VAT registered businesses joined first

Since April 2022 every VAT registered business has had to keep its VAT records digitally and file returns through compatible software, including businesses that registered voluntarily below the threshold. There is no turnover test left for VAT.

Sole traders and landlords from April 2026

From 6 April 2026, if your combined gross income from self employment and property was over £50,000 on your 2024/25 tax return, you are inside MTD for Income Tax now. HMRC calls that figure qualifying income, and it is sales and rent before a single expense comes off. Someone with £34,000 of trading turnover and £19,000 of rent is in, even though the profit on both is a fraction of that.

The threshold steps down twice more. Those over £30,000 join from April 2027, measured on the 2025/26 return. Those over £20,000 join from April 2028.

Who stays outside for now

Partnerships have no confirmed start date. Corporation tax has no date either. HMRC also runs an exemption route where using software is not reasonably practicable, for example because of disability, age, location or religious belief, and some groups such as trustees are excluded automatically.

One detail catches new traders out: to sign up you must already be registered for Self Assessment and have filed a return in the last two years. Someone who started trading last spring has no filing history yet, so they stay on the ordinary return until they do. HMRC’s current rules sit on gov.uk.

The records

Every sale and every expense has to be recorded digitally, in software or in a spreadsheet joined to software, with the date, the amount and the category. Property income is kept separate from trading income, and a UK property business is kept separate from an overseas one. Paper invoices and receipts can still be the underlying evidence, so you are not banned from keeping the box of till rolls. The figures themselves have to live in the software.

The quarterly updates

Standard quarters end on 5 July, 5 October, 5 January and 5 April, with the update due on the seventh of the following month. In practice that means 7 August, 7 November, 7 February and 7 May. If your bookkeeping runs to calendar month ends you can elect for quarters ending 30 June, 30 September, 31 December and 31 March, and the same deadlines apply. The update coming next is the one to 5 October 2026, due by 7 November 2026.

These updates are running totals of income and expenses for the year so far. No adjustments, no capital allowances, no private use split.

The final declaration

After the tax year ends you make a final declaration that brings in everything else: adjustments, reliefs, employment income, dividends, interest. For 2026/27 that is due by 31 January 2028. Payment dates are unchanged, so the balancing payment is still 31 January and payments on account still fall on 31 January and 31 July.

HMRC lists over sixty products as compatible. That list is the start of the job rather than the end of it, because the products do different parts of the cycle.

Check it does the final declaration

Some products send quarterly updates and stop there. If yours does, you need a second piece of software for the final declaration, which is the submission that actually settles the year. Ask the question before you buy, and check HMRC’s compatible software tool.

Spreadsheets are still allowed

You can keep using a spreadsheet if bridging software carries the figures to HMRC. What you cannot do is retype a total from the spreadsheet into another program. HMRC calls the link between systems a digital link, and typing is not one. A formula, an import, an API or a linked cell is.

The running costs

HMRC’s own impact assessment put the first year cost at up to around £465 on average, made up of a one off transitional cost of roughly £280 to £350 and ongoing annual costs of £110 to £115. Those are HMRC estimates and your bill will depend on the product you pick. Free and low cost options exist for very simple records.

Authorisation expires

Your software connection to HMRC needs reauthorising roughly every eighteen months. The identity check itself is not repeated, but if the connection lapses the morning a deadline falls, you will not file. Clients who want to move to Xero get the migration done free by us.

Retail is where MTD bites hardest, because the records start at the till and end in three different places.

A convenience store or takeaway typically has card settlements landing net of fees, cash banked days later, supplier invoices paid by direct debit, and a wholesaler account with its own statement. MTD asks for all of it in software, and for VAT it asks for the daily gross takings figure to come across as a digital link rather than a number somebody keys in on a Friday afternoon.

Retail schemes still work

If you use a retail scheme or the flat rate scheme, you still use it. The scheme calculation can sit outside the main records as long as the result reaches HMRC through a digital link and the underlying daily takings are recorded digitally.

Zero rated and standard rated lines

A shop selling cold sandwiches, hot chicken, newspapers, tobacco and cleaning products is dealing with several VAT rates across one till. Getting the till to report by VAT rate, and getting that split into the bookkeeping, is the single most useful thing a retailer can set up. It is also the first thing HMRC asks about when it opens a VAT check, and checks on shops and takeaways have been rising.

If your till cannot split by rate, say so to your accountant now and get a method agreed in writing before the next return goes in.

MTD brought a points based system for late submissions. Each submission you miss earns a point. Once you reach the threshold for your filing frequency, HMRC charges £200, and a further £200 for every late submission after that until the points clear. Quarterly filers reach the threshold after four missed submissions. Points expire after a period of compliance, so catching up and staying current gets you back to zero.

Late payment is handled separately and is harder. HMRC charges a percentage of the tax still outstanding once you pass fifteen days, charges again at thirty days, and then runs a daily charge on top until the balance is cleared. Interest accrues from the due date regardless. The current rates sit on gov.uk and change with the Bank of England base rate.

What to do if you have already missed one

File the missing update first, even if the figures are rough and need correcting in the next one. The points attach to the submission, so the quickest way to stop the meter is to submit. Then look at whether there is a reasonable excuse worth putting to HMRC: hospital stays, bereavement, software failure and HMRC service outages have all been accepted in the past.

Appeals are won on evidence and dates, so write down what happened and when while you still remember it.

If your main home is in Wales you pay the Welsh rates of income tax on your non savings, non dividend income. The Senedd sets those rates each year and HMRC collects them. Your record is flagged by your address, and your PAYE code starts with a C.

Under MTD this matters more than it used to, because the tax estimate your software shows is built from HMRC’s record of you. If HMRC still has you at an old address over the bridge, the estimate you are budgeting against can be wrong all year, and the correction lands at the final declaration.

Two practical jobs for anyone trading in Cardiff, Newport, Swansea, Caerphilly, Barry or Port Talbot:

• Check your address in your HMRC personal tax account is the address you actually live at, and update it if you have moved.
• Check your software is pulling your HMRC record rather than relying on something you typed in during set up.

A landlord living in Barry with flats in Bristol pays the Welsh rates, because residence decides it rather than where the property sits. A landlord living in Bristol with flats in Barry does not. We see both on the same street of client files, and the paperwork looks identical until you check the address.

If you are unsure which side of that line you fall on, send us the address history and we will tell you.