Making Tax Digital for Income Tax: Pitfalls of registration

The Government’s phased introduction of Making Tax Digital (MTD) for Income Tax begins in April 2026 and initially applies to self-employed individuals and landlords with an income of more than £50,000.

This means they will be required to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software.

Those with an income of between £30,000 and £50,000 will need to do this from April 2027, and those with an income of between £20,000 and £30,000 will need to do this from April 2028. The first step in this process is registering for MTD.

Registration for MTD can be complex, and registering too early, or without professional guidance, can lead to avoidable and sometimes irreversible complications. Below are the key risks individuals should be aware of before signing up.

Key risks when registering for MTD

1. Registering before you need to

Once a taxpayer joins MTD, they are generally unable to opt out, even if they later discover they weren’t required to join or their income falls below the threshold. Entry into MTD immediately triggers obligations for digital recordkeeping and quarterly submissions. This can result in years of unnecessary administrative workload.

2. Underestimating the quarterly reporting burden

MTD replaces the annual tax return with four quarterly updates plus a final declaration. Deadlines will fall in August, November, February and May. Those with multiple income streams, such as self-employed individuals who also own rental property, must submit separate quarterly updates for each business, significantly increasing the compliance workload. 

3. Misjudging eligibility

Many taxpayers who sign up for MTD themselves misunderstand how qualifying income is calculated. The threshold is based on gross turnover from self-employment and property, not profits, and excludes income covered by certain allowances. For jointly-owned property, income is assessed per individual. Misinterpreting these rules can result in taxpayers registering before they are required to or failing to register when they should. Both of these scenarios can create unnecessary compliance issues.

4. Choosing the wrong software

HMRC requires taxpayers to use recognised MTD-compatible software to record income and expenses and submit updates. Those registering themselves may select unsuitable or noncompliant software, resulting in failed submissions or the inability to submit updates at all once registered.

5. Inaccurate or incomplete information

Setting up MTD correctly is crucial, and small mistakes in the registration details can lead to rejected submissions or delays with future submissions, which are hard to untangle at a later date. One of the most common pitfalls is entering the wrong accounting period when registering.

5. Errors connecting to HMRC

Registering requires linking software to HMRC correctly. Missing or miscompleted steps may leave individuals thinking they’re submitting data when in fact HMRC is receiving nothing.

Professional advice matters

Registering too early or registering incorrectly can have ongoing consequences. Professional support from the outset ensures everything is established correctly from day one, saving time, reducing risk, and keeping compliance on track.