The Three Core Requirements of MTD: Digital Record-Keeping, Quarterly Updates and Final Declaration

A Clear Breakdown of Your Main Duties Under Making Tax Digital

The core requirements of MTD (Making Tax Digital) mean that businesses and individuals within scope must keep tax records digitally, submit quarterly updates of their income and expenses, and complete a final year-end declaration via MTD-compatible software. Complying with these requirements helps simplify tax affairs, reduce errors, and meet official HMRC deadlines.

Why Understanding MTD Requirements Is Key for UK Taxpayers

As the UK tax system evolves, the Making Tax Digital (MTD) initiative continues to reshape how businesses and landlords manage their tax reporting. For many traders, self-employed individuals and property landlords, understanding the core requirements of MTD is essential — not only to remain compliant, but also to benefit from a streamlined, more efficient way to handle tax affairs. At Naail & Co Chartered Certified Accountants, we believe clarity around these requirements empowers our clients to stay ahead of HMRC’s deadlines, avoid errors, and reduce stress.

What is MTD

A Simple Explanation of Making Tax Digital for UK Taxpayers

Making Tax Digital is the UK government’s plan to modernize tax administration by requiring digital record-keeping and digital submission of tax returns. Initially introduced for VAT-registered businesses, MTD has now been extended to income tax for self-employed individuals and landlords — under what is termed MTD for Income Tax Self Assessment (MTD for ITSA).

For those within scope, compliance with MTD involves three key actions. We call these the Core Requirements of MTD.

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The Core Requirements of MTD

1. Digital Record-Keeping

One of the central pillars of MTD is that all tax-related records — income, expenses, sales, purchases, VAT data (if relevant) — must be maintained in a digital format, using software compatible with HMRC’s MTD system.

For VAT-registered businesses, this has been mandatory since April 2022.
For individuals and landlords under MTD for ITSA, from April 2026 (for those above the first income threshold) the requirement will apply — with further roll-outs for more taxpayers planned in subsequent years.

Digital records simplify the way tax data is stored, managed and submitted — reducing reliance on spreadsheets, paper receipts or manual bookkeeping.

2. Quarterly Updates

Under MTD for Income Tax (ITSA), taxpayers must submit quarterly updates to HMRC via MTD-compatible software. These updates summarise income and expenditure for each relevant business or property income source.

The idea is that instead of waiting until the end of the tax year to compile accounts, you provide HMRC with regular snapshots of your financial position. These cumulative updates make it easier to track performance, identify issues early, and keep tax affairs up to date.

Even if no income or expenses occurred in a quarter, you must still submit a quarterly update.

Using quarterly updates also helps smooth the transition to a fully digital annual declaration and reduces the burden typically associated with a single year-end submission.

3. Final Declaration (Year-End Tax Return Equivalent)

At the end of the tax year, you still need to finalise your tax position — making any adjustments, claiming allowances or reliefs, adding other income sources (e.g. savings, dividends), and ensuring everything is accurate before submission. Under MTD, this will be done via MTD-compatible software instead of the traditional paper/online Self Assessment return.

This final declaration — along with the earlier quarterly updates and digital records — completes the three-part compliance cycle under MTD.

Why the Core Requirements of MTD Matter

Understanding How MTD Obligations Impact Your Tax Compliance

Accuracy and reduced error risk: Digital record-keeping and regular updates cut down on manual errors, reducing the chances of incorrect returns and subsequent HMRC adjustments.
Better control and cash-flow visibility: Especially for small business owners and landlords, quarterly updates mean you’re not blindsided at the end of the year — you know roughly where you stand throughout the tax year.
Aligns with HMRC’s vision of modernised taxation: MTD reflects a broader move towards digital, real-time tax administration — part of efforts to narrow the tax gap and make compliance easier overall.
Simplified year-end process: By the time you come to finalise your tax affairs, much of the work has already been done — thanks to quarterly updates and up-to-date digital records — making the final declaration easier and less time-consuming.

Who needs to follow these core requirements

Understanding Which Taxpayers Must Comply with MTD Rules

If you are VAT-registered: from April 2022, you should be keeping digital VAT records and submitting VAT returns via MTD-compatible software.
If you are a sole trader or landlord with business or property income above certain thresholds: under MTD for ITSA you will need to comply from April 2026 for income over £50,000; from April 2027 for income over £30,000; and further expansion is planned for those above £20,000 (by 2028).
Note: If you have multiple income sources — for instance, self-employment and property rental — you must keep separate digital records for each income stream, and send separate quarterly updates.

Even if you’re below thresholds, voluntary adoption of MTD compliance can help simplify accounting and make future tax affairs easier.

How to Comply — Practical Steps

Choose MTD-compatible accounting software (or bridging software if using spreadsheets) that connects to HMRC’s MTD API.
From the start of the tax year, record all income, expenses, VAT (if applicable), property receipts — digitally, as transactions occur.
Every quarter, use the software to collate and submit a “quarterly update” to HMRC summarising totals of income and expenses (and property income/expenses if relevant).
Before the tax year end, review all records, make any adjustments (e.g. allowances, losses, other income) and submit a final declaration via the software.
Keep digital records for the required period (for VAT at least 6 years; policies may differ for income tax).

At Naail & Co, we can guide you through each step — selecting the right software, organising your data digitally, submitting quarterly updates on time, and finalising your annual submission professionally.

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Final Thoughts

Key Takeaways to Help You Stay Confident with MTD Compliance

Understanding the core requirements of MTD — digital record-keeping, quarterly updates and final declaration — is no longer optional for many UK businesses and landlords. It’s an essential part of modern tax compliance. Done correctly, MTD can save time, reduce stress, and help you stay ahead of HMRC’s evolving rules.

If the administrative burden of MTD seems daunting, you don’t have to go it alone.

Get in touch with Naail & Co to book your free initial consultation.

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FAQs “requirements of MTD”

The core requirements of MTD include keeping all tax records digitally, submitting quarterly updates, and completing a final year-end declaration using MTD-compatible software. These steps ensure compliance with HMRC’s digital tax system.

From April 2026, the requirements of MTD apply to self-employed individuals and landlords with income over £50,000. The threshold expands to £30,000 from April 2027, with further rollout expected for those earning above £20,000.

Yes. VAT-registered businesses must comply with all requirements of MTD, including maintaining digital VAT records and filing VAT returns through compatible software. This has been mandatory since April 2022.

Digital record-keeping means storing income, expenses, sales, and property transactions electronically using MTD-compatible software. This is a foundational element of the requirements of MTD designed to reduce errors and simplify compliance.

Under the requirements of MTD for ITSA, taxpayers must submit updates every three months. These updates provide HMRC with a current snapshot of income and expenses, even if there is no activity during the quarter.

Yes. The final declaration—sometimes referred to as the End of Period Statement (EOPS)—remains a crucial part of the requirements of MTD. It replaces the traditional Self Assessment tax return and must be filed digitally via MTD-compatible software.

Yes. If landlords have multiple property income streams, the requirements of MTD oblige them to maintain separate digital records and submit individual quarterly updates for each income source.

To comply with the requirements of MTD, you must use HMRC-approved MTD-compatible software or bridging software if you maintain spreadsheets. This software is used for record-keeping, quarterly submissions, and the final declaration.

Absolutely. Even if your income falls below the mandatory thresholds, voluntarily following the requirements of MTD can help streamline your accounting processes and prepare you for future mandatory compliance.

Missing a quarterly update can result in HMRC penalties once the full penalty system goes live. The requirements of MTD emphasise timely digital submissions, so consistent compliance is essential to avoid fines.

Paper receipts may be kept, but the underlying data must also be recorded digitally. Under the requirements of MTD, HMRC expects all transactional data to be stored electronically within your MTD-compatible software.

A professional accountant can guide you through software selection, digital record-keeping, quarterly submissions, and the final year-end declaration. At Naail & Co, we ensure full compliance with all requirements of MTD while reducing your admin burden.