Most small business owners have heard of “Making Tax Digital” by now. But hearing a phrase and understanding exactly what it means in the way you use your books are two different things.
The UK government has been rolling this out in stages since 2019, and yet a surprising number of business owners are still confused by the details – or worse, have decided it no longer applies to them without really checking. Some of that confusion is understandable. Deadlines are long overdue, the rules differ depending on your type of tax and income, and HMRC’s official guidance, although comprehensive, is not easy to read on a Tuesday evening.
Here’s a plain English explanation of what MTD requires, where small businesses often stumble, and what you should be fixing now if you haven’t already.
What MTD Really Needs (Beyond the Buzzword)
Going Tax Digital isn’t just about filing returns online — you’re probably already doing that. The key change is that the MTD requires digital recordkeeping from sourceand those records must be submitted to HMRC through the associated software, not through the HMRC website itself.
For VAT, this was mandatory from April 2022 for all VAT registered businesses regardless of turnover. With Income Tax Self Assessment (ITSA), the rules are set between sole traders and landlords:
- From April 2026: Those with a qualifying income of more than £50,000
- From April 2027: Those with an income of more than £30,000
- From April 2028: It is expected to cover those over £20,000
If you’re a limited company, corporation tax isn’t there yet – but the government has confirmed it’s coming.
What this means in practice: quarterly HMRC reviews instead of one annual return, and a final end-of-period statement. For business owners who have filed one tax return every January for two decades, that rhythm is a bigger adjustment than the headlines often suggest.
Spaces That Hold People
“My accountant handles everything” is not the full picture
Many business owners think that having an accountant means that MTD is someone else’s problem. Not so, absolutely. MTD compliance requires a business to keep digital records throughout the year – not hand out a shoebox of receipts when everything is due. If your current system is spreadsheets or paper records, that needs to be changed before your compliance date.
If you work with accountants in London who are actively helping clients through this transition, those relationships can make a real difference – but only if you’re talking now, not six months after the deadline.
Integration software is an application, not a long-term fix
Some businesses link existing spreadsheets with HMRC systems using integration software. That’s up to par with the technology at the moment. But the integration solutions were designed as a temporary measure, and the way forward is clear. Moving to the right MTD compliant accounting software early reduces compliance risk and, once you get used to it, often saves time. The first change is the painful part.
Quarterly does not mean quarterly tax payments
One of the persistent misconceptions is that ITSA’s MTD means you owe tax four times a year instead of once. That’s not the case. Posted quarterly are income and expense updates – your actual tax bill pays out as usual. Some business owners actually delay preparing over the worry of non-existent cash flow, which needs to be fixed.
The exemption is less than most people think
Exemptions exist — for example, if HMRC agree it is not reasonably possible for you to use the software. But these are tested individually, not as a blanket category. Businesses who think they will qualify sometimes find out at the wrong time that they cannot. If you think you might be liable, it’s worth getting that confirmed in advance rather than taking it as a refund.
Why Time Is More Important Than People Realize
Tax compliance is often delayed until the deadline. With the MTD, that creates a greater risk than normal.
Changing accounting software mid-year disrupts your records. Learning a new system takes time. And if you plan to work with an accountant through the transition, good – especially small business accountants in London who have direct MTD knowledge – are already seeing an increase in demand as 2026 approaches. Earlier interviews tend to get better attention and better preparation.
There’s also a practical argument for running concurrently before your deadline: keeping your old records next to your new MTD-compliant system for a quarter or two allows you to spot errors before they become a compliance issue. It’s a lot of work in a short period of time, but it eliminates the risk of a messy first shipment.
Choosing the Right Software
HMRC maintains a list of MTD compatible software. Options range from free basic tools that cover the core requirements to full financial platforms with invoicing, payroll, and reporting built in. Which one is right for you depends on the complexity of your business, the volume of transactions, and how much control you want versus outsourcing.
One thing many business owners don’t think about: the software you choose affects how easily your accountant can review and submit. If you’re keeping an accountant involved – which makes sense for many small businesses – it’s worth checking what they’re comfortable working with before committing to a platform. Finance Monthly has you covered how to evaluate small business accounting software if you want a detailed comparison.
Where to start
If your MTD deadline is April 2026 or later, you have time – but not unlimited time.
A helpful first step is to find out where your recordkeeping currently resides, and whether it qualifies as “digital” under the MTD rules. A manually updated spreadsheet is not the same as MTD compliant software, even if the data looks the same. From there, talk to your accountant about what platform they would recommend and what the transition might look like in your specific setup.
If you don’t have an accountant and compliance day is approaching, now is a good time to get involved. The difference between someone who has real MTD experience and someone who doesn’t is quickly apparent — both in how smooth the transition is and how much control you end up with afterward.
MTD tends to feel like a headache until you get it right. After that, most businesses find the rhythm of the quarter less painful than the year. However, getting to that point requires getting work done before the deadline, not because of it.
