With the new tax year here, business owners will have undoubtedly heard plenty around Making Tax Digital (MTD).
The headline message is simple enough: digital record keeping and quarterly submissions.
But there are a few realities about MTD that don’t always get talked about.
Not because your accountant is hiding anything, but because the conversation often focuses on what the rules are, rather than what the change will actually mean for businesses.
Here’s what you need to know.
There will be additional admin and cost
MTD will bring additional costs for a lot of businesses.
HMRC estimates the average initial setup cost at around £330, with ongoing costs of roughly £35 per year.
In our view, this is significantly understated.
A typical sole trader business will require MTD compliant accounting software at a cost.
The real cost for a standard bit of software is closer to £35 per month, not per year as HMRC suggests.
This is without considering any time costs, or professional fees to support your record keeping and quarterly submissions.
Business owners will need to decide whether to handle the monthly or quarterly work themselves, or bring in a bookkeeper or accountant.
Even if you keep things in-house, many businesses will still need an accountant to review records and submit quarterly updates, which will come at an additional cost.
In practice, these additional costs are likely to include things like:
- MTD-compatible accounting software
- Initial set-up and training
- More regular bookkeeping and record-keeping
For businesses already using cloud software, the change might be relatively small. For those still relying on spreadsheets or paper records, the transition is going to be much more noticeable.
MTD is based on income, not profit
One of the biggest misconceptions is that MTD only affects people making significant profits.
In reality, the threshold is based on income (turnover), not profit.
That means you could have modest margins, or even make a loss in a year, and still fall within the MTD rules if your income exceeds the £50,000 threshold.
For some businesses, this will feel like a compliance requirement arriving before the profits that usually come with it.
Reporting becomes quarterly, not yearly
For many self-employed people today, the rhythm is fairly simple. Records build up through the year, and the advisory conversation with the accountant happens once the year has finished. MTD changes that rhythm.
Instead of one annual submission, income and expenses will be reported to HMRC every quarter using compatible software. The final tax calculation will still happen annually, but the reporting process becomes far more regular.
This change means that bookkeeping and accounting advice can’t be left until the end of the year.
You can’t just drop off receipts once a year
Historically, some sole trader business owners have taken a “once-a-year” approach to bookkeeping. MTD effectively brings that to an end.
Businesses will need to maintain digital records throughout the year and submit quarterly summaries through software.
The final tax calculation still happens annually, but the records behind it must be kept up to date.
It won’t mean quarterly tax payments (yet)
One common concern is that quarterly reporting will mean quarterly tax bills.
That isn’t the case. Income tax payments will still fall due on January 31 and July 31 under the current system.
The MTD change is about reporting frequency, not payment frequency.
VAT-registered businesses may face more submissions
If you are already VAT registered, you are probably familiar with digital submissions.
However, once MTD for Income Tax arrives, some businesses could find themselves making multiple submissions each year if their VAT periods and Income Tax quarters don’t align.
For some, it may be worth reviewing accounting periods ahead of time to avoid unnecessary duplication later.
The real risk isn’t MTD itself
The biggest risk with MTD isn’t the legislation. It’s leaving your record keeping too late.
Quarterly updates themselves are summaries. HMRC understands they may contain estimates or adjustments.
However, submissions should still be based on good digital records.
Trying to rush them close to the deadline without accurate bookkeeping behind them makes mistakes far more likely and harder to correct later.
Planning ahead helps turn quarterly updates into a routine part of running your business, rather than a last-minute scramble every few months.
MTD is now in effect for many businesses
Making Tax Digital for Income Tax came into effect from April 6 2026, initially impacting sole traders and landlords with income over £50,000.
The rules will expand further from April 2027, bringing more businesses into scope.
Although the deadline has now passed, the reality is that many businesses are still adapting. For those previously relying on spreadsheets or manual records, making the transition smoothly will take time.
Key takeaway
MTD doesn’t need to be overwhelming, but it does require a shift in how you manage your finances.
The sooner you build quarterly updates into your routine, the more straightforward it becomes.
