Making Tax Digital (MTD) is changing the way businesses manage and report their taxes. Designed to modernise the UK tax system, MTD requires businesses to keep digital records and submit tax information using compatible software.
If you’re a small business owner, it’s important to understand what MTD means for you, and how to prepare for it.
MTD is a government initiative aimed at improving the accuracy and efficiency of tax reporting. It’s being rolled out in phases:
Under MTD, businesses must:
This means spreadsheets alone won’t cut it, you’ll need to switch to software that meets HMRC’s requirements.
Check when your business will be affected. If you’re VAT-registered, you should already be complying. If you’re self-employed or a landlord, review your income to see when MTD for Income Tax applies to you.
You’ll need software that can record transactions and submit tax updates directly to HMRC. Look for platforms listed on HMRC’s approved software list or recommended by professional bodies like ICAEW.
Start keeping digital records of all income and expenses. This will make the transition smoother and reduce the risk of errors.
Update your bookkeeping routines and ensure your accountant (if you have one) is MTD-ready. You may also need to revise engagement letters or service agreements if you work with a tax adviser.
If others in your business handle finances, make sure they understand the new requirements and how to use the software correctly.
Getting ready early means fewer surprises later. Businesses that prepare now will avoid penalties, reduce stress, and benefit from more accurate financial data.
It’s also a chance to improve how you manage your finances — with better visibility, automation, and fewer manual errors.
Making Tax Digital is more than a compliance exercise. It’s an opportunity to modernise your financial processes and stay ahead of regulatory changes. Whether you manage your own accounts or work with an accountant, taking steps now will make the transition smoother.