After choosing software: getting it ready for MTD, as GOV.UK explains

Hamish is fictional, but the point he has reached comes for everyone who uses Making Tax Digital (MTD) for Income Tax. He lets two flats, and he has just worked through the software selector and settled on a product that fits the way he keeps his records. With that decision made, he wonders whether he can start entering his rent and repair bills straight away, or whether something has to happen first. This guide sets out what GOV.UK says comes next, so that someone in his position knows what to do once the software is chosen.

Two tasks come before the first digital record

GOV.UK’s page on getting your software ready starts by asking you to check that you have:

• got compatible software
• authorised an agent to act on your behalf, if you have one

It then explains what the software is for from here on. After signing up, you or your client need to use your chosen software that works with Making Tax Digital for Income Tax to create digital records and send quarterly updates. Before any of that begins, though, there are two things to do, and GOV.UK puts them as requirements rather than suggestions. Before you start creating digital records, you must:

• authorise your software
• check your accounting period in your software

The rest of this guide takes each of those in turn, and then looks at how you reach the new service in your HMRC online account, which is where some of the other tasks live.

Authorising the software so it can talk to HMRC

Choosing a product does not connect it to your tax affairs on its own. You need to authorise your compatible software, so it is connected to HMRC. GOV.UK asks for this before any records are created, so it comes first once Hamish has the software set up.

GOV.UK gives these steps for a sole trader or landlord:

1. Select the option to connect with HMRC in your compatible software.
2. Enter the user ID and password you used when you signed up for Making Tax Digital for Income Tax.
3. Pass the identity check by entering personal information and details from your identity documents (if you need to).
4. Give permission for your software to connect with HMRC.

The connection does not last indefinitely, which is worth knowing now rather than finding out later. You’ll need to repeat these steps every 18 months, but you will not need to pass the identity check again. Your software should remind you when it’s time to reconnect.

If an accountant connects the software for you

An accountant or other agent authorises their own firm’s software in a similar way, using the account they hold for agents rather than your sign in details. GOV.UK’s steps for an agent are:

1. Select the option to connect to HMRC in the compatible software.
2. Enter your firm’s agent services account user ID and password.
3. Pass the identity check by entering personal information and details from identity documents.
4. Give permission for your firm’s software to connect with HMRC.

Personal information from the agent or an employee at the firm is required for fraud prevention. GOV.UK points to the HMRC Privacy Notice for how that information is stored and processed. The agent will need to repeat these steps every 18 months, and the software should remind them when it’s time to reconnect.

This is separate from the permission you give an accountant to act for you in the first place, which GOV.UK asks you to have in place before you start. The guide to letting an accountant act for you on MTD explains how that permission works and what you are asked to approve.

Checking the accounting period before the first update

The second task is about dates, and the software needs to know which ones your accounts follow. Your accounting period is the period that your books or accounts cover. Your software will automatically default to an accounting period that aligns with the tax year (6 April to 5 April).

That default suits accounts that follow the tax year, and GOV.UK names one case where you need to change it. If your accounting period runs from 1 April to 31 March, you need to select calendar periods in your software before you send your first quarterly update.

The timing of this check matters, because GOV.UK says the choice is fixed once an update has gone in. You cannot change your accounting period after you have sent a quarterly update, so it’s important you check this when you set up your software. The MTD deadlines calendar shows how standard and calendar update periods line up with each deadline, and the guide to year-end adjustments and your tax return explains what GOV.UK says about accounting periods that do not match the tax year when the year closes.

Signing in to the new service

Signing up gives you access to a new service on HMRC’s side, alongside the software. GOV.UK’s page on accessing your new MTD for Income Tax service explains it like this. If you’re a sole trader or landlord, you can access your new Making Tax Digital for Income Tax service through your existing HMRC online account once you’re signed up. You sign in to HMRC online services with the sign in details you use for Self Assessment, and then select ‘Making Tax Digital for Income Tax’. The sign-in page is GOV.UK’s HMRC online services page.

If the service does not appear when you sign in, GOV.UK gives a way to add it. If you cannot access Making Tax Digital for Income Tax as a service, you can add it manually:

1. Sign in to your HMRC online account.
2. Select ‘Add a tax to your account’ to get online access to a tax, duty or scheme.
3. Select Making Tax Digital for Income Tax.
4. Answer the security questions.

If an accountant handles this for you, they reach the service from their side instead. Agents need to use their agent services account to access this service on behalf of clients signed up to Making Tax Digital for Income Tax. Once an agent is authorised to act for a client for Making Tax Digital for Income Tax and the client is signed up, the agent can access the client’s details from their agent services account. What an agent can do on behalf of a client also depends on whether they are a main or supporting agent. GOV.UK’s page on choosing agents explains the difference, and agents sign in through their agent services account.

What the online account is for, compared with the software

It helps to keep the two roles apart. The software is where Hamish will create his digital records and send his quarterly updates, because that is what GOV.UK says it is for. The online account is where he can see and manage his MTD service. In your HMRC online account you can access information about your Making Tax Digital for Income Tax service. You can use it to:

• view an estimate of your tax bill
• check quarterly update and tax return due dates
• view what you need to report for each tax year (your reporting obligations)
• check what you owe and make a payment
• view your sole trader and property business details
• add a new sole trader or property business (in the UK or overseas)
• tell HMRC when an income source stops (ceases)
• adjust a payment on account
• view and appeal penalty points and penalties
• opt out if you are voluntarily using Making Tax Digital for Income Tax
• sign up for Making Tax Digital for Income Tax if you were previously signed up and opted out

You’ll be able to access more services in your account in the future. If you need to do something not listed here, contact Self Assessment: general enquiries. HMRC’s contact details are on GOV.UK’s Self Assessment general enquiries page.

Where to go next

With the software authorised and the accounting period checked, the next step is the one GOV.UK names at the end of its page. You or your client now need to start creating digital records of income and expenses to send quarterly updates. The guide to your first quarterly update explains what that first submission contains and when it is due. If you use an accountant, the guide to letting an accountant act for you covers who does what. The year-end guide looks ahead to the tax return. If you have not settled on a product yet, the software selector works through your circumstances, and the comparison table sets the products side by side.

Questions people ask once their software is chosen