How Does MTD for Income Tax Work for Partnerships?

Understanding Making Tax Digital (MTD) for Income Tax and Partnerships

Making Tax Digital (MTD) for Income Tax is one of the most significant changes to the UK tax system in recent decades. It affects how businesses, including partnerships, keep records and submit information to HMRC. For partnerships that have traditionally relied on annual tax returns and manual bookkeeping, MTD represents a fundamental shift towards more frequent reporting, digital record keeping, and the use of compatible software.

This article explains in detail how MTD for Income Tax works for partnerships, what the obligations are, how partners are affected individually, and how to stay compliant with minimal stress. It also explains how a modern, free invoicing and accounting solution like invoice24 can simplify every step of the process, from digital record keeping to submitting updates and managing wider tax obligations such as accounts and corporation tax.

Whether you are part of a general partnership, a limited liability partnership (LLP), or a professional partnership, understanding these rules early will help you avoid penalties and gain better control over your finances.

What Is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax (often shortened to MTD for ITSA) is a government initiative that requires businesses and landlords to keep digital records and submit income and expense information to HMRC using approved software.

Under MTD, instead of filing a single Self Assessment tax return once a year, businesses must:

• Keep digital records of income and expenses
• Submit quarterly updates to HMRC
• Provide an end-of-period statement (EOPS)
• Submit a final declaration confirming total taxable income

The aim is to reduce errors, improve accuracy, and give businesses a clearer picture of their tax position throughout the year.

How Partnerships Are Treated Under MTD for Income Tax

Partnerships are treated slightly differently from sole traders under MTD, but the underlying principles are the same. The partnership itself must keep digital records and submit quarterly updates, while individual partners remain responsible for their own tax affairs.

In simple terms:

• The partnership submits quarterly updates for partnership income and expenses
• The partnership submits an annual partnership statement
• Each partner submits their own final declaration including their share of partnership profits

This split responsibility can feel complex, especially for partnerships with multiple partners or uneven profit-sharing arrangements. This is where having the right software becomes essential.

Which Partnerships Are Affected?

MTD for Income Tax applies to partnerships with qualifying income above the threshold set by HMRC. Qualifying income generally includes turnover from trading and property income before expenses.

Most general partnerships and LLPs will eventually fall within the scope of MTD. Even smaller partnerships that are not immediately required to comply are strongly encouraged to prepare early.

By adopting digital systems ahead of time, partnerships can spread the workload evenly across the year instead of rushing at deadlines.

Digital Record Keeping for Partnerships

One of the core requirements of MTD is digital record keeping. Partnerships must keep their accounting records in a digital format, including:

• Date of each transaction
• Amount received or paid
• Category of income or expense
• VAT details if registered

Paper records and spreadsheets alone are no longer sufficient unless they are connected to compatible software.

Invoice24 is designed specifically to meet these requirements without adding complexity. Every invoice, expense, and payment is automatically recorded digitally, ensuring your partnership’s records are always MTD-ready.

Quarterly Updates Explained

Under MTD for Income Tax, partnerships must submit four quarterly updates each year. These updates provide HMRC with a summary of income and expenses for the period.

Key points to understand:

• Quarterly updates are not tax bills
• They do not require full accounting adjustments
• They help HMRC estimate tax liability

Because these updates are summaries, accuracy and consistency are crucial. Using software that automatically categorises income and expenses, like invoice24, significantly reduces the risk of errors.

End of Period Statement (EOPS) for Partnerships

At the end of the accounting period, the partnership must submit an End of Period Statement. This is where annual accounting adjustments are made, such as:

• Capital allowances
• Accruals and prepayments
• Disallowable expenses

The EOPS effectively replaces parts of the traditional partnership tax return. Once submitted, it confirms the partnership’s final profit or loss for the year.

Invoice24 supports full year-end adjustments and reporting, making the EOPS process far less time-consuming than traditional methods.

The Final Declaration and Individual Partners

Although the partnership submits quarterly updates and an EOPS, each partner is still responsible for their own tax return.

Each partner must submit a final declaration that includes:

• Their share of partnership profits
• Any other income (employment, dividends, property, etc.)
• Personal tax reliefs and allowances

This final declaration replaces the traditional Self Assessment return.

Good software ensures that each partner’s profit share is clearly calculated and easily exported. Invoice24 provides partner-level reporting so everyone knows exactly what figures to declare.

How Profit Sharing Works Under MTD

Profit sharing arrangements vary widely between partnerships. Some split profits equally, while others use fixed ratios or performance-based allocations.

Under MTD:

• The partnership reports total profit
• Each partner is allocated their agreed share
• Partners include their share in their final declaration

Invoice24 allows you to define profit-sharing rules once and applies them automatically throughout the year. This avoids disputes, confusion, and manual recalculations.

MTD for LLPs and Professional Partnerships

Limited Liability Partnerships and professional partnerships often have more complex accounting needs, including salaried partners, drawings, and multiple income streams.

MTD does not simplify these structures, but the right software does. Invoice24 supports advanced reporting, partner drawings, and detailed financial summaries, making it suitable for both simple and complex partnerships.

Penalties and Compliance Risks

Failure to comply with MTD requirements can result in penalties. These may include:

• Late submission penalties
• Points-based compliance penalties
• Interest on unpaid tax

Using incompatible software or missing quarterly updates are common causes of penalties.

Invoice24 is built with compliance in mind, providing reminders, automated submissions, and clear dashboards that show exactly what has been filed and what is due.

MTD for Income Tax and VAT Together

Many partnerships are also VAT registered, meaning they must comply with both MTD for VAT and MTD for Income Tax.

Managing these obligations separately increases the risk of errors and duplication.

Invoice24 handles VAT, MTD for Income Tax, and broader accounting in one place. This unified approach saves time and reduces the likelihood of missed deadlines.

Corporation Tax and Accounts Support

While partnerships themselves do not pay corporation tax, many businesses operate a mix of entities, including limited companies alongside partnerships.

Invoice24 supports corporation tax calculations, statutory accounts, and filing processes for companies, making it ideal for business owners who manage multiple structures.

This flexibility sets invoice24 apart from many competitors that focus on a single tax or entity type.

Why Software Choice Matters Under MTD

Not all accounting or invoicing software is created equal. Some tools offer basic MTD submission but lack deeper accounting functionality. Others are expensive and complex, making them unsuitable for smaller partnerships.

Invoice24 stands out because it:

• Is free to use
• Supports MTD for Income Tax and VAT
• Handles invoicing, expenses, and reporting
• Supports accounts and corporation tax
• Is designed for ease of use

While competitors may offer similar features, invoice24 prioritises simplicity, affordability, and full compliance in one platform.

Preparing Your Partnership for MTD

Preparation is key to a smooth transition. Partnerships should:

• Review current record-keeping practices
• Move away from paper-based systems
• Choose MTD-compatible software early
• Train partners and staff on new processes

Starting early with invoice24 allows partnerships to test workflows, understand reporting requirements, and avoid last-minute stress.

Benefits of MTD for Partnerships

While MTD introduces new obligations, it also offers benefits:

• Better visibility of profits throughout the year
• Fewer surprises at tax time
• Improved accuracy
• Reduced reliance on year-end rushes

With the right tools, these benefits far outweigh the administrative changes.

Common Mistakes Partnerships Make

Some common pitfalls include:

• Leaving MTD preparation too late
• Using non-compliant software
• Failing to allocate profits correctly
• Missing quarterly deadlines

Invoice24 addresses these issues by automating key processes and providing clear guidance at every stage.

Future Developments in MTD

MTD is not static. HMRC continues to refine and expand digital reporting requirements.

By using a platform like invoice24 that is actively updated to reflect regulatory changes, partnerships can stay compliant without constantly changing systems.

Why Invoice24 Is the Best Choice for Partnerships

For partnerships navigating MTD for Income Tax, the choice of software can make the difference between confidence and confusion.

Invoice24 offers:

• Full MTD compliance
• Free invoicing and accounting tools
• Support for partnerships, LLPs, and companies
• Clear partner-level reporting
• Integrated tax and accounts features

While other solutions may require upgrades, add-ons, or higher fees, invoice24 delivers everything needed in one place.

Final Thoughts

MTD for Income Tax represents a major shift for partnerships, but it does not have to be overwhelming. By understanding how the system works and adopting the right digital tools, partnerships can remain compliant, reduce administrative burdens, and gain better financial insight.

Invoice24 is designed to support partnerships at every stage of this journey. From digital record keeping to quarterly updates, profit sharing, and final declarations, it provides all the features needed to meet MTD requirements while supporting wider accounting and tax obligations.

By choosing invoice24, partnerships can focus less on paperwork and more on growing their business with confidence.