives, and they discover that “filing on time” and “filing correctly under MTD” are two very different things.
Making Tax Digital isn’t a tweak to the existing system.
It’s a complete reimagining of how HMRC expects you to record, report, and submit your financial data.
If your current filing setup was built around the old annual Self Assessment model (even a digital one), there’s a real chance it won’t pass the MTD test.
Here’s how to find out.
The Honest MTD Compliance Checklist
Run through these six questions. If you can answer yes to all of them, your filing system is in good shape. If even one is a “no” or “I’m not sure,” you have work to do before your mandation date arrives.
- Are my transactions captured digitally, at or close to the time they happen?
- Is my software on HMRC’s official MTD for Income Tax approved list?
- Are all data transfers in my system automatic, with no manual re-entry?
- Can my software submit quarterly updates directly to HMRC via their API?
- Do I maintain separate digital records for each of my income streams?
- Do I have a process that will support reliable quarterly filing, year-round?
First, Understand What MTD Actually Demands
Before you audit your system, you need a clear picture of what HMRC is asking for – because the requirements go deeper than most people realise.
Making Tax Digital for Income Tax (MTD for ITSA) mandates three things:
- Digital record-keeping — every transaction must be captured and stored in a digital format, not written up at year-end.
- Quarterly submissions — instead of one annual tax return, you’ll send HMRC four income and expense summaries per year, plus a Final Declaration by 31 January.
- Compatible software — your submissions must go via software that connects directly to HMRC’s API. Typing numbers into HMRC’s portal is no longer permitted.
The rollout timeline matters here too.
If you’re a sole trader or landlord with gross income over £50,000, MTD is mandatory from April 2026.
- The threshold drops to £30,000 in April 2027,
- and to £20,000 in April 2028.
HMRC uses your income from two years prior (the so-called ‘CY-2’ rule) to determine when you’re mandated, so your 2024/25 figures decide your 2026 status.
Now, let’s check where your current system stands.
Step 1: Check Whether You're Recording Transactions in Real Time
Ask yourself this honestly: when do your financial records actually get updated? If the answer is “whenever I get round to it” or “before my accountant needs them,” that’s a problem.
MTD’s digital record-keeping requirements don’t just mean your records are stored on a computer; they mean transactions should be captured at source, in a way that creates a continuous, auditable digital trail.
Paper receipts collected in a shoebox and entered manually every few months? Not compliant.
A spreadsheet updated weekly? Possibly compliant, but only if it’s connected to bridging software (more on that shortly).
A cloud accounting platform that syncs with your bank account? Likely compliant if the software is on HMRC’s approved list.
The question to ask: Does my current process capture income and expenses digitally, close to the time they occur, without a paper-based stage in between?
Step 2: Check Whether Your Software Is on HMRC's Approved List
This is the step most people skip, and it’s the one that catches them out.
Not all accounting software is MTD-compatible. “Digital” and “MTD-compliant” are not the same thing. Your software needs to be specifically recognised by HMRC and capable of connecting to their API to push submissions directly.
HMRC maintains an official list of compatible software at gov.uk.
Before you assume your existing tool qualifies, go and check. Look for your specific software, and confirm it’s approved for MTD for Income Tax, not just MTD for VAT, which is a separate category.
The question to ask: Is my accounting or filing software listed on HMRC’s MTD for Income Tax approved software page?
Step 3: Audit Your Digital Links
This is the one that trips up businesses using spreadsheets or patchwork systems.
MTD requires “digital links” between every point in your record-keeping and submission chain.
That means if your data moves from one system to another (say, from a spreadsheet to your accounting software), that transfer must happen automatically or via a direct import. Manually copying numbers from one system and typing them into another breaks the digital link.
To put it simply: copy-and-paste is not MTD compliant.
If you’re using Excel or Google Sheets to manage your books, you’re not necessarily out of options.
HMRC does allow spreadsheets, but only if they’re connected to bridging software, a tool that reads your spreadsheet and submits the data to HMRC via API. The bridging software must also meet HMRC’s requirements, and the entire chain from your records to the submission must be digitally linked.
The question to ask: At every point where data moves in my system, does it transfer automatically, or does someone manually retype it?
Step 4: Check Your Quarterly Submission Capability
Under the old Self Assessment model, you filed once a year.
Under MTD, you’ll file five times – four quarterly updates and one Final Declaration.
Your current system may be perfectly capable of producing an annual tax return, but completely unequipped to generate compliant quarterly updates. These updates need to show cumulative income and expenses for the tax year to date, and they must be submitted through your MTD-compatible software.
Check whether your software has a quarterly update or MTD submission feature built in.
If you rely on your accountant to handle submissions, confirm they’re set up to do quarterly filings via an Agent Services Account — this is the HMRC gateway through which agents manage MTD on behalf of clients.
The question to ask: Can my current software generate and submit quarterly MTD updates to HMRC directly?
Step 5: Check How You're Handling Multiple Income Streams
This one matters if you have both self-employment income and rental income. This is a common situation for UK landlords who also run a business.
MTD requires you to maintain separate digital records for each income stream.
This means you can’t bundle your trading income and property income together. Each source needs its own set of digital records, and in some cases, separate quarterly submissions.
If your current system lumps everything into one account or one spreadsheet without clear separation, you’ll need to restructure before MTD kicks in.
The question to ask: Do my records clearly separate each income source, and can I generate separate reports for each?
Step 6: Look at the Penalty Exposure You're Carrying
One of the underappreciated changes in MTD is the new points-based penalty system for late submissions.
Under this model, each missed quarterly deadline earns you a penalty point.
Accumulate enough points, and you’ll face a financial penalty. Points only reset once you’ve achieved a sustained period of compliance (12 months of on-time quarterly submissions).
This is fundamentally different from the old fixed penalties. It’s designed to catch businesses that habitually file late, even by a small amount.
If your current approach to filing is reactive rather than systematic (scrambling to meet the January 31st deadline each year), the quarterly cadence of MTD will create four times the opportunities to accumulate points.
The question to ask: Do I have a process in place to reliably file quarterly, or am I currently dependent on end-of-year urgency?
What to Do If Your System Isn't Compliant?
Don’t panic. But don’t delay either.
The transition to MTD-compatible software takes time. There’s data to migrate, processes to rebuild, and if you work with an accountant, their workflow needs to adapt too.
The most effective move you can make right now is to identify the gaps in your current system using the checklist above, and then evaluate whether you need to switch software entirely or simply add a layer – like bridging software or a bookkeeping assistant like EazyCapture – to bring your existing setup into compliance.
The time to check is now. Not when HMRC writes to you.
