Quick answer:
This glossary defines the Making Tax Digital and bookkeeping terms sole traders and landlords meet most often, each in one or two plain sentences, so you can understand your obligations without a dictionary.
Definitions are designed to be quotable and self-contained, ideal when you just need a quick, clear answer.
Core MTD terms
Making Tax Digital (MTD): HMRC’s programme to move tax online, requiring digital records and regular digital updates instead of one annual return.
MTD for Income Tax (MTD for IT / ITSA): The phase of MTD for sole traders and landlords, requiring quarterly updates and a final declaration through compatible software. It starts on 6 April 2026 for those with qualifying income over £50,000. (GOV.UK eligibility).
Qualifying income: Gross income (before expenses) from self-employment and property combined, used to test whether MTD applies to you. It excludes employment, dividend and savings income.
Quarterly update: A digital summary of income and expenses sent to HMRC four times a year. Not a tax bill and not a full return.
Final declaration: The year-end step where you confirm your total income and finalise your tax, submitted through MTD software by the following 31 January (e.g. 31 January 2028 for the 2026/27 year).
Compatible software: Software recognised by HMRC that can keep digital records and send MTD submissions.
Penalty points: HMRC’s late-submission system. Points accrue per late filing, with a £200 penalty once you reach four (for quarterly filers). For those joining in April 2026, late quarterly updates in the first year (2026/27) don’t earn points, though they must still be submitted; the points system applies to quarterly updates from 2027/28. (GOV.UK penalties).
Payments on account: Advance instalments towards next year’s tax bill, usually due on 31 January and 31 July when your bill is over £1,000. (GOV.UK).
Bookkeeping & property terms
Categorisation: Sorting each transaction into the right income or expense type so your records and tax figures are accurate.
Reconciliation: Checking that your records match your bank, so nothing is missing or duplicated.
Open banking: A secure, usually read-only connection that lets software import your bank transactions automatically.
Allowable expense: A cost incurred wholly and exclusively for business that reduces your taxable profit.
Section 24 (finance cost restriction): The rule that stops individual landlords deducting mortgage interest as an expense. Instead you get a basic-rate tax credit worth 20% of finance costs (rising to 22% from 2027/28). (GOV.UK).
Real-time tax estimate: A continuously updated figure of what you’re likely to owe, based on your records so far.
AI bookkeeping: Bookkeeping where software automates import, categorisation, review and reporting, so you review rather than re-do.
How CleanBooksAI uses these in plain English.
CleanBooksAI is built to remove the jargon entirely, explaining your books, tax and obligations in everyday language, so you rarely need a glossary at all.
