Skip to main content Making Tax Digital for Income Tax: 12 common myths busted
You’ve probably seen it in the news. Maybe you’ve spoken to a friend or received a letter from HMRC. Making Tax Digital (MTD) for Income Tax is here, and it’s coming for us all in the next couple of years (well, sole traders and landlords with qualifying income over £20,000).
But just like the legends of Bigfoot or Nessie, the reality of MTD for Income Tax can get warped through many retellings. We’ve come across more than a few modern-day myths but we’re going to bust them right here. Why? Cause bustin’ makes us feel good!
‘I will need to submit four or five tax returns a year’
Not exactly - you will have multiple submissions to HMRC each year but not on the scale of the annual Self Assessment you’ve been used to. One of the biggest changes with MTD is reporting on income and costs regularly throughout the year. “Think of it as doing the work through the year so you have less to do at the end of the year,” says Craig Ogilvie, HMRC’s Director of Making Tax Digital.
The good news is that the majority of your submissions, the ‘quarterly updates’, are far faster to complete than a Self Assessment return. Nathan Berry, a self-employed cabinet maker, has found his first quarterly updates surprisingly simple. “FreeAgent literally does all the heavy lifting, all I do is click the submit button,” he says.
The deadlines for submitting quarterly updates are the same for everyone who has to follow the MTD for Income Tax rules. These are:
• 7th August
• 7th November
• 7th February
• 7th May
At the end of the year, you’ll also have to do an end-of-year update for each of your income sources (one for each sole trade plus one for any property income) and a final declaration. These taken together are a little closer to a Self Assessment: in FreeAgent, you’ll add other adjustments and reliefs to your end-of-year update and finish the year with a final declaration that sums up all your income sources. The deadline for end-of-year updates and final declarations will be 31st January.
Want to get to grips with the tax deadlines in your first year of MTD? Read our blog and download our calendar to add MTD dates to your own calendar app.
‘I’ll have to pay tax four times a year’
Thankfully: false. As with Self Assessment, you will continue to receive one annual bill and the payment dates for tax will not change.
You will, however, get an updated tax calculation from HMRC four times a year - making it easier to save for next year’s tax bill.
‘Digital record-keeping will slow my business down, compared to spreadsheets’
If you’ve never tried accounting software before, it can seem daunting to shift your ways of working. Like anything new, accounting software can take a little more time at first, as you familiarise yourself with new layouts and processes.
However, after those first couple of weeks, you’ll start to see time savings. Digital record-keeping can speed up your financial admin, as you stop adding data manually and start taking advantage of automated tools.
Using an accounting software (cough, cough - like FreeAgent), you’ll be able to automate lots of your daily admin, including:
- connecting your bank account to pull bank transactions into your accounting software (FreeAgent’s AI-powered Guess tool will even automatically suggest suitable categories for different types of transactions)
- capturing information from receipts and bills (Smart Capture in FreeAgent scans a photo or PDF receipt and pulls relevant data from it, helping you track your expenses)
- adding recurring expenses (set up expenses to auto-add to your account every month if you have recurring costs)
- creating detailed reports to help you understand your cashflow, profit and loss, best (and worst) paying customers and more
“You want it to be very easy,” says Lyndsey Hogg, owner of independent deli Harris & Co. “You want it to be really user-friendly. And you want it to be efficient. FreeAgent does all that. It’s doing the work for you.”
‘A digital system is too technical and hard to learn’
‘Digital record-keeping’ certainly sounds complicated - but in reality, it doesn’t mean much more than storing your financial records online. Millions of businesses already manage tax online using accounting software. According to HMRC, 97% of Self Assessment tax returns were filed online in 2024. With a little support at the start, you’ll be able to learn the basics quickly.
“Our Getting Started webinar is the perfect place to begin. We can help you find your way around your FreeAgent account and introduce you to some key features - all in 30 minutes,” says Kirsty, part of our award-winning support team. If you need more help, Kirsty and the rest of our UK-based support team are ready to talk to you by phone, chat or email.
HMRC also provides advice and support on Making Tax Digital, helping you to navigate the changes.
‘Digital record-keeping will allow HMRC to access my bank feeds’
Definitely not! HMRC cannot access any information you add to your accounting software, only the MTD submissions you choose to send them.
Connecting your bank feed to your accounting software is a huge timesaver, as it means less manual data entry. This connection is safe, secure and private between your bank account and your accounting software - meaning you have full control of what happens to that data.
‘I can export my spreadsheet and submit that’
You will only be able to continue to use spreadsheets if you also use ‘bridging software’. This tool connects to your spreadsheet (or MTD-incompatible software) to create a digital record and makes submissions from the bridging software to HMRC.
Note: On its own, bridging software does not fulfil all the requirements of MTD, such as digital record-keeping and maintaining digital links between data. This might create additional work for you or your accountant, including:
- having to perform further calculations to get spreadsheet data into the format required by the bridging software
- limiting the changes you can make to your spreadsheet after you have submitted a quarterly update (according to HMRC, you must not “copy information by writing it out in another cell or in other software” or “use ‘cut and paste’ or ‘copy and paste’ to move records”)
‘HMRC will provide me with free software for MTD for Income Tax’
Sorry, nope. Unlike Self Assessment, which you could file through HMRC’s own solution on gov.uk, HMRC does not provide software for Making Tax Digital. MTD-compatible software is only available from dedicated third-party providers such as FreeAgent.
‘I don’t need to do anything to register, HMRC will sign me up automatically’
Not true - you will need to manually register for MTD for Income Tax with HMRC. It’s a new system, which means even if you were already registered for Self Assessment or MTD for VAT, you’ll need to sign up separately.
While HMRC have been sending letters to people they think will have to comply, receiving a letter doesn’t mean HMRC has registered you. And while signing up to MTD-compatible software is an essential step to prepare, it isn’t the same as registering with HMRC.
To find out exactly how to sign up (and what information you’ll need), check out our step-by-step guide.
‘MTD will replace accountants’
Just like MTD for VAT before it, MTD for Income Tax will not replace accountants. As with Self Assessment, some people might find they can go it alone, but others - particularly with more complex needs - will still want the reassurance of working with an accountant. Accounting software can help you collaborate with your accountant in real-time, speeding up your processes and reducing mistakes.
If you’re using FreeAgent for MTD for Income Tax and want some extra help staying compliant, you can browse our partner accountants.
‘I will have to pay more to stay compliant with MTD for Income Tax’
While most of the solutions for MTD do have a monthly or annual cost, there is a way to get MTD-compatible software for free.
If you have a business current account with NatWest, Royal Bank of Scotland or Ulster Bank, or make at least one transaction a month through a Mettle bank account, you can get FreeAgent for free. Optional add-ons may be chargeable.
Many of our customers also find that the time saved through FreeAgent means the software pays for itself. “I’m two months into using FreeAgent,” sole trader Steve Moss writes on Trustpilot, “it saves me a lot of time and costs keeping my accounts in order.”
‘If I file late or get anything wrong, HMRC will hit me with huge penalties’
HMRC’s Craig Ogilvie says the new system actually aims to be “proportionately fairer”. Whereas under the old system you would receive an immediate £100 fine for filing Self Assessment late, MTD for Income Tax fines will work more like points on your driving license.
Missing any submission deadline will apply one penalty point, and you’ll only get the £200 late filing fine after acquiring four points. “So you get four warnings if you’re in Making Tax Digital,” Craig explains. “To get a £200 penalty, you’d need to miss all four quarterly updates or miss three quarterly updates and your final tax return. It basically gives people extra time, extra warning.”
HMRC has also delayed introducing fines for MTD for Income Tax until April 2027, so you won’t get any points added for filing your quarterly updates late in the 2026/27 tax year.
Worried about MTD penalties? Take a look at our guide to the new penalty system. And, learn how to avoid the most common mistakes in our MTD filing mistakes guide.
‘Switching to digital record-keeping will be incredibly stressful’
Switching doesn’t have to be stressful - for some of our customers, the worry before they switched was worse than anything that came after.
“I was pleasantly surprised at how easy it was,” says Michael Sheppard, Director at Digital Consulting Solutions. “If I’d have known, I wouldn’t have waited 18 months to switch.”
Find out more about how you can prepare yourself for MTD for Income Tax, and, if you’re not already using FreeAgent, try out our MTD-compatible accounting software for 30 days free.
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Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.
