What happens if I make a mistake on my MTD quarterly update?

Quarterly updates are not binding — they're light-touch reports of income and expenses. You can correct errors in your next quarterly update or your End of Period Statement. HMRC won't penalise honest mistakes in quarterly updates during the first year (2026-27), as there's a penalty exemption for late submissions in your first 12 months.

Can I use a spreadsheet for MTD instead of paid software?

Yes, but with conditions. You can keep your records in a spreadsheet, but you need MTD-compatible bridging software to submit your quarterly updates to HMRC digitally. The data must flow digitally from your records to the submission — you can't manually retype figures from a spreadsheet into a submission form. Free bridging options exist, including HMRC's own free MTD software.

Do I need MTD software if I earn under £50,000?

Not yet. MTD for Income Tax starts April 2026 for those with qualifying income over £50,000. If you earn between £30,000 and £50,000, you'll need to comply from April 2027. Under £30,000, there's no confirmed start date yet. However, you can voluntarily sign up early to get used to the system.

What's the penalty for missing an MTD quarterly update?

HMRC uses a points-based penalty system. You receive one point per late submission. Once you reach the threshold (4 points for quarterly reporters), you receive a £200 penalty for each subsequent late submission. However, for 2026-27 (the first year), HMRC has confirmed no penalty points will be issued for late quarterly updates.

Is MTD replacing Self Assessment?

Not immediately. MTD adds quarterly reporting on top of your existing obligations. You'll still need to submit an End of Period Statement and Final Declaration (which replaces the SA tax return). The quarterly updates are lighter-touch — just income and expenses totals. Over time, the Final Declaration may fully replace Self Assessment, but for now they work alongside each other.

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10 Common MTD Mistakes Sole Traders Make in 2026 (And How to Avoid Them)

Published 12 March 2026 · 8 min read · Updated for April 2026 MTD launch

📊 Key stat: 42% of self-employed people don't understand what MTD for Income Tax requires of them. 35% don't have HMRC-compliant software and don't plan to get it. (Source: Coconut/HMRC research, March 2026)

Making Tax Digital for Income Tax starts on 6 April 2026 for sole traders and landlords earning over £50,000. With just 25 days to go, nearly 860,000 people need to be ready — and many aren't.

After talking to dozens of sole traders, accountants, and reading hundreds of forum threads about MTD, these are the 10 mistakes that keep coming up. Most are easily avoidable if you know about them now.

Thinking MTD Doesn't Apply to You

The most common mistake: assuming MTD is only for VAT-registered businesses or limited companies. It isn't. MTD for Income Tax applies to sole traders and landlords with qualifying gross income (before expenses) over £50,000 from the 2024-25 tax year.

"Qualifying income" means your total gross income from self-employment and/or property — not your profit. If you turned over £55,000 but only profited £30,000, you're still caught by MTD.

✅ The fix: Check your 2024-25 Self Assessment return. Look at your total gross income from self-employment (box 15 on the SA103) and/or property income. If the combined total exceeds £50,000, you're in. If you're close to the threshold, assume you need to comply — it's easier to be prepared than to scramble.

Waiting Until April to Choose Software

With 25 days until MTD starts, this is the most time-critical mistake. Every MTD-compatible software package has a learning curve. You need to set up your chart of accounts, connect bank feeds, import opening balances, and understand how quarterly submissions work.

Trying to learn new software while also keeping digital records from day one is a recipe for errors.

✅ The fix: Choose your software this week. The main options are Xero (from £15/month), FreeAgent (from £12/month), QuickBooks (from £10/month), and Sage (from £12/month). There are also free options like HMRC's own MTD software and QuickFile. Set it up now, import your current data, and do a trial run with last month's figures. See our best MTD software comparison for a full breakdown.

Confusing Quarterly Updates with VAT Returns

If you're already doing MTD for VAT, you might assume MTD for Income Tax works the same way. It doesn't. VAT returns are detailed, binding submissions. MTD quarterly updates are light-touch summaries of your income and expenses.

You're reporting total income received and total expenses incurred during the quarter. You're not doing a full profit and loss calculation each quarter. The detailed work comes later in your End of Period Statement.

✅ The fix: Think of quarterly updates as "progress reports" rather than "tax returns." They're simpler than you think: total income in, total expenses out, broken down by HMRC's standard categories. Your MTD software will handle the formatting — you just need to keep your records up to date. Read our quarterly updates guide for exactly what to include.

Thinking You Can't Use a Spreadsheet

A persistent myth: "MTD means I have to ditch my spreadsheet and buy Xero." Not true. You can keep your records in a spreadsheet — but you need a "digital link" to submit your quarterly updates to HMRC.

This means using bridging software that reads your spreadsheet data and submits it to HMRC's API. The key rule: no manual retyping. Data must flow digitally from your records to the submission.

✅ The fix: If you love your spreadsheet, keep it. Use bridging software like Tax Cruncher, 123 Sheets, or BTCSoftware to submit from your spreadsheet. HMRC also lists free bridging tools on their website. The catch: your spreadsheet needs to be structured properly (HMRC categories, digital links between cells). Our spreadsheet vs software guide covers exactly how to set this up.

Not Separating Personal and Business Transactions

The number one complaint from accountants about sole trader clients: mixed personal and business spending on the same account. MTD makes this problem worse because you need to report income and expenses quarterly — not just once a year.

If every quarter you're manually separating the Tesco shop from the business stationery order, you'll spend hours on what should take minutes.

✅ The fix: Open a separate account for business transactions. It doesn't need to be a "business account" — any separate current account works. Most banks let you open one online in minutes. Feed this account into your MTD software, and 90% of your reconciliation is automated. This alone can turn 3 hours of quarterly bookkeeping into 20 minutes.

Panicking About Penalties in Year One

HMRC confirmed that sole traders entering MTD in April 2026 won't face penalty points for late quarterly submissions during their first 12 months. This is huge — but many people don't know about it.

The penalty exemption means you have breathing room to get used to the system. Your first quarterly update (for April-July 2026) is due by 7 August 2026, and even if you're late, no penalty points.

✅ The fix: Use the first year as a practice run. Get your software set up, submit your quarterly updates, but don't panic if you miss a deadline. The penalty points system starts properly in your second year. That said, don't use this as an excuse to ignore MTD entirely — building good habits now makes year two much easier. Full details in our penalty exemption explainer.

Forgetting About the End of Period Statement

Everyone focuses on quarterly updates, but MTD also requires an End of Period Statement (EOPS) after the tax year ends. This is where you make adjustments — capital allowances, disallowable expenses, basis period adjustments — and finalise your figures.

The EOPS is more like your traditional Self Assessment return. It's the detailed bit that your quarterly updates feed into.

✅ The fix: Budget time (and potentially accountant costs) for the EOPS. It's due by 31 January following the end of the tax year — same deadline as the current Self Assessment. If you use an accountant for your SA return now, they'll handle the EOPS too. Just make sure they're set up for MTD and can access your digital records.

Not Keeping Digital Records From Day One

MTD requires "digital records" — but what does that actually mean? It means your income and expense records must be stored digitally (in your software or spreadsheet) with digital links. Paper receipts in a shoebox won't cut it.

The critical point: you need digital records from 6 April 2026. If you start your MTD software on 1 May because you were still "getting set up," you've got a month of records to backfill.

✅ The fix: Set up your digital records system before 6 April. Even if it's just a spreadsheet with the right columns (date, description, amount, HMRC category), start recording from day one. For receipts, use your phone camera or an app like Dext, Hubdoc, or your software's built-in receipt capture. The habit of logging transactions as they happen saves hours of retrospective work.

Choosing Software Based on Price Alone

The cheapest MTD software isn't always the best value. Free options exist (HMRC's own tool, QuickFile) and they're fine for simple sole traders with few transactions. But if you have multiple income sources, property income alongside self-employment, or need features like bank feeds and receipt capture, you may outgrow free software quickly.

Conversely, paying £30/month for Xero when you do 10 transactions a month is overkill.

✅ The fix: Match your software to your complexity. Simple sole trader with one income source? Free software or a basic plan is fine. Multiple income streams, property income, or employees? You need a more capable platform. Most paid options offer free trials — use them before committing. Our MTD software costs guide shows what you'll actually pay after introductory offers expire.

Assuming Your Accountant Will Handle Everything

Your accountant can submit your quarterly updates and EOPS on your behalf. But you still need to maintain digital records throughout the year. Your accountant can't magic up records from nothing — they need your data to work with.

Many accountants are also increasing their fees for MTD clients because quarterly reporting means more work for them too. Some smaller accountants may not even be set up for MTD yet.

✅ The fix: Have the MTD conversation with your accountant now. Ask: (1) Are you set up for MTD ITSA? (2) Which software do you want me to use? (3) What's your fee for quarterly submissions? (4) What do you need from me? If your accountant isn't ready or their fees are too high, you may want to handle quarterly updates yourself and use your accountant only for the EOPS. See our accountant guide for more.

Quick Reference: MTD Quarterly Deadlines 2026-27

Quarter	Period	Deadline
Q1	6 April – 5 July 2026	7 August 2026
Q2	6 July – 5 October 2026	7 November 2026
Q3	6 October – 5 January 2027	7 February 2027
Q4	6 January – 5 April 2027	7 May 2027

End of Period Statement: Due by 31 January 2028
Final Declaration: Due by 31 January 2028

🛡️ MTD Readiness Toolkit — £14

Complete preparation pack: software comparison matrix, setup checklist, quarterly submission templates, and HMRC category reference guide. Everything you need to get MTD-ready in one afternoon.

Get the MTD Toolkit →

The Bottom Line

MTD isn't as scary as the headlines make it sound. The quarterly updates are lightweight, the first year has no penalty points, and if you're already keeping reasonable records, you're halfway there.

The biggest risk isn't MTD itself — it's leaving preparation until the last minute. If you do one thing after reading this, set up your MTD software today. Even a free option. Just get it running, connect your bank account, and log a few transactions. That 30 minutes of setup now saves you panic later.

And if you're still tracking income and expenses in a notebook or shoebox of receipts — MTD might actually be the push you need to modernise your bookkeeping. Many sole traders find that once they switch to digital records, they spend less time on admin, not more.

📊 Tax Tracker Spreadsheet — £7

Prefer spreadsheets? Our MTD-ready tax tracker has HMRC-compliant categories, automatic tax estimates, and a quarterly summary view. Works with bridging software for digital submissions.

Get the Tax Tracker →

Disclaimer: This guide is for informational purposes and doesn't constitute tax advice. For advice specific to your situation, consult a qualified accountant or tax adviser. Information is current as of March 2026 and based on HMRC's published guidance.