Quarterly updates & 31st Jan Final Declaration: What MTD changes vs Self Assessment (UK).
- Binod kumar
- 23 hours ago
- 6 min read
Making Tax digital, the most boiling change in UK tax system has been a matter of discussion for the residents these days. So, what exactly is the change driven from self-assessment return to Making tax digital.
Let’s figure this out….
Self-Assessment (UK) is nothing but a tax system where an individual (salaried/sole trader/landlord) assess the total income earned in a financial year and tax to be paid on such income in the relevant tax year. (By traditionally accepted techniques i.e. by maintaining the income and expense records in paper formats and/or excel sheets by the client/accountant.)
Whereas,
Making Tax Digital requires maintaining the income and expense records in digital form by individuals(or their accountants) in MTD-Compatible software as recommended by HMRC applicable from 6th April 2026. It will be API linked to the HMRC Gateway.
This simply means that HMRC will have all your data real time with them.
Untill FY 2025-26, self-Assessment return is applicable to all the individuals which means:
Self-employed or sole traders.
Partners in a Business Partnership.
Landlords receiving rental income.
High income earners (£100,000+).
Individuals having foreign income or intricate tax affairs.
But from 6th Aptil 2026, certain individuals will need to mandatorily comply with MTD.
Whom the new system will be applicable:
Only ‘Individuals/Landlords’ having income >£50,000, will be required to maintain the books in digital form in compatible software from 6th April 2026 onwards mandatorily.
While, Individuals having income >£30,000 - £50,000 will be required to maintain records digitally in the Next Phase i.e applicable from April 2027 onwards.
Change in compliance procedure:
Until now, Self-Assessment (UK) allowed manual recording of earnings in excel and submit one Self-Assessment return every 31st January.
Whereas,
Making Tax Digital mandates to submit the digital records Quarterly to HMRC via the accounting software (MTD Compatible).
Additionally, an individual is also required to submit :
A EOPS (End of period statement – similar to Profit and Loss statement) and
A Final Declaration (Replacement of Self Assessment – SA 100)
by 31st January of the subsequent year.
Examples of MTD-Compatible Softwares are
QuickBooks Online Xero
Free-Agent
Sage Accounting
Zoho Books
Phased wise, ‘Timeline or Transition Plan:
MTD implementation timeline:
“2019: Applicable to VAT registered businesses.”
“2026: Applicable to Self-employed/landlords/NRI’s”
“2027: Expected to be applicable for Partnerships”
“2029 onwards: Expected to be applicable to Corporates."
Let understand this with a help of an example :
How Quarterly reporting will work in real life?
Henry, a freelance consultant earning £52,000 used excel for preparation of returns till the previous year.
From April 2026, hhe will keep the records in XERO (MTD-Compatible Software), He observed that:
Initially it was stressful to record every income and expense receipts in the software, he even had to hire a bookkeeper and all the data was accessible to the hmrc. But, eventually he realized that:
His Books are up-to-date for the first time in his life.
He could claim all the expenditures, no more missing invoices at the year end.
He was better prepared for his tax liability.
No Year-end stress and Surprises.
Therefore, it is worth noting that ‘Making tax digital’ may look burdensome but it has its long term benefits which will help an individual to have an up-to-date bookkeeping, Accounting and avoid Year-end Bombshells.
NRI’s Angle & Foreign income:
Anand, a non-resident lives in India but earns a rental & Consulting Income from UK.
Anand being an NRI does not lives in UK physically. But still, as he earnes Income in UK, MTD will be applicable to him as well from April 2026.
That simply means, NRI’s will have to maintain a digital records and also report the UK income through MTD-compatible software, just like other resident individuals.
MYTH vs FACT:
Myth | Fact |
MTD is optional | It’s compulsory if you fit in the criteria |
You can still file yearly returns manually | You must submit quarterly digital updates and yearly statements via MTD software |
MTD is only for big companies | Applies to certain individuals from April 2026 (Phased-wise), VAT registered companies are already part of MTD |
You’ll pay more tax under MTD | It only changes how you report, not how much you pay |
Why MTD actually exist/ Why this revolution:
HMRC estimates that UK is actually missing £9 billion each year just due to mistakes like tax errors, not reporting the income properly, under-reporting of income etc.
Country’s lacking tax system is not able to trace the above errors have given effect to Making tax digital Concept.
Making tax Digital(MTD) is a bridge to close that gaps between the tax system to ensure that nothing is missed out, every transaction is recorded and all the incomes are reported accurately.
Quarterly returns is something new and additional for the entire nation but this will help UK government to estimate the progress of the country, GDP increase rate, funds available for management of public affairs etc.
Frequent mistakes that people make in MTD and How to prevent such mistakes:
Combining the personal & Business transactions.
Forgetting to declare foreign income.
Not submitting the quarterly returns within deadlines.
Giving replies on excel sheets which are no longer accepted by HMRC.
To prevent such mistakes a dedicated Consultant having a thorough knowledge & expertise of MTD should be hired to avoid the day-to-day pressure of recording each day transactions.
Software rates Comparisons(Estimates):
Software like Xero is good for small businesses. Whereas, Quick books is best for Self-employed.
Other MTD-Compatible Software like FreeAgent is better for freelancers as it is free with NatWest
Xero Charges £14-£30/ month. Whereas, Quickbooks charges around £10-£25/month (Rates may vary).
The three of the above examples have been classified based on the software formats, design, adaptability of different assesses based on their individual business transactions.
There are also other softwares approved by HMRC which have a good lookout to be chosen for as per individual preferability.
Penalties:
a) If you filing Quarterly updates or Final returns late then every-day interest at 8.25% (as of November 2025-expected to continue) is to be charged. It is calculated Point wise which means:
Individuals will receive a penalty point for each late quarterly update.
A £200 financial penalty is issued once the cumulative penalty points reach a certain threshold, and further missed filings will incur additional £200 penalties.
For those filing quarterly returns, the penalty threshold is typically four points.
b) For incorrect filing of updates or return, Penalty more than £100 is to be levied.
c) For repetitive non-compliance, HMRC can order an audit or a Suspension.
The above list simply makes the tax payer realize the importance of Making tax digital concept that the government is in pull to implement which mandates each individual to follow this system with great discipline and seriousness.
Laziness and Non-compliance can lead to severe penalties.
Self-assessment UK vs Making Tax Digital (MTD):
Aspect | Before(Self-Assessment UK) | After(Making Tax Digital MTD) |
Scope | All Individuals. | Initially, self-employed & landlords earning >£50,000 (from Apr 2026). |
Record-Keeping | Paper or Excel sheets. | Digital only using MTD-Compatible Software. |
Submission | HMRC Portal(Manually). | Direct API link between software and HMRC. |
Filing Frequency | 1 Tax return Annually. | 4 quarterly updates + 1 Final declaration. |
Deadline | 31st January each year. | Quarterly Updates (eg.,7th Aug, 7th Nov, 7th Feb, 7th May). |
Visibility | Year-end liability only. | Real-time estimation each Quarter. |
Benefits/Challenges of MTD:
Pros:-
Real-time view of your tax position.
System goes paperless.
Reduction of manual errors.
Quarterly estimates of taxes.
Increased Efficiency and accuracy.
Cons:-
Unfamiliar software tools.
Addition of extra cost.
Consistent Book-keeping with regular updates.
Software dependency-HMRC approved only allowed.
Quick Checklist: If
You are an:
Individual(Salaried/sole trader).
Landlord(UK property or overseas property income).
NRI in UK.
Having income above £50,000.
is required to maintain digital records in compatible software and file the quarterly updates and final return with HMRC from 6th April 2026 (Mandatorily).
How Punchhole Helps:
Setting up MTD Compatible Software’s.
Converting the Excel sheets into digital formats.
Recording all your income and expenditures in the software
Quarterly MTD Submissions.
Real-time Tax Summaries.
Monitoring compliance deadlines and sending reminders.
Advisory on MTD-readiness for 2026 and beyond.
Reader’s Action Plan(Simple 3 step formula):
Check whether you are eligible - Link for eligibility checker.
Choose MTD Software and link your account to the software.
Start setting up your digital records.
Extra: Book a Free Consultation with Punchhole to make sure you are compliant in every aspect before April 2026.
If you also come under the above thresholds,
Start maintaining your books digitally Today…!!!
(Don’t Forget- Its Mandatory….!!!!).
People also ask (FAQ’s):
“Does it means the elimination of Self-Assessment return?”
Answer: No, Self-Assessment return will still exist. But instead of just one annual submission, the digital quarterly updates filed with HMRC will automatically be feed in to the final return. You just have to review the data and confirm your final return.
“What happens if I miss the quarterly updates?”
Answer: You will be liable to each-day interest as explained in the above ‘penalties’ paragraph.
“Can NRI’s use MTD-Compatible Software from abroad?
Answer: Yes, NRIs can use MTD-compatible software from abroad — there is no residency restriction in HMRC’s rules. You can use cloud-based MTD softwares.
“Is MTD compulsory for low-income freelancers?”
Answer: HMRC has introduced an income threshold(above £50,000) to decide who must join MTD for Income Tax from April 2026.
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