Do you need to use MTD?
MTD applies if your qualifying income from self-employment (driving instruction) and property combined was more than £50,000 in the 2024-25 tax year. The threshold is tested as MORE than the figure. Exactly £50,000 is not over it.
If your income was over £30,000 in 2025-26, you must use MTD from 6 April 2027. If it was over £20,000 in 2026-27, you must use it from 6 April 2028.
Qualifying income is your total turnover from driving instruction before you deduct any expenses. It does not include employment income through PAYE, dividends, or pensions.
If your qualifying income is £20,000 or less, you are automatically and permanently exempt from MTD ITSA.
What counts as qualifying income for a driving instructor?
Your qualifying income includes all fees you charge for driving lessons, intensive courses, and any other instruction services. This is your gross income before deducting car costs, fuel, or other business expenses.
If you also have property income (for example, renting out a room or a flat), this is added to your driving instruction income to test the MTD threshold.
Income from other sources that is not self-employment or property, such as PAYE wages or state pensions, is not counted towards the MTD threshold.
Quarterly updates: what you send and when
Under MTD, you send four quarterly updates to HMRC each year. Each update is a summary of your income and expenses by category, cumulative from 6 April. It is not a full tax return.
You must send an update even if you had no income or expenses in that period.
You can send the update from the end of the period up to the deadline. You can also send it up to 10 days before the period ends if you expect no further transactions.
The categories used are the same as those in Self Assessment. For a driving instructor, this typically includes income from lessons, and expenses like car hire, fuel, insurance, and maintenance.
| Update period | Deadline |
|---|---|
| 6 April to 5 July | 7 August |
| 6 July to 5 October | 7 November |
| 6 October to 5 January | 7 February |
| 6 January to 5 April | 7 May |
The accounting period cannot be changed after the first quarterly update has been sent. Most software defaults to the tax year period (6 April to 5 April).
Keeping digital records for your car and fuel
You must keep digital records of all income and expenses. This means recording each transaction in compatible software as it happens, or shortly after.
For your car, you need to record costs like fuel, insurance, servicing, repairs, and lease or hire payments. If you use the simplified expenses method for vehicle costs, you still need to record the mileage and the amount claimed digitally.
Under the cash basis (the default method from 2024-25), you record income when you receive it and expenses when you pay them.
Once a record has been sent to HMRC in a quarterly update, it must not be moved by hand. You cannot cut and paste or copy and paste records between software or within the same software after submission.
Tax return and final payment
The quarterly updates are summaries. You still need to submit a full Self Assessment tax return after the end of the tax year. This is due by 31 January following the end of the tax year.
You pay any tax owed by 31 January as well. If you are in your second year of trading, you may also have payments on account to make.
After each quarterly update, you can see an estimate of your tax bill in your software or in HMRC online services.
Penalties for missing deadlines
From the 2027-28 tax year, missing a quarterly update deadline results in one penalty point. Four points trigger a £200 penalty, and another £200 for each subsequent missed deadline.
For the 2026-27 tax year, there are no penalty points for missing a quarterly update deadline. However, you still must send the updates and keep digital records. Penalty points still apply to the tax return deadline.
Late payment penalties are separate. They are not points-based and apply to each late payment, but not to payments on account.
If you are below the penalty threshold, points are removed automatically 24 months after the missed deadline. At the threshold, you need 12 months of on-time submissions to clear them.
Signing up for MTD
You must be registered for Self Assessment and have submitted a tax return in the last 2 years to sign up for MTD ITSA.
You can sign up for the current tax year or the next one before you are required to. From September 2026, HMRC will sign up anyone who needs it for 2026-27 and has not signed themselves up.
HMRC's sign-up confirmation arrives in your HMRC online services or by post. You may need to complete an identification check.
If all your income ceased before 6 April 2026, you do not need MTD ITSA, but you still must file the 2025-26 tax return. If it ceased on or after 6 April 2026, you still need MTD and must send a final quarterly update covering the period up to the date it stopped.