Common MTD for Income Tax mistakes sole traders must avoid

The UK's Making Tax Digital for Income Tax (MTD for IT) is revolutionizing the way sole traders and landlords report their income and expenses to His Majesty's Revenue & Customs (HMRC). Instead of filing a single annual return, taxpayers need to maintain digital records on an HMRC-recognized accounting software, submit quarterly updates of their income and expenses, and do a final end-of-year declaration.

This change is part of a broader move towards a more efficient and transparent tax system. By making sole traders move towards maintaining digital records and quarterly reporting, the HMRC aims to reduce errors and empower businesses with real-time visibility into their finances throughout the year.

Adapting to a new system always comes with some sort of hesitance. Many sole traders are still not sure how to embrace this change and move towards digitalization. Without a clean understanding, it is easier to make mistakes with MTD, especially during the transition phase.

This article will highlight the most common MTD for IT mistakes and share tips on how you can avoid them to stay confident as well as compliant.

Assuming you don't fall under MTD for IT

Many sole traders and landlords are not sure if the new rule applies to them. It is easy to skip the process due to confusion around eligibility.

Why it’s a problem:

• Not adopting on time can lead to improper processes and errors.

• You may miss deadlines and become non-compliant.

• There's a high chances you'll earn penalty points.

What's the fix?

MTD for IT applies to individuals with annual business and property income above £50,000 from April 2026. This threshold reduces to £30,000 from April 2027 and to £20,000 from April 2028. These limits are based on your total gross income in the previous tax year. It is clear that the HMRC is doing this in a phase-wise manner to give eligible taxpayers sufficient time to transition. Checking your income thresholds and evaluating your eligibility will help avoid this costly mistake.

Not using digital bookkeeping software

The new rule mandates maintaining digital records. Many sole traders and landlords, however, still maintain their transactions on paper or in spreadsheets.

Why it’s a problem:

• You'll be non-compliant with MTD for IT rules.

• Manual records are prone to mistakes and data inaccuracies, as it's easy to miss a transaction.

What's the fix?

Make the shift towards MTD-compliant bookkeeping by adopting a solution that allows you to store digital records. Zoho Books is an HMRC-recognized MTD software with a free plan for sole traders and landlords.

Mixing personal and business finances

This is one of the most common mistakes sole traders and landlords commit. Using the same bank account for business and personal use and not tracking them separately is a recipe for complications that are easily avoidable.

Why it’s a problem:

• There's a higher chance of reporting errors.

• It's easy to flag off a business expense as personal and vice-versa.

• Bookkeeping and doing quarterly updates takes much longer time than usual.

What's the fix?

Maintain a separate bank account for your business. This prevents unnecessary confusion and simplifies digital bookkeeping.

Not preparing for quarterly updates and missing deadlines

One of the important changes under MTD for Income Tax is submitting quarterly updates as well as the end-of-year final return. Treating MTD for ITSA like the traditional self-assessment process and not submitting quarterly updates defies the purpose of this big change.

Why it’s a problem:

• It can lead to penalties under HMRC's point-based system.

• It increases your chances of an incorrect submission.

• It affects your compliance record.

What's the fix?

Avoid the last minute rush by maintaining digital records of all transactions on a daily or weekly basis. This ensures your data is always up to date and makes quarterly submissions easier and accurate. You can also set reminders for quarterly updates. Usually, updates are due by the 7th day of second month of the following quarter—7 August for Q1, 7 November for Q2, 7 February for Q3, and 7 May for Q4.

Not understanding EOPS and the final declaration requirement

Although sending quarterly updates is a new requirement under MTD for ITSA, it doesn't replace the existing final year-end submission. There is also an End of Period Submission (EOPS) to be made that lets you finalize your income for the year and make year-end adjustments like accruals and corrections. This is a benefit for taxpayers as you can make revisions to your updates you have submitted in the previous quarters.

Why it’s a problem:

• It leads to incomplete tax reporting.

• It can result in over-reporting or under-reporting total taxable income as the opportunity to make revisions is missed.

• It increases the risk of HMRC enquiries or audits.

What's the fix?

MTD for ITSA involves multiple rounds of reporting. It starts off with updates every quarter and the regular final declaration. Maintain accurate records throughout the year so you can easily make adjustments during the End of Period Submission that precedes the final declaration. Using accounting software can help streamline this process.

Leaving everything for the last minute and not seeking expert help when needed

With more frequent reporting needed in MTD for ITSA, leaving tasks until the last minute can lead to errors. HMRC data for 2026 says that close to 475,000 taxpayers filed their returns on the final day, with over 27,000 submitting in the last hour alone—highlighting how common last-minute filing still is.

Why it’s a problem:

• It leads to rushed and inaccurate updates.

• There's a chance of the portal slowing down when thousands of users access it at the same time.

• An opportunity to optimize taxes can be missed without expert guidance.

What's the fix?

Never wait until the last minute to do your quarterly updates and final declaration. With proper bookkeeping practices, you can make your updates as soon as the window opens. Consider consulting an accountant if you are not sure of any aspect of MTD for ITSA. Accountants also help you on optimize your taxes further so that you can save more.

Final thoughts

MTD for Income Tax represents a radical shift in the way sole traders and landlords report their income to the HMRC. While it may seem daunting at first, avoiding the common mistakes outlined here and adopting good bookkeeping practices can help you stay compliant.

On top of that, using the right tools can ease this transition further. MTD-ready accounting software can help you maintain digital records, track income and expenses accurately, and submit quarterly updates seamlessly.

Zoho Books is an HMRC-recognized, MTD-compliant accounting software used by sole traders and landlords across the UK to simplify bookkeeping and stay compliant with HMRC requirements.