What is Making Tax Digital (MTD) and Why It Matters to Small Business Owners?
If you run a small business, you’ve probably heard the phrase "Making Tax Digital," or MTD for short. Maybe it came up during a quick chat with your bookkeeper, or perhaps you spotted it in a government email and promptly ignored it (we’ve all been there!). But here's the thing: MTD isn’t just more HMRC red tape - it’s a shift in how businesses manage and report their taxes. And it’s already here.
So let’s cut through the jargon and get into what MTD actually is, why it matters for your business, and how an accountant can make the whole thing much, much easier.
What Exactly Is Making Tax Digital?
MTD is part of the UK government’s initiative to modernise the tax system. Rather than filing your taxes once a year using spreadsheets, paper records, or that shoebox full of crumpled receipts, you now need to keep digital records and submit information to HMRC using software that talks directly to their systems.
Sounds like a hassle? It might seem that way at first, especially if you’re used to doing things the old-fashioned way. But the goal of MTD is actually to reduce errors, make tax submissions more accurate, and generally make life a little easier for both you and HMRC.
It’s not just about being online - it’s about staying current. That means submitting updates more regularly (usually quarterly) instead of doing one big annual return.
Who Needs to Follow MTD?
MTD is being rolled out in stages, and depending on what kind of business you run, you might already be affected - or soon will be.
If you’re VAT-registered, you’re already in the MTD world. Since April 2019, businesses with a VAT-taxable turnover above the threshold (currently £90,000) have been required to follow MTD rules. And as of April 2022, even those below the threshold but still registered for VAT must comply.
If you're a sole trader or landlord earning over £50,000 revenue a year, MTD for Income Tax Self Assessment (also known as MTD for ITSA) will apply to you starting in April 2026. That threshold drops to £30,000 in 2027.
And while MTD for Corporation Tax is still a few years away (expected sometime after 2027), it’s on the horizon. So it’s safe to say that eventually, every business - big or small - will be working digitally with HMRC.
So What Do You Actually Need to Do?
In practical terms, MTD means:
Keeping digital records of your business transactions. That includes income, expenses, VAT if applicable, and any other financial details required by HMRC.
Using MTD-compliant software. That means accounting tools like Xero, QuickBooks, FreeAgent, or Sage. Spreadsheets are technically still allowed - but only if they’re linked to special software (called bridging software) that can talk to HMRC. Honestly, you’re better off just using a cloud-based accounting system.
Sending quarterly updates instead of one yearly submission. That’s right: you’ll need to keep your records up to date year-round, not just when the January deadline looms.
Submitting a final year-end declaration, kind of like a wrap-up that confirms everything you’ve reported over the year.
What Happens If You Don’t Comply?
MTD isn’t optional if your business falls under the rules. It’s a legal requirement.
Failing to comply could mean penalties for late submissions, fines for not keeping proper digital records, and increased scrutiny from HMRC. It’s not worth the risk - especially when compliance doesn’t have to be that hard with the right setup.
Why MTD Might Actually Be a Good Thing
I get it. Change is hard, and change involving taxes? Even harder. But here’s the silver lining: MTD can genuinely improve how you manage your business finances.
Because you're updating your records quarterly, you're more likely to stay on top of things. That means no more last-minute scrambles to find receipts or guess your tax bill. You’ll have a much clearer picture of your cash flow, profits, and expenses throughout the year.
And using digital software? It’s a game-changer. Once you get past the learning curve, it saves time, reduces mistakes, and makes financial planning so much smoother. Need to know how much VAT you owe or how your profits are trending? A few clicks and you’ve got your answers.
How an Accountant Can Help (And Save Your Sanity)
If you’re feeling overwhelmed, you’re not alone. I work with small business owners every day who feel stuck or anxious about MTD. That’s exactly why I built Lauren’s Ledger - to help folks like you navigate all of this with confidence.
First off, I help you choose the right software. Not every tool is a good fit for every business. We’ll look at what you do, how you work, and what features you need - then pick the best one together.
Then, I help set everything up properly. That means linking your bank feeds, getting your chart of accounts in order, and creating a simple system so you can raise invoices, track expenses, and keep an eye on your numbers without having to become a financial whiz.
Not confident with technology? No problem. I offer one-on-one training, simple walkthroughs, and ongoing support. You’re never left wondering what button to press or what step to take next.
And when it comes time to file those quarterly updates? I can handle that too. Many clients choose to have me submit their returns so they can get on with running their business. It's one less thing to worry about.
As MTD continues to evolve, I stay up to date so you don’t have to. I’ll make sure you're always compliant and in the loop with any changes HMRC introduces.
Let’s Make MTD Work for You
Making Tax Digital isn’t going away. But with a little planning and the right support, it doesn’t have to be a headache. In fact, it might just be the push you need to get your finances in shape and start making smarter decisions for your business.
If you’re already VAT-registered or just want to get ahead of the curve for MTD for Income Tax, I’d love to help. Book a free discovery call here and let’s chat about how to make your transition to digital tax simple, smooth, and totally stress-free.