Below is a diagram representing the main steps in Making Tax Digital for Income Tax compliance. Click on each step to read more information.

With MTD for Income Tax, different income sources involve different compliance requirements.

Business income sources: These include self-employment, UK and foreign property businesses. MTD for Income Tax legislation mandates digital record-keeping for these businesses. Taxpayers will need to provide quarterly income and expenses for each business income source. VitalTax will automatically retrieve from HMRC all business income sources associated with your National Insurance number.

Information for all non-business income sources can be submitted annually. These include employment income, bank and building society interest, dividends, capital gains, etc. MTD for Income Tax legislation does not mandate digital record keeping and quarterly submissions for non-business income sources. You will be able to configure your VitalTax account to include any non-business income sources that you want to declare. The data provided for these income sources will be used to calculate your annual tax liability.

Taxpayers will need to submit quarterly updates for income and expenses for each business income source. The income and expenses figures should be calculated from the original digital records that you can keep in your Excel spreadsheet. You can continue using all your preferred Excel formulas to calculate figures for income and expenses for each quarter.

By default, the quarters are aligned with the tax year rather than the business’s accounting period. Updates must be submitted by the 7th of the month following the quarter end. For example, the first quarter runs from 6 April to 5 July, with the quarterly update due to HMRC by 7 August. To better align with accounting periods, taxpayers can opt to make a calendar quarters election. This means the first quarter runs from 1 April to 30 June, the second from 1 July to 30 September, and so on. The filing deadlines for quarterly updates remain unchanged — the first update is due by 7 August, the second- by 7 November, and so forth.

HMRC requires different information for quarterly updates depending on the income source and annual turnover. If the annual turnover for an income source is expected to be less than the VAT registration threshold, you will not be required to submit a detailed expenses breakdown; instead, you can provide a consolidated expenses summary for the quarter. For example, for the self-employment quarterly submission for an expected turnover of less than the VAT registration threshold, you will only need to provide turnover, other income not included in turnover, and a single consolidated expense figure.

For taxpayers whose annual business turnover meets or exceeds the VAT registration threshold, a detailed breakdown of expenses is required. This should include, but is not limited to, staff costs, travel expenses, premises running costs, advertising costs, and other relevant expense categories. A comprehensive list of the required expense categories for each income source is available in VitalTax.

UK and overseas properties are treated as two separate businesses. Income from each property must be grouped into one of these categories before submission. Digital record keeping applies to the property business as a whole, not to each property individually. If a property is jointly owned, each owner must maintain digital records and submit updates for their share of income and expenses. They can record totals by category in their spreadsheet rather than listing every transaction, and expenses do not need to be included in quarterly updates.

Quarterly updates will be cumulative, so if an error is discovered in a previous submission, it can be corrected the following quarter. HMRC expects quarterly information to be up to date with the digital records but does not require a legal declaration for the quarterly submission. You can resubmit your income and expenses figures at any time before finalising the annual income source data.

Every quarterly submission will trigger tax calculations. You can review your up-to-date tax calculations in VitalTax. This will include a summary of your taxable income and a detailed breakdown of your Income Tax and National Insurance contribution calculations, including your savings, capital gains, dividends, allowances, reliefs, and other data.

Annual Income and Expenditure. With VitalTax, you can also provide figures for annual income and expenses, in addition to the quarterly submissions. This is an optional submission and is not mandated by MTD for Income Tax legislation. We developed this functionality to facilitate collaboration between taxpayers and their agents and help agents to optimise their workload.

When you submit annual income and expenses figures, VitalTax will retrieve totals from the final quarterly update in HMRC system. You can amend these figures to guarantee that the final annual income and expenses figures that HMRC holds agree to your annual calculations.

Submitting quarterly income and expense updates can be time-consuming and costly for agents. Since these submissions don’t require a legal declaration, they can be easily delegated to clients. While quarterly figures should be as accurate as possible, they can be amended at any time or adjusted at year-end.

Agents can continue submitting annual returns and providing yearly income and expense figures as before MTD, using the annual submission to amend any client-submitted quarterly figures. VitalTax ensures accurate annual figures are applied when finalising income sources at year-end.

Adjustments and Allowances. Taxpayer or their agent can make tax and accounting adjustments (eg disallowing elements of private use or capital expenditure). This process must be completed for each MTD income source.

Including other income sources. Any non-business income sources, such as bank interest or salaries/pensions, will need to be reported to form the complete tax return. MTD aims to enable greater pre-population of data held by HMRC, which should mean you just need to check and approve or amend HMRC’s figures. You will be able to report other, non-MTD income sources, through VitalTax.

The Final Declaration is a process that allows the taxpayers to finalise their tax position for the tax year. Taxpayers will have an opportunity to create loss claims against income sources for a specific tax year and declare voluntary Class 2 National Insurance contributions and other disclosures at this stage. This process brings together all the data that taxpayers need to provide to HMRC to reach their final tax liability for a specific year.

Before submitting the Final Declaration, taxpayers must confirm that all income sources have been considered and that all required adjustments and claims have been made.

VitalTax will show the final tax calculations, with a detailed breakdown of Income Tax and National Insurance contribution calculations. The user must then review the tax calculations and accept a legal declaration confirming that the information provided is correct and complete. After the user approves the final declaration, VitalTax will submit the annual return and finalise the taxpayer’s tax liabilities for the year.