Making Tax Digital, also known as MTD, is incoming. Although it is not a legal requirement to sign up for MTD until April 2026, the soft launch roll out period has already started and has been happening for quite a while. 

What this does is poses the question for many of our users: “Should I sign up for MTD now, or should I wait until 2026 when it becomes mandatory?” 

Don’t worry, after reading the article you should be able to answer that question easily with confidence that you are doing the right thing for your personal tax situation.

When is the best time to sign up for MTD?

If you are in the eligible category (you can take our eligibility survey here) then there are definitely benefits to registering for MTD now. 

At this moment in time, one of the main benefits is the time to prepare for what the future holds for changes in tax and self-assessment tax returns. With MTD changing the way in which millions deal with tax, for many it will mean people will be using HMRC recognised software for the first time. 

With that in mind, we would recommend signing up to a good, HMRC compliant software (like APARI) now, to get used to the process of digital record keeping and understanding your self-assessment online.

If you are not currently eligible, then we would say to sign up as soon as you are able. At APARI we regularly update our blog to notify of changes to the MTD criteria.

What happens if I don’t sign up for MTD?

So, what happens if you don’t sign up for MTD? Well, at the moment - nothing! This might sound strange given how much APARI talks about joining MTD, but there is a reason behind it. 

HMRC currently don't have the capacity to allow everybody to join Making Tax Digital for Income Tax all at once, so instead they are rolling out a gradual launch, led by certain criteria. Those criteria range across a number of different specifications, for example if you have a single source of self- employment income over £50,000, with no other income or tax return information, then you will have been able to register for MTD last year (2020). The number of criteria that HMRC are taking into account is increasing all the time, - with pension income, CIS deductions and student loan contributions being just some of the categories that are now eligible for MTD. 

Although there is no set penalty for failing to sign up for MTD by 2026, you will begin to incur late filing penalties throughout the tax year if you fail to submit quarterly returns.

How do I prepare for Making Tax Digital?

If you are feeling uncertain about MTD, and are confused about the potential of making your tax digital, then we would suggest “shadowing” with your software before signing up to MTD. What this means is that you can use your preferred software (like APARI) in parallel to your current record keeping system until you feel comfortable with solely using software. That said, it is important to remember that there is no obligation to completely stop using the method that you feel comfortable with, just as long as you do meet the MTD obligations alongside keeping physical records (or whatever it is you prefer). 

If you start using software and sign up for MTD hen you can, in theory, can “practice” before MTD is mandated. This is because until the mandated date, you can always submit your usual self- assessment tax return (SA100) via the traditional method if, for any reason, you cannot submit through MTD. 

By applying before the mandated tax year, you have the opportunity of submitting all of your quarterly returns whilst still having the “buffer” of the SA100 submission if needed. 

What are the penalties for MTD?

The new penalty system for MTD has been designed to be fairer for the average taxpayer - meaning that people are not penalised for making genuine mistakes, but instead people will be penalised when they frequently make late submissions.

The current annual self-assessment penalty system, goes by length of time since late submission, with the amount due increasing over the time period. 

The new system accrues points per late submission - and those points can add up to penalties over time! 

When a taxpayer misses a submission deadline then they will incur a point - these points build up to a set penalty threshold with each submission obligation (i.e quarterly, annually) having a different threshold. Once this point threshold is reached, then a fixed penalty amount of £200 will be issued for every missed submission. 

Conclusion - So should I sign up for MTD or not?

So, having read all that, you may now just be asking the question about whether you should sign up to Making Tax Digital or not. 

Where it is ultimately your choice, our recommendation would be: “Yes - if you are eligible to sign up then it is a good option to sign up to MTD.” 

There are benefits of signing up to MTD as soon as possible.The sooner you sign up, the more time you have to prepare for the changes that will come with the implementation of Making Tax Digital for the broader public. Keeping your digital records, getting used to your software of choice, and sending your quarterly return can help you ease the transition to MTD. If you want to know more about how software can help you ease the transition to Making Tax Digital, check out this article we have written for you.

Want to know more about MTD? We created the Ultimate Guide to Making Tax Digital for YOU!