Making Tax Digital for Small Businesses and the Self-Employed

Making Tax Digital (MTD): What It Means for Small Businesses and the Self-Employed

If you run a small business or work for yourself, you’ve probably heard the phrase Making Tax Digital often referred to as MTD, mentioned increasingly more over the past 12 months. But what does it mean and what do you need to do to stay compliant?

Below, we explain what MTD is, who it affects, and how small businesses and the self-employed can prepare for MTD.

What Is Making Tax Digital (MTD)?

Making Tax Digital is a UK government initiative designed to modernise the tax system by moving it online. The aim is to make it easier for individuals and businesses to get their tax right by:

• ✅ Keeping digital accounting records
• ✅ Using HMRC-approved software
• ✅ Submitting tax updates quarterly
• ✅ Reducing errors

MTD has already been introduced for VAT-registered businesses, and the next major phase, MTD for Income Tax, is just around the corner.

When Does Making Tax Digital for Income Tax Start?

MTD for Income Tax is scheduled to become mandatory from 6 April 2026 for Self-employed individuals and Landlords earning over £50,000 per year.

From April 2027, the rules are expected to extend to those earning over £30,000 per year.

Who Does Making Tax Digital Apply To?

You’ll be affected by Making Tax Digital for Income Tax if you:

• ✅ Run a sole trader business
• ✅ Are self-employed or a freelancer
• ✅ Earn income from rental property
• ✅ Currently submit a Self-Assessment tax return

Limited companies are not yet included under MTD for Income Tax, but further changes are expected in the future.

What Will Change Under Making Tax Digital?

Below are the key differences between the current system and MTD for small businesses and the self-employed.

Digital Record-Keeping for MTD

You’ll need to keep your income and expenses in a digital format using MTD-compatible accounting software. Paper records and spreadsheets alone will no longer be enough.

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Quarterly MTD Updates to HMRC

Instead of submitting one tax return per year, you’ll send quarterly updates to HMRC throughout the year, summarising your income and expenses.

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End of Period Statement

At the end of the tax year, you’ll confirm your final figures and make any necessary adjustments.

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Final Declaration

You’ll submit a final declaration to confirm your total taxable income, replacing the traditional Self-Assessment return.

Why Making Tax Digital Matters for Small Businesses and the Self-Employed

Making Tax Digital compliance isn’t just a regulatory issue, it will change how you manage your finances day-to-day. Like anything, these come with both benefits and certain challenges. Some of the potential benefits of MTD include:

• ✅ Better visibility of your business cash flow
• ✅ Fewer errors in your tax submissions
• ✅ Less pressure at year-end
• ✅ More up-to-date financial information

In contrast, the potential challenges MTD can bring include:

• 🔘 Learning new accounting software
• 🔘 Changing your bookkeeping habits
• 🔘 Managing more frequent reporting
• 🔘 Staying on top of MTD deadlines

How to Prepare for Making Tax Digital

Even though MTD for Income Tax isn’t mandatory yet, there are simple steps you can take now in preparation.

Review Your Current Bookkeeping System

Are you still using paper records or spreadsheets? If so, it may be time to switch to digital bookkeeping software.

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Choose the Right MTD-Compatible Software

Not all software is HMRC-approved. Look for tools that suit your business size, industry, and level of experience.

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Get Professional MTD Advice

An accountant can help you set up your MTD-compliant software and train you on digital record-keeping. Furthermore, instructing an accountant helps ensure all quarterly MTD submissions are handled correctly with full compliance with HMRC rules.

Need Help with Making Tax Digital?

Our accountancy team are here to help small businesses, self-employed individuals, and landlords prepare for Making Tax Digital.

Whether you need help regarding software, setting up your records, or managing your MTD submissions, our team is here to make the process simple.

Getting Ready for Making Tax Digital

Making Tax Digital for small businesses and the self-employed is a major shift in how tax reporting works, but it doesn’t have to be overwhelming.

With the right preparation and professional support, you can stay compliant, reduce stress, and gain better control over your finances.