A glossary of every term you'll trip over while reading about MTD, defined in plain English. Cross-referenced to the relevant guides.
Agent. Someone who acts for you with HMRC, usually an accountant or bookkeeper. Agents have their own HMRC services and authorisation flow, separate from yours as the taxpayer.
Annual Investment Allowance (AIA). A capital allowance that lets sole traders deduct the full cost of most qualifying capital purchases (equipment, machinery) in the year of purchase, up to a generous annual limit. Calculated at year-end. See For sole traders.
Bridging software. Software that connects a spreadsheet to HMRC for MTD purposes. You keep recording in the spreadsheet; the bridging tool turns the totals into a valid MTD submission. See Choosing software.
BSAS (Business Source Adjustable Summary). A behind-the-scenes HMRC API your software uses to make year-end adjustments to your sole-trade or property figures (capital allowances, accruals, etc.) before you submit the final declaration. You won't usually interact with the term directly.
Calendar quarters. An optional alternative to standard MTD quarters. Calendar quarters end on the last day of a month (30 June, 30 September, 31 December, 31 March) instead of the 5th of August/November/February/May. Q1 always still starts on 6 April. See Key dates.
Capital allowances. A tax deduction for capital expenditure (things you buy for the business that last more than a year), claimed at year-end rather than as ordinary expenses. The most common form is the Annual Investment Allowance. See For sole traders.
Capital vs revenue. A distinction between two types of expenditure. Revenue expenses reduce this year's profit; capital expenses don't, but may give you a capital allowance or reduce a future capital gain. Important for landlords (improvements vs repairs) and sole traders. See For landlords.
Class 2 NI. A flat weekly National Insurance contribution for self-employed people. Treated as paid (and credits your State Pension) when profits are at or above the small profits threshold; otherwise voluntary. £3.50/week in 2025-26, £3.65/week in 2026-27.
Class 4 NI. A percentage-based National Insurance contribution on self-employed profits above the Class 4 threshold (£12,570 in 2026-27). Calculated automatically by your software at the final declaration.
Consolidated expenses. Reporting expenses as a single total rather than itemised by category. Available to sole traders with turnover under £90,000. Not available to landlords (who must categorise regardless of turnover). See Keeping digital records.
Cumulative submission. The MTD model where each quarterly update contains figures for the whole tax year so far, not just the latest three months. Each update replaces the previous one. Means corrections flow through automatically. See Fixing mistakes.
Digital exclusion. Grounds for being exempt from MTD if you can't reasonably use software (because of age, disability, location, religion, etc.). See Exemptions.
Digital record. A line in MTD-recognised software with the date, amount, type and description of a transaction. Doesn't require a scanned receipt. See Keeping digital records.
End of Period Statement (EOPS). A formal year-end declaration that used to be part of the MTD design. No longer required from the 2025-26 tax year onwards. Don't worry about it.
Final declaration. The MTD equivalent of a Self Assessment tax return, your annual confirmation of all your income, reliefs, and final tax position, due by 31 January. See The final declaration.
Fraud prevention headers. Technical metadata that MTD-recognised software must send with every API call to HMRC, identifying the device, browser and connection. Handled by your software; you shouldn't see these.
Government Gateway. HMRC's old-style sign-in service for individuals and businesses. The same Government Gateway ID you used for Self Assessment will work for MTD.
HMRC. His Majesty's Revenue and Customs. The UK's tax authority.
Income Tax Self Assessment (ITSA). The system most sole traders and landlords currently use to file an annual return and pay tax. MTD is being applied to ITSA, hence the abbreviation MTD ITSA.
In-year calculation. A tax calculation triggered by your software at any point during the year, based on figures submitted so far. It's an estimate, not binding. Useful for setting money aside.
Mandation. Becoming legally required to use MTD. You're "mandated" once your qualifying income crosses the relevant threshold for the relevant year. Before then, you're "voluntary" if you sign up early.
Making Tax Digital (MTD). HMRC's programme to digitise UK tax reporting. Currently in force for VAT, being extended to Income Tax from April 2026.
National Insurance Number (NINO). Your personal NI number
(format XX 12 34 56 X). The primary identifier MTD's systems use.
Open banking. A regulated way for accounting software to read your bank transactions automatically, with your permission. Saves manual entry. Most banks support it.
Payments on account. Advance payments towards next year's tax bill, made on 31 January and 31 July. Required if last year's tax bill (after deductions at source) was £1,000 or more. See Paying your tax.
Penalty point. A point recorded against you for a missed submission deadline. Becomes a £200 fine when you reach the threshold (4 points for mandated MTD customers). See Penalties.
Property allowance. A £1,000 tax-free allowance for property income. If your gross rents are under £1,000 you don't need to declare them.
Property business. For MTD, all your UK rentals count as one property business, and all your foreign rentals count as another. Quarterly updates are submitted per business, not per property.
Qualifying income. The gross combined income (before expenses) from your sole-trade and property activities, used to test whether you're above the MTD mandation threshold. Excludes employment income, pensions, dividends, interest, and partnership income. See Am I affected?.
Reasonable excuse. A genuinely unavoidable circumstance that cancels a penalty (illness, bereavement, software failure, etc.). Not the same as "I forgot". See Penalties.
Recognised software. Software HMRC has approved for MTD submissions. You must use recognised software (or bridging software on top of a spreadsheet) to file MTD updates. The official list is on GOV.UK.
Rent-a-room relief. A £7,500 tax-free allowance for letting out part of your main home.
Residential finance costs. Mortgage interest and similar costs on residential rental property. Not an ordinary expense, gets a 20% tax reducer instead. Reported separately in MTD submissions.
Self Assessment. The current annual tax-return system for sole traders, landlords, partners, company directors and others. MTD replaces the Self Assessment return for those it covers.
Sole trader. An unincorporated business run by an individual. Profits are reported on the individual's tax return.
Standard quarters. The default MTD quarter dates: 6 April – 5 July (Q1), 6 July – 5 October (Q2), 6 October – 5 January (Q3), 6 January – 5 April (Q4). See Key dates.
Time to Pay. A formal payment plan with HMRC if you can't pay on time. Stops further late-payment penalties (though interest still runs). See Paying your tax.
Trading allowance. A £1,000 tax-free allowance for sole-trade income. If your gross sole-trade income is under £1,000 you don't need to declare it.
UTR (Unique Taxpayer Reference). A 10-digit reference HMRC uses to identify you for Self Assessment. Used as your payment reference (followed by the letter K) when paying tax bills.
VAT (Value Added Tax). Separate tax on most goods and services. The £90,000 VAT registration threshold happens to match the MTD consolidated-expenses threshold but the two regimes are independent.
Voluntary sign-up. Joining MTD before being mandated to. Available since April 2025. Different penalty thresholds apply. See Signing up and Penalties.
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Sources
Definitions are drawn from the official HMRC and GOV.UK sources linked throughout the rest of this guide series, plus: