MTD for Income Tax: what it changes about how practices bill

MTD for Income Tax doesn't change any rule about how you bill or collect: HMRC's requirements cover records, quarterly updates and the tax return, and say nothing about invoicing or payment. It does change the work. For clients in scope, an annual job becomes four quarterly updates and a return, and an annual fee set for the old job tends to leave you absorbing the extra work or sending bills your clients don't expect.

In this article

The short version

• MTD for Income Tax sets no rules on how you bill or collect fees.
• For clients in scope, an annual job becomes four cumulative quarterly updates and a return.
• Qualifying income is gross self-employment and property turnover, tested on the return two years earlier.
• Decide whether quarterly work sits inside your existing fee or becomes its own service, and write it into the letter.
• A monthly fee collected by direct debit fits recurring work, but check the VAT tax point on instalments.

Who's in scope and when

Nothing has been deferred. Each phase is tested on the tax return from two years earlier:

Qualifying income is gross turnover from self-employment and property added together, before expenses. HMRC's own example is £25,000 of rent plus £27,000 of self-employment, which comes to £52,000, so that client is in scope even if their profit is far lower. Employment income, dividends and pensions don't count, and nor does a partner's share of partnership profit, though a partner's own trading or property income can still bring them in. Partnerships themselves aren't in scope yet.

Once a client is in, their year has quarterly updates due by 7 August, 7 November, 7 February and 7 May, each covering the period from the start of the tax year, plus the return by 31 January. There are no penalties for late quarterly updates in 2026-27, though a late return still earns a point. After that, each missed deadline earns a point, and four points bring a £200 penalty, with another £200 for each further miss. Late payment of the tax is penalised separately, starting at 3% of the tax owed and rising to 4% from 2027-28.

What the quarterly cycle does to your work

A few changes bear directly on what you charge:

• Five deadlines instead of one: each update means records to collect, figures to review and a submission to make. Because updates are cumulative, a mistake in one quarter carries into the next, so the review is real work.
• Sign-up is per client: your Self Assessment authorisations carry over, but each client still has to be signed up through HMRC's service, which is a block of admin across your list.
• It arrives in waves: the £30,000 and £20,000 phases bring the same conversation round again in 2027 and 2028, with more clients on smaller fees.
• Bridging software counts: a client who keeps records in a spreadsheet can file through bridging software, so not every MTD client needs a new ledger, but you may end up supporting the spreadsheet.

None of this comes with a billing rule, so how you price and collect for the work is your call.

How to price and bill MTD clients

It's worth settling these questions before the next quarter starts, then writing the answers into your engagement letter. CIOT and ATT publish an MTD for Income Tax schedule of services, updated in March 2026, that you can start from.

• Is the quarterly work inside your existing fee, or a separate service with its own scope?
• Do you bill per update, monthly, or annually with the work spread through the year?
• What happens when records arrive late? The joint engagement letter guidance recognises extra fees where information turns up after the date requested.
• Do you collect before the work or after it? CIOT and ATT allow fees in advance, as long as the amount is reasonable, the terms are in your letter and you refund work you don't deliver.
• If you move to monthly billing, have you checked the VAT? Where one VAT invoice covers several instalments, each has its own tax point at the earlier of payment and the due date, so take it to your VAT adviser.

As an example, a sole trader client who paid £900 a year for a return might move to £100 a month, £1,200 a year, to cover four updates and the return. The fee then tracks the work, and the client pays in smaller amounts through the year instead of one larger bill after the return.

How to collect a recurring fee

Recurring work is easier to bill on a recurring basis, and a recurring fee is easiest to collect on an arrangement your client agrees once. A monthly direct debit, set up when the client signs your updated engagement letter, means nobody has to remember to pay twelve fee notes a year. A year-end balance or a late-information charge can go on the same mandate, as long as the client gets advance notice of the amount and date.

Adfin collects fees by direct debit without you needing your own Service User Number, at 1% + 20p per successful payment with the percentage capped at £4, so a £100 monthly fee costs £1.20 to collect. Payments are matched to the invoice in Xero or QuickBooks. If a collection fails, Adfin retries it for free and then asks the client to pay another way, and its AI Customer Agents chase anything still unpaid within rules you set.

Common questions

Does MTD for Income Tax require any change to how a practice invoices or collects fees? No. HMRC's requirements cover digital records, quarterly updates and the tax return, and say nothing about how you bill or collect.

When does MTD for Income Tax start, and at what income level? From 6 April 2026 above £50,000, from April 2027 above £30,000 and from April 2028 above £20,000, each tested on the return from two years earlier.

Is qualifying income turnover or profit? Turnover. It's gross income from self-employment and property added together before expenses, so £25,000 of rent and £27,000 of trading income makes £52,000.

When are the quarterly updates due? By 7 August, 7 November, 7 February and 7 May, each covering the period from the start of the tax year. The return is still due by 31 January.

Are there penalties for a missed quarterly update? Not for quarterly updates in 2026-27, though a late return still earns a point. From 2027-28 each missed deadline earns a point, and four points bring a £200 penalty.

Should a practice move MTD clients onto monthly fees? It's a commercial decision, not an HMRC requirement. Monthly fees often fit quarterly work better, but check the VAT tax point on instalments with your adviser first.

Sources

• HMRC - Find out if and when you need to use Making Tax Digital for Income Tax (accurate as of October 2026) https://www.gov.uk/guidance/find-out-if-and-when-you-need-to-use-making-tax-digital-for-income-tax
• HMRC - Work out your qualifying income for Making Tax Digital for Income Tax (accurate as of October 2026) https://www.gov.uk/guidance/work-out-your-qualifying-income-for-making-tax-digital-for-income-tax
• HMRC - Penalties for Making Tax Digital for Income Tax (accurate as of October 2026) https://www.gov.uk/guidance/penalties-for-making-tax-digital-for-income-tax
• HMRC - Send quarterly updates (accurate as of October 2026) https://www.gov.uk/guidance/use-making-tax-digital-for-income-tax/send-quarterly-updates
• ATT - Engagement letters (joint ATT, CIOT, ACCA and AAT guidance) (accurate as of October 2026) https://www.att.org.uk/engagement-letters
• Adfin - Pricing (accurate as of October 2026) https://www.adfin.com/pricing