Self-assessment vs MTD for Income Tax: what's the difference?

What is Self Assessment?

Self Assessment is HMRC's system for collecting Income Tax from people whose tax isn't automatically deducted through PAYE. As a sole trader, you use it to declare your self-employment income and expenses once a year.

The traditional Self Assessment process works like this:

• Keep records of your income and expenses throughout the year (paper or digital)
• File your tax return online or by post by 31 January following the end of the tax year
• Pay any tax owed by 31 January (and a payment on account by 31 July)

It's a well-established system, but it has a major flaw: it encourages leaving everything to January, resulting in an annual panic and a large, often unexpected tax bill.

What is MTD for Income Tax?

Making Tax Digital for Income Tax replaces the annual Self Assessment return with a more regular digital process:

• Digital record keeping — all income and expenses recorded digitally in HMRC-recognised software
• Four quarterly updates — a summary of your income and expenses submitted to HMRC every three months
• End of Period Statement — confirming your annual figures are complete and accurate
• Final Declaration — the equivalent of a tax return, due 31 January

The key shift is from one big annual event to four smaller, regular check-ins throughout the year.

Side-by-side comparison

Do you still file a tax return under MTD?

Yes — but it's called a Final Declaration rather than a Self Assessment return, and it works slightly differently. Because you've already submitted quarterly summaries of your self-employment income throughout the year, the Final Declaration is primarily about:

• Confirming your self-employment figures are correct
• Adding any other income sources (employment, savings, dividends, rental)
• Claiming any remaining reliefs or allowances

The deadline remains 31 January, and the tax payment deadline is also unchanged. What changes is the process leading up to it.

Who still uses Self Assessment?

MTD for Income Tax is being rolled out in stages based on income thresholds:

• From April 2026: Mandatory for those with gross income over £50,000
• From April 2027: Extends to those with income over £30,000
• From April 2028: Extends to those with income over £20,000

If your gross self-employment (or rental) income is below the relevant threshold, you continue with Self Assessment as normal — until your income crosses the threshold or HMRC extends MTD further.

Which is better?

MTD forces more regular bookkeeping, which sounds like more work — but in practice it tends to reduce year-end stress significantly. Instead of a frantic January scramble, you're doing small amounts of admin four times a year, and your software handles most of it automatically.

The penalty system is stricter (missing a quarterly deadline earns a penalty point), so organisation matters more. But with a good app handling your submissions, missing a deadline becomes very unlikely.

Frequently asked questions