Making Tax Digital for Income Tax:: Myths Explained for Businesses

Myth 1: “MTD means I’ll have to pay tax four times a year”

Reality: MTD changes reporting frequency, not payment frequency

This is the most common myth, and the most anxiety-inducing.

Under MTD for Income Tax, you submit quarterly updates, but these are reporting updates, not tax bills. They’re summaries of income and expenses, not payment demands.

You’ll generally continue paying income tax on the usual schedule, including payments on account where applicable. MTD does not automatically introduce quarterly tax payments.

What changes is visibility, not when money leaves your account.

Myth 2: “I won’t need to do a year-end tax return anymore”

Reality: There is still a year-end step

MTD does not eliminate year-end responsibility.

You’ll still need to:

• Finalise your figures
• Claim reliefs and allowances
• Confirm your final tax position
• Submit a final declaration

Quarterly updates help build the picture during the year. The year-end step confirms it.

Think of MTD as continuous reporting plus a final confirmation, not a replacement for year-end review.

Myth 3: “MTD is only for large or complex businesses”

Reality: MTD primarily affects sole traders and landlords

MTD for Income Tax applies to individuals with:

• Self-employment income
• Property income

The first mandatory group from April 2026 is based on income level, not business size. Many one-person businesses will be affected before larger organisations.

MTD isn’t about complexity. It’s about how income is earned and reported.

Myth 4: “I’ll have to abandon spreadsheets completely”

Reality: Spreadsheets can still be used with the right setup

You don’t have to give up spreadsheets if they work well for you.

However, spreadsheets alone won’t meet MTD requirements. To comply, you’ll need bridging software that connects your spreadsheet records to HMRC and submits updates digitally.

For some businesses, this is a workable solution. For others, full accounting software may be simpler and more efficient.

The key requirement is digital submission, not how you personally prefer to record data.

Myth 5: “HMRC will see every receipt and transaction”

Reality: Quarterly updates are summary totals

HMRC does not receive line-by-line transaction data through quarterly updates.

What’s submitted are summary totals of income and expenses for the period. Individual receipts, invoices, and detailed records stay within your software unless HMRC requests them as part of a separate enquiry.

MTD increases structure, not surveillance.

Myth 6: “Penalties will be harsh from day one”

Reality: There is flexibility built into the first year

If you’re mandated from April 2026, HMRC has confirmed that penalty points will not apply for late quarterly updates during the first tax year.

That said, penalties can still apply for:

• Late end-of-year submissions
• Late payment of tax due

The first year is intended as a transition period, not a penalty-free zone for everything.

Myth 7: “MTD is just another HMRC portal to log into”

Reality: MTD changes how records are kept

MTD is not just a new website or login.

It requires:

• Digital record keeping
• Compatible software
• Ongoing maintenance of records throughout the year

Trying to treat MTD as an annual admin task is where many problems start. The real shift is in how consistently records are maintained.

Myth 8: “My accountant will automatically handle everything”

Reality: Responsibilities must be clearly agreed

Accountants remain essential, but MTD changes the workflow.

Problems arise when:

• Record keeping responsibilities aren’t clear
• Both parties assume the other is submitting updates
• Deadlines are missed due to miscommunication

MTD works best when roles are agreed upfront:

• Who keeps digital records?
• Who submits quarterly updates?
• Who finalises the year-end declaration?

Clarity prevents mistakes.

Myth 9: “MTD is designed to catch people out”

Reality: MTD is designed to reduce errors and surprises

While it may feel intrusive at first, the aim of MTD is to:

• Reduce last-minute errors
• Improve accuracy
• Give businesses a clearer view of their finances
• Reduce unexpected tax bills

Businesses that keep clean records often find MTD makes tax more predictable, not more stressful.

Bottom Line

Making Tax Digital for Income Tax isn’t as scary as it sounds, but it isn’t something to ignore either.

Once the myths are cleared away, what’s left is a manageable shift towards better record keeping, clearer reporting, and fewer year-end surprises.

If you approach MTD as part of running your business, not just a compliance hurdle, it becomes far easier to handle and far less disruptive.