INTRODUCTION:
HMRC updated its Making Tax Digital for Income Tax collection on 29 September 2025, clarifying phased mandates, thresholds and penalties. Fast-moving start-ups must tighten digital record-keeping, choose compatible software, and prepare for quarterly updates from April 2026 if they exceed qualifying income thresholds.
What exactly changed on the MTD guidance page on 29 September 2025?
HMRC’s central Making Tax Digital for Income Tax collection confirms it was last updated on 29 September 2025, consolidating step-by-step guidance and links for sole traders, landlords and agents (including eligibility, software and usage). This signals HMRC’s continued movement toward the 2026-28 rollout and a push for pilot participation ahead of mandation.
Which dates and thresholds now govern when my start-up must join?
HMRC’s eligibility guidance sets out a phased timetable linked to qualifying income (combined trading + property receipts):
- £50,000 in 2024–25 → join from 6 April 2026
- £30,000 in 2025–26 → join from 6 April 2027
- Planned £20,000 in 2026-27 → subject to legislation, expected from 6 April 2028
These figures are now the reference points founders should plan around.
Is MTD still just about VAT (or does it go beyond)?
No. MTD for VAT has been mandatory for all VAT-registered businesses above the VAT threshold since April 2022, but MTD for Income Tax is a separate programme with quarterly updates, an End of Period Statement, and a Final Declaration that will apply to many sole-trader-led start-ups and landlord-founders over time.
Why should a fast-moving start-up care about these updates right now?
What misconceptions trip founders up?
- “Digital tax = only VAT” → Incorrect; income tax obligations are being digitised on a phased basis.
- “Annual return stays the same” → Not quite; you’ll submit quarterly updates and then a final declaration.
- “Any cloud tool is fine” → Only HMRC-compatible software with digital links and the right submissions is acceptable (avoid manual cut-and-paste).
What are the hard costs of ignoring MTD ITSA?
- Penalty points for late quarterly updates (monetary penalties at thresholds). HMRC confirms points increase and a £200 penalty may apply once thresholds are hit for ITSA from 6 April 2026.
- Operational delays if you choose non-compatible tools or lack digital links, leading to corrective work and missed deadlines.
- Reputational risk with investors and lenders if your finance stack can’t produce timely, accurate digital submissions.
Are there any upsides to preparing early?
Early adopters typically see better cash-flow visibility, fewer errors via digital records, and stronger investor confidence due to timely reporting and audit trails. HMRC’s own materials stress that quarterly updates make mid-year corrections easier.
What do start-ups need to do now (from basic to advanced)?
What are the quick wins (0–3 months)?
- Check eligibility: Forecast your combined trading + property receipts against the £50k/£30k/£20k markers to identify your start date.
- Inventory your software: Confirm your bookkeeping/app stack is MTD ITSA-compatible and supports quarterly updates and digital links.
- Digitise capture: Move expenses/invoices to digital capture to avoid manual transpositions.
- Map data owners: Assign responsibility (founder/CFO/outsourced FD) for submissions and reviews.
Pro tip: If you’re migrating tools, prioritise clean opening balances and set up APIs/digital links between bank feeds, invoicing, payroll and your ledgers to maintain a continuous digital trail.
What are the medium-term moves (3–6 months)?
- Implementation & training: Configure software for quarterly period ends, user roles, evidence storage, and review checkpoints; train finance staff and founders on producing and checking updates.
- Pilot cadence: Dry-run a quarter in your software: record → reconcile → draft the quarterly update → internal review → submit (in pilot if eligible).
- Governance: Define a close checklist (bank recs, AP/AR cut-off, expense review) to precede each update.
How should I road-test a full cycle (6–12 months)?
- Run an end-to-end mock: four quarters, End of Period Statement, then Final Declaration. Validate whether adjustments (capital allowances, accruals) are captured at the right lifecycle stage.
- Review digital links and reduce CSV workarounds; escalate to API or bridging solutions where needed.
- Establish a monitoring habit for HMRC updates and draft legislation (e.g., L-Day releases).
What if my founder or team is digitally excluded?
HMRC recognises digital exclusion (e.g., for reasons of age, disability, location, or religious beliefs). Guidance in 2025 clarifies how to apply for an exemption for MTD ITSA, mirroring the VAT regime. Build contingency if you’re supporting founders who may qualify. (ICAEW)
How will quarterly updates, EOPS and the final declaration actually work?
- Quarterly updates: For each self-employment and each property income source, you’ll send a digital update every three months; software guides periods and deadlines.
- End of Period Statement (EOPS): Adjust for reliefs/allowances at year-end.
- Final Declaration: Replaces the old “crystallisation” step, confirms all income. HMRC’s developer and step-by-step guidance lay out the expected API-led flow and user journeys.
What penalty regime applies from April 2026?
For ITSA under MTD, late quarterly updates incur penalty points; reaching the threshold triggers a £200 penalty. HMRC’s 2025 guidance for volunteers also previews how these rules apply when mandation starts in 2026. Keep separate the late payment penalty/interest rules from the late submission points system.
Note: When planning, rely on HMRC’s published guidance and policy papers for the definitive position and timing.
What about MTD for Corporation Tax, do limited companies need to do anything?
As of July 2025, HMRC signalled in its Transformation Roadmap that it does not currently intend to introduce MTD for Corporation Tax. Professional bodies welcomed the decision, and industry summaries confirm the same. Using digital software remains best practice for accuracy and audit trails.
What services can help a start-up operationalise MTD without the headaches?
- Cloud bookkeeping & payroll to keep digital records continuously up to date, see cloud-first accountants at OD Accountants.
- Data migration to move from legacy spreadsheets into HMRC-compatible tools while preserving audit trails
- Management reporting / virtual FD to align quarterly MTD cadences with board metrics and cash-flow forecasting.
What practical checklist should founders use for MTD-2026 readiness?
| Milestone | Owner | Due date | Notes |
| Confirm qualifying income vs £50k/£30k/£20k thresholds | CFO/founder | Q4 FY25 | Combine trading + property receipts; project 12-month run rate. |
| Choose HMRC-compatible software and enable digital links/APIs | Finance lead | Q4 FY25 | Avoid manual copy-paste; consider bridging where unavoidable. |
| Stand up expense capture and automated bank feeds | Bookkeeper | Q4 FY25 | Builds defensible digital records. |
| Dry-run one quarterly update | Finance lead | Q1 FY26 | Follow HMRC periods/deadlines. |
| Mock EOPS + Final Declaration on prior-year data | Advisor | Q2 FY26 | Validate adjustments flow. |
| Define controls (cut-off, reconciliations, review gates) | CFO | Q1 FY26 | Evidence for audit trail. |
| Document exemption process if digital exclusion applies | Founder/advisor | As needed | Keep HMRC guidance to hand. |
How do MTD for VAT and MTD for Income Tax compare?
| Area | MTD for VAT | MTD for Income Tax (ITSA) |
| Mandation | VAT-registered businesses above threshold since April 2022 | Phased: £50k from Apr 2026, £30k from Apr 2027, planned £20k from Apr 2028 |
| Frequency | Usually quarterly VAT returns | Quarterly updates per income source + EOPS + Final Declaration |
| Software | MTD-compatible VAT tools | MTD ITSA-compatible tools; API journeys set out by HMRC |
| Penalties | Late submission/payment penalties (points regime) | Points-based for late quarterly updates; monetary penalties at thresholds |
| Who’s in scope | VAT-registered businesses | Sole traders & landlords by qualifying income (not companies) |
| Authority | HMRC policy 2019–2022 extension | HMRC guidance 2024–2025 updates and draft legislation |
What advanced considerations should scaling founders watch?
Do multiple income streams change when I must join?
Yes. HMRC tests combined qualifying income across trading and property. For example, £29k trading + £22k property = £51k triggers the April 2026 group. Plan your cadence and software consolidation accordingly.
What exactly are “digital links” (and why do they matter)?
HMRC expects a digital journey from source records to submission, no manual re-keying. In practice, that means connecting bank feeds, invoicing, payroll, and ledger via APIs/bridging software, and keeping an auditable trail for every update. HMRC’s step-by-step and developer guides show end-to-end flows.
Should I restructure for MTD?
If you’re approaching the threshold, weigh timing and administrative load. But don’t restructure purely to avoid MTD, investors increasingly value digital financial hygiene and reliable MI. Align management reporting and your virtual FD cadence to quarterly updates to minimise duplication.
Founder-friendly action plan (from “today” to “mandation”)
- This week: Confirm your trajectory vs thresholds and book a gap-analysis with your advisor; shortlist MTD ITSA software.
- This month: Implement digital capture; connect bank feeds; define your quarterly close checklist (recs, accruals, review).
- Next quarter: Dry-run a quarterly update with your team; fix any reconciliation or categorisation issues before go-live.
- Before FY26/27: Run a year-end mock EOPS + Final Declaration; lock roles and responsibilities; document escalation paths.
FAQs founders are asking in 2025 (beyond the basics)
1) Will my limited company have to use MTD for Income Tax?
No. MTD for Income Tax applies to individuals (sole traders/landlords) based on qualifying income. HMRC has no current plan to introduce MTD for Corporation Tax, per the July 2025 roadmap.
2) I’m VAT-registered and already on MTD for VAT, am I done?
Not necessarily. MTD for VAT ≠ MTD for Income Tax. If your qualifying income crosses the relevant threshold, you’ll join ITSA on the 2026/2027/2028 timetable and will need compatible software for quarterly updates.
3) How do I know if I can claim a digital exclusion exemption?
If you cannot use digital tools because of age, disability, location, or religious beliefs, you can apply for an MTD exemption. Check HMRC/ICAEW guidance and document your rationale.
4) What happens if I miss a quarterly update?
You accrue penalty points; at a defined threshold, you incur a £200 penalty. Keep a quarterly timetable, delegate responsibilities, and use reminders within your software.
5) Do I need separate quarterly updates for multiple businesses or properties?
Yes. You send quarterly updates per income source (each trade and each property business). Your software should help keep these streams distinct.
6) Can I correct mistakes after a quarterly update?
Yes. HMRC notes you can correct errors in subsequent updates, so you don’t resend the original; nevertheless, aim for accuracy to avoid compounding fixes.
Conclusion: What should a fast-moving start-up do before April 2026?
The 29 September 2025 guidance update is another clear nudge: if you’re on track for £50,000+ qualifying income in 2024–25, you’ll be in MTD ITSA from 6 April 2026, with quarterly updates, EOPS, and a Final Declaration. The path is workable if you act now: select compatible software, strengthen your digital links, practise the cadence, and set up review gates that make submissions a by-product of good monthly accounting. Founders who treat MTD as an operational upgrade, not merely as a compliance hurdle, gain cleaner data, better cash-flow insight and investor-ready reporting. Book a quick “MTD 2026 readiness” audit to benchmark your current stack, map your threshold timing, and spin up a quarter-by-quarter plan so you can scale with confidence, without last-minute scrambles.