Making Tax Digital comes with a lot of jargon. Here are all the terms you'll come across, explained in plain English. Each definition is short enough to quote — click any one to expand it.
| Term | Definition |
|---|---|
| Making Tax Digital (MTD) | HMRC's programme to move the UK tax system online, replacing paper returns with quarterly digital submissions. |
| MTD ITSA | MTD for Income Tax Self Assessment — the new rules that require some sole traders and landlords to send quarterly updates to HMRC. |
| MTD VAT | MTD for VAT — mandatory since April 2022 for all VAT-registered businesses, which must keep digital records and file VAT returns through MTD-compatible software. |
| Quarterly Update | A summary of income and expenses submitted to HMRC every 3 months. Four updates replace the annual income calculation that used to sit in your Self Assessment return. |
| End of Period Statement (EOPS) | The final statement confirming your figures for the tax year, sent to HMRC after your last quarterly update. |
| Final Declaration | The year-end submission that replaces the Self Assessment return, declaring any other income such as employment, savings, or dividends. |
| Qualifying Income | Gross self-employment income plus gross UK property income, measured before expenses. Your qualifying income decides whether MTD ITSA applies to you. |
| Bridging Software | Software that links a spreadsheet to HMRC for MTD submissions, letting you keep your records in a spreadsheet while still filing digitally. |
| HMRC-Recognised Software | Software that HMRC has approved for MTD submissions. You must use it to file quarterly updates and your End of Period Statement. |
| Digital Record Keeping | Keeping your business records in digital format rather than on paper, as required under MTD rules. |
| Penalty Points | HMRC's new penalty system for late MTD submissions, where each missed deadline adds points before a financial penalty is charged. |
| Digital Exclusion | Exemption from MTD for reasons such as age, disability, or lack of reliable internet access. Eligible taxpayers can keep filing on paper. |
| Cash Basis | An accounting method where you record income and expenses when cash changes hands, rather than when an invoice is raised. |
| Accruals Basis | An accounting method where you record income and expenses when they're earned or incurred, regardless of when money moves. |