Is your business ready for Making Tax Digital? Here's how to stay ahead
What is Making Tax Digital?
Making Tax Digital is HMRC’s initiative to move tax reporting fully online. That means:
- Digital record keeping (no more paper ledgers or shoeboxes of receipts)
- Submitting through HMRC-compatible software
- Quarterly updates to HMRC, as well as the end-of-year return
All VAT-registered businesses already have to follow Making Tax Digital rules. For Income Tax, it’s being phased in for sole traders and landlords based on their qualifying income (gross self-employment plus property income, before expenses):
- Over £50,000 (2024 to 2025 tax year): you should have started from 6 April 2026. You can still sign up if you haven’t.
- Over £30,000 (2025 to 2026 tax year): from 6 April 2027.
- Over £20,000 (2026 to 2027 tax year): from 6 April 2028.
Partnerships will follow later. HMRC hasn’t set their timeline yet. Check where you stand on GOV.UK.
So… How Are Other Small Businesses Preparing?
Here’s what sensible small businesses are doing now to get ready for Making Tax Digital:
Switching to Making Tax Digital-Compatible Software
Many businesses are ditching manual spreadsheets and moving to user-friendly platforms like Xero, QuickBooks, Sage, or FreeAgent. These tools don’t just help with compliance. They save you time and give you real-time insight into your cash flow.
Leaning on Their Accountant
Now is the time to talk to your accountant. The best advisors aren’t just helping you stay legal. They’re actively guiding clients through software setup, digital records, and planning for quarterly tax submissions.
Automating Wherever Possible
From sending invoices to tracking expenses and reconciling bank statements, automation reduces human error and lightens your admin load. It also keeps your books tidy, so when tax time comes, you’re not scrambling.
Training Teams and Upskilling
If someone on your team handles finance, make sure they understand Making Tax Digital and the tools you're using. A little training now can prevent costly mistakes later.
Cleaning Up Their Records
Making Tax Digital means HMRC expects clean, connected digital records. That includes reviewing how you store and track data, and making sure there are no gaps between your invoices, bank feeds, and tax returns.
Common Hurdles (And How to Get Past Them)
We get it. Change isn’t always easy. Here are a few challenges small businesses often face:
- “We’re too small for all this tech.” Even the smallest businesses are included. The key is finding software that fits your size and budget.
- “It’s confusing.” True, but your accountant can help make sense of it all. Don’t be afraid to ask questions.
- “We’re not ready yet.” That’s okay. Starting now means you're not rushing when the deadline hits.
Final Thoughts: Don’t Just Comply, Thrive
Making Tax Digital isn’t just a box to tick. It’s a chance to modernise how your business handles money. With real-time financial data and less paperwork, you can make smarter decisions faster. That means more time to focus on growing your business.
The bottom line is this: the earlier you prepare, the smoother the transition.
Need help getting started? Have a chat with your accountant first. If you’re choosing software, Xero is currently offering 80% off for 6 months to organisations new to Xero (until 31 March 2027, on selected plans).
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