Making Tax Digital: The Scottish Guide for April 2026
MTD for Income Tax: What Scottish Taxpayers Need to Know Before April 2026
In 2015, HMRC described Making Tax Digital as the end of the traditional tax return. A decade later, that change is arriving. MTD for Income Tax Self Assessment (MTD for ITSA) becomes mandatory for sole traders and landlords earning above £50,000 on 6 April 2026. If you earn above that threshold, your 2024/25 tax return is the figure HMRC uses to determine whether you fall in the first wave.
For taxpayers in Scotland, the rules carry an additional layer. Scotland operates six income tax bands on non-savings, non-dividend income, compared to three in the rest of the UK. That distinction matters when your accounting software calculates liabilities. It also means Scottish taxpayers have more to check when setting up MTD-compatible software for the first time.
This guide covers who is affected, how the quarterly system works, which software qualifies, and what penalties apply. It also covers the steps that protect you if HMRC opens an enquiry.
Who Is Affected and When?
MTD for ITSA applies in stages:
- Sole traders and landlords with qualifying income above £50,000 from 6 April 2026.
- Sole traders and landlords with qualifying income between £30,000 and £50,000 from 6 April 2027.
- Partnerships remain outside mandatory MTD for ITSA for now. HMRC has not set a date.
- VAT-registered businesses are already enrolled in MTD for VAT since 2019 or 2022.
Qualifying income is gross receipts before expenses, not profit. A sole trader who invoices £54,000 and spends £14,000 on running costs has qualifying income of £54,000. Worth noting: the original threshold discussed in policy circles was £10,000. Following sustained criticism from professional bodies and a policy review, HMRC raised it 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 income and allowable expenses through approved software. These updates are cumulative year-to-date figures, not isolated snapshots. If you enter a transaction incorrectly in quarter one, the correction appears in quarter two automatically. HMRC expects reasonable accuracy across the year, not perfection at every submission.
Deadlines for 2026/27:
- 6 April to 5 July 2026, due 7 August 2026
- 6 July to 5 October 2026, due 7 November 2026
- 6 October 2026 to 5 January 2027, due 7 February 2027
- 6 January to 5 April 2027, due 7 May 2027
After the fourth quarter, you complete an End of Period Statement to confirm annual figures and claim allowances. A Final Declaration then replaces the SA100 return for taxpayers within MTD for ITSA.
Choosing the Right Software
HMRC requires submissions through software that connects to its systems via API. A standard spreadsheet does not qualify alone. Bridging software can link spreadsheet data to HMRC through a compliant digital connection, though it is generally a short-term arrangement.
One compliance detail worth knowing: HMRC’s digital links rules prohibit copy-and-paste as a method of transferring data between parts of your record-keeping system. Every handoff between software components must use a direct digital connection, an API, a linked cell, or an automated import. Manual re-keying between applications is not permitted.
If you want your records reviewed and maintained by a qualified tax team, the specialists at Audit Consulting Group handle the full documentation process under their MTD for Income Tax (ITSA) service, from setting up your digital records to keeping them audit-ready throughout the year.
Platforms commonly used for MTD for ITSA:
- QuickBooks Online, used widely by sole traders and small businesses.
- Xero, suited to taxpayers with multiple income streams.
- FreeAgent, popular with contractors and often included with business bank accounts. In 2025, a PR stunt filed a tax return through FreeAgent from a tablet at 26 km altitude, the edge of space, to demonstrate the software works anywhere with a connection.
- Sage Accounting, with full MTD and VAT support.
- Coconut and Kashflow, serving specific sectors.
Always verify a product against HMRC’s official MTD software list on GOV.UK before subscribing. Research from the Enterprise Research Centre found that using cloud accounting software is associated with an 11.8% productivity gain for microbusinesses. That figure matters beyond tax compliance: the right software tends to pay for itself through time saved on admin.
Penalties for Late Submission and Late Payment
HMRC uses a points-based system for late filings. Miss a deadline: one point. Quarterly filers reach the £200 penalty threshold at 4 points. Each further missed deadline adds another £200. Points expire after a sustained period of on-time filing.
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 another 5% at 12 months. Interest runs from the due date. VAT late payment follows a different scheme introduced in January 2023. Check GOV.UK for VAT-specific rates.
A Note for Scottish Taxpayers and Employers
Scotland’s income tax structure for non-savings, non-dividend income runs across six bands. When setting up MTD software, check that it applies Scottish rates correctly, not UK-wide rates. This is especially relevant for self-employed taxpayers with income close to a band boundary.
Employers in Scotland face a separate but related issue. HMRC data shows that between 1% and 2% of Scottish employers incorrectly omit the S prefix from employee tax codes, applying rest-of-UK codes instead. The result is the wrong tax rate deducted from pay. If you employ staff and have not audited your payroll tax codes recently, this is worth checking.
Edinburgh’s Queen Elizabeth House on Sibbald Walk hosts 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 increasingly land with staff based here rather than in London or Telford.
Keeping Records Ready for an Enquiry
Steps that protect you:
- Record every transaction in your software as it happens, not at quarter-end.
- Keep invoices, receipts, and bank statements for at least 5 years after the 31 January deadline for the relevant tax year.
- Open a dedicated business bank account. Mixed accounts attract closer scrutiny.
- Reconcile your software against your bank statement monthly.
- Note the business purpose of any expense HMRC might question.
- Respond to HMRC contact promptly. A tax adviser handles that correspondence on your behalf.
Get Specialist Help with Your MTD Setup
MTD for ITSA changes your filing calendar, your software requirements, and your daily record-keeping. Setting it up correctly before April 2026 costs far less than correcting a poor setup after your first missed deadline.
The tax team at Audit Consulting Group works with UK sole traders, landlords, and small businesses on MTD compliance. Their services cover eligibility assessment, MTD sign-up, software selection, quarterly filing, and HMRC enquiry representation.
See MTD compliance services at Audit Consulting Group
Three Things to Do This Month
If your gross qualifying income for 2024/25 is above £50,000:
- Confirm your eligibility on GOV.UK and apply for MTD for ITSA sign-up through HMRC’s private beta.
- Choose and set up HMRC-approved software before your first quarterly deadline of 7 August 2026.
- Start recording income and expenses digitally now. The longer you wait, the more historical data you will need to reconstruct.
If you earn between £30,000 and £50,000, your mandation date is 6 April 2027. Use the time to select software, build clean record-keeping habits, and monitor whether your 2025/26 income crosses the £50,000 line.
Frequently Asked Questions
Does my Self Assessment registration cover MTD?
No. MTD for ITSA requires a separate sign-up. Apply via GOV.UK. HMRC’s private beta is open now, with eligibility requirements.
Can my accountant submit MTD updates on my behalf?
Yes. You authorise an agent to file on your behalf. A separate MTD enrolment step is needed alongside your existing Self Assessment authorisation.
What if I file a quarterly update with an error?
Because updates are cumulative year-to-date, the next quarter’s submission automatically incorporates the correction. You do not need to file an amendment for most errors.
I do not have reliable broadband. Can I get an exemption?
Yes, but you must apply formally. HMRC considers 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. Verify current requirements on GOV.UK or consult a qualified tax professional before making decisions.
