No, MTD Income Tax does not replace Self Assessment. You still file a final declaration by 31 January, but instead of one annual return, you submit quarterly updates throughout the year. The final declaration confirms your total income — MTD just spreads the record-keeping across four submissions instead of one.
What changes under MTD
Under MTD Income Tax, the big change is that you submit your income and expenses to HMRC every three months instead of once a year. Each quarterly update is a summary of your income and expenses for that three-month period. Your software handles the submission to HMRC via its API — you do not log in to gov.uk.
What stays the same
Several things remain unchanged:
- Final declaration — you still file a final declaration by 31 January after the tax year ends
- End of Period Statement (EOPS) — you confirm your final figures for the year
- Payment deadlines — your tax bill is still due by 31 January (and 31 July for payments on account)
- Penalty regime — missing the EOPS triggers a £100 penalty, rising to £300 after three months and £500 after six months
Pension income
MTD Income Tax does not apply to pension income. If you receive a state pension, workplace pension, or private pension, these are not included in your quarterly updates. You still declare pension income on your final Self Assessment return (SA100).
Cash basis vs accruals
MTD for Income Tax works on both cash basis and accruals basis:
- Cash basis — record income and expenses when cash changes hands. Most small sole traders use this method. Simpler, but less accurate for businesses with lots of unpaid invoices.
- Accruals basis — record income and expenses when they are earned or incurred, regardless of when money moves. More accurate for businesses with complex finances.
Partnerships and LLPs
MTD Income Tax currently applies to sole traders and landlords. Partnerships and LLPs are not in scope for MTD ITSA, though HMRC may extend the rules in future. Partnerships still file partnership returns (SA800) as before. If you are in a partnership, check with your accountant whether MTD applies to your individual tax affairs.
Limited companies
MTD Income Tax does not apply to limited companies. If you operate through a limited company, your MTD obligations are currently limited to MTD for VAT (which has been mandatory since April 2022 for all VAT-registered businesses). MTD for Corporation Tax has been consulted on but not yet confirmed.
Using an accountant for MTD
Yes, accountants can handle your MTD quarterly updates and final declaration on your behalf. They must use HMRC-recognised software. Many accountants now specialise in MTD compliance for sole traders, and the cost is often comparable to traditional Self Assessment preparation.
Summary
| Self Assessment (old) | MTD Income Tax (new) | |
|---|---|---|
| Quarterly updates | No | Yes — every 3 months |
| Final declaration | Yes — once a year | Yes — by 31 January |
| End of Period Statement | No | Yes — confirms final figures |
| Digital records | Optional | Mandatory |
| HMRC-recognised software | Optional | Mandatory |
FAQ
Do I still need to file a Self Assessment return?
Yes. If you are in scope for MTD Income Tax, you still file a final declaration by 31 January. The difference is that HMRC already has your quarterly data, so the final declaration is a confirmation rather than a first submission.
What happens if I miss a quarterly update?
Missing a quarterly update does not on its own trigger a penalty. However, it does mean your records are incomplete and you risk missing the EOPS deadline. The safest approach is to submit every quarter.
Can I opt out of MTD?
You can only opt out of MTD if you meet specific criteria: digital exclusion (age, disability, lack of internet), religious objection, or if your income drops below the threshold. Otherwise, MTD is mandatory if you are in scope.