Making Tax Digital: The Scottish Guide for April 2026

In 2015, HMRC described Making Tax Digital as the end of traditional tax reporting. Ten years later that change comes. MTD for Income Tax Self Assessment (MTD for ITSA) will become mandatory on 6 April 2026 for sole traders and landlords earning over £50,000. If you earn above that threshold, your 2024/25 tax return will be the figure HMRC uses to determine whether you are in the first wave.

For taxpayers in Scotland, the rules have an extra layer. Scotland has six income tax bands on non-savings and non-dividend income, compared to three in the rest of the UK. That distinction is important when your accounting software calculates the liabilities. It also means that Scottish taxpayers will need to do more checking when first setting up MTD compliant software.

This guide describes who is affected, how the quarterly system works, what software qualifies and what penalties apply. It also covers the steps that will protect you if HMRC opens an investigation.

Who is affected and when?

MTD for ITSA applies in phases:

• Sole traders and landlords with a qualifying income of more than £50,000 from 6 April 2026.
• Sole traders and landlords with a qualifying income between £30,000 and £50,000 from 6 April 2027.
• Partnerships are currently outside the mandatory MTD for ITSA. HMRC has not set a date.
• VAT-registered companies have been registered in MTD for VAT since 2019 or 2022.

Qualifying income is gross receipts before expenses, not profits. A sole proprietorship who bills $54,000 and spends $14,000 on operating expenses has a qualifying income of $54,000. Worth noting: the original threshold discussed in policy circles was £10,000. After continued criticism from professional bodies and a policy review, HMRC increased the amount to £50,000. The current threshold reflects that revision, not the original plan.

How quarterly reporting works

Each quarter, you submit a running total of gross revenues and allowable expenses through approved software. These updates are cumulative numbers to date and not isolated snapshots. If you enter a transaction incorrectly in the first quarter, the correction will automatically appear in the second quarter. HMRC expects reasonable accuracy throughout the year, and not perfection on every submission.

Deadlines for 2026/27:

• April 6 to July 5, 2026, with expiration date August 7, 2026
• July 6 to October 5, 2026, scheduled for November 7, 2026
• October 6, 2026 to January 5, 2027, with expiration date February 7, 2027
• January 6 to April 5, 2027, with expiration date May 7, 2027

After the fourth quarter, you complete an End of Period Statement to confirm the annual figures and apply for allowances. A Final Declaration then replaces the SA100 declaration for taxpayers within MTD for ITSA.

Choosing the right software

HMRC requires submissions via software that connects to its systems via API. A standard spreadsheet itself does not qualify. Bridging software can link spreadsheet data to HMRC via a compatible digital connection, although this is generally a short-term arrangement.

One compliance detail worth knowing: HMRC’s digital link rules prohibit copying and pasting as a method of transferring data between parts of your filing system. Any transfer between software components must use a direct digital connection, an API, a linked cell, or an automated import. Manual rekeying between applications is not allowed.

If you want your files to be reviewed and maintained by a qualified tax team, Audit Consulting Group’s specialists will take care of the entire documentation process under their responsibility. MTD for income tax (ITSA) service, from setting up your digital administration to keeping it audit-ready all year round.

Common platforms for MTD for ITSA:

• QuickBooks Online, widely used by sole proprietors and small businesses.
• Xero, suitable for taxpayers with multiple income streams.
• FreeAgent, popular with contractors and often included with business bank accounts. In 2025, a PR stunt via FreeAgent involved filing a tax return from a tablet 16 miles up, at the edge of space, to demonstrate that the software works anywhere with a connection.
• Sage Accounting, with full MTD and VAT support.
• Coconut and Kashflow, which serve specific sectors.

Always check a product against HMRC’s official MTD software listing on GOV.UK before subscribing. Research from the Enterprise Research Center shows that using cloud accounting software is associated with an 11.8% productivity gain for micro businesses. This figure is important in addition to tax compliance: the right software often pays for itself through the time saved on administration.

Penalties for late filing and late payment

HMRC uses a points-based system for late submissions. Missing a deadline: one point. Quarterly applicants reach the £200 fine threshold at 4 points. Each subsequent missed deadline will add a further £200. Points expire after an extended period of on-time submission.

Late payment of income tax is separate. HMRC charges a 5% surcharge on unpaid tax after 30 days, a further 5% at 6 months and a further 5% at 12 months. Interest accrues from the due date. VAT late payment follows a different scheme introduced in January 2023. Check GOV.UK for VAT specific rates.

A note to Scottish taxpayers and employers

The Scottish income tax structure for non-savings and non-dividend income includes six bands. When setting up MTD software, check that Scottish rates are applied correctly, and not UK rates. This is especially relevant for self-employed people with an income close to the limit.

Employers in Scotland face a separate but related problem. HMRC data shows that between 1% and 2% of Scottish employers incorrectly omit the S prefix from employee tax codes, instead applying codes for the rest of the UK. The result is that the wrong tax rate is deducted from wages. Do you employ staff and have you not recently checked the payroll tax codes? Then this is worth checking.

Queen Elizabeth House on Sibbald Walk in Edinburgh houses the only Cabinet Office meeting room outside London. The building brings several hundred civil servants from HMRC and other departments to the city. Compliance questions involving Scottish taxpayers are increasingly being dealt with by staff based here rather than in London or Telford.

Keeping data ready for an investigation

Steps that protect you:

• Record each transaction in your software as it occurs, not at the end of the quarter.
• Keep invoices, receipts and bank statements for at least 5 years after the January 31 deadline for the relevant tax year.
• Open a dedicated business bank account. Mixed accounts require closer scrutiny.
• Reconcile your software with your bank statement monthly.
• Note the business purpose of any expenditure that HMRC might question.
• Respond immediately to HMRC contact. A tax advisor handles that correspondence on your behalf.

Get specialist help with your MTD installation

MTD for ITSA changes your filing calendar, your software requirements and your daily administration. Getting it set up correctly before April 2026 will cost much less than fixing a bad setup after your first missed deadline.

Audit Consulting Group’s tax team works with UK sole traders, landlords and small businesses on MTD compliance. Their services include eligibility assessment, MTD submission, software selection, quarterly submission and HMRC investigation representation.

See MTD compliance services at Audit Consulting Group

Three things to do this month

If your gross qualifying income for 2024/25 is more than £50,000:

• Confirm your eligibility on GOV.UK and apply for MTD for ITSA registration via HMRC’s private beta.
• Choose and install HMRC approved software by your first quarter deadline of 7 August 2026.
• Start digitally recording income and expenses now. The longer you wait, the more historical data you will have to reconstruct.

If you earn between £30,000 and £50,000, the date of your mandate is April 6, 2027. Use the time to select software, build a clean accounting pattern and check whether your income exceeds the £50,000 limit for 2025/26.

Frequently asked questions

Does my self-assessment registration relate to MTD?

No. MTD for ITSA requires a separate registration. Apply via GOV.UK. HMRC’s private beta is now open, with eligibility requirements.

Can my accountant provide MTD updates on my behalf?

Yes. You authorize an agent to file a report on your behalf. A separate MTD enrollment step is required in addition to your existing Self-Assessment Authorization.

What should I do if I submit a quarterly update with an error?

Because updates are cumulative for the entire year, the correction is automatically processed in the following quarter’s submission. Most errors do not require you to submit a change.

I don’t have reliable broadband internet. Can I get an exemption?

Yes, but you must submit a formal application. HMRC is considering exemptions on grounds including lack of internet access, disability, age, religious grounds and remote location.

Disclaimer: This article provides general information only and does not constitute tax, legal or financial advice. Tax rules change. Please check current requirements on GOV.UK or consult a qualified tax professional before making any decisions.