Making Tax Digital: What It Really Means for Small Businesses in England
If you run a small business in England, you’ve probably heard of Making Tax Digital (MTD) — but many business owners are still unclear on what it actually means in practice.
Here’s a concise, practical overview of where things stand and why it matters now.
What is Making Tax Digital?
Making Tax Digital is a government initiative from HM Revenue & Customs (HMRC) designed to modernise the UK tax system. The aim is simple: move from paper-based and manual record-keeping to digital systems that improve accuracy and reduce errors.
MTD already applies to:
- VAT-registered businesses (above and below the VAT threshold)
- Landlords and sole traders who will soon fall under MTD for Income Tax
What’s Changing Next?
The next major development is MTD for Income Tax Self Assessment (ITSA).
From April 2026, sole traders and landlords with qualifying income over the threshold will be required to:
- Keep digital records
- Submit quarterly updates to HMRC
- File a final end-of-year declaration
This represents a significant shift from the traditional once-a-year Self Assessment return.
Why This Matters for Small Businesses
Many small business owners still rely on spreadsheets — or even handwritten records. While these methods may feel familiar, they increase the risk of:
- Miscalculations
- Missed allowable expenses
- Inconsistent record-keeping
- Last-minute stress before deadlines
Digital accounting software allows for real-time visibility of cash flow, clearer expense tracking, and fewer surprises at year-end.
It’s Not Just Compliance — It’s Control
While MTD is a regulatory requirement, the wider benefit is better financial insight. Businesses that maintain up-to-date records can:
- Make informed pricing decisions
- Plan for tax liabilities in advance
- Monitor profitability throughout the year
- Improve lending credibility
In short, compliance becomes a by-product of good financial management.
How to Prepare
If you’re unsure whether MTD will apply to you, now is the time to review:
- Your annual business or rental income
- Your current bookkeeping system
- Whether your software is MTD-compatible
Transitioning early avoids disruption and spreads the learning curve.
At PSF Accounting, we help businesses across England move confidently into the digital tax environment. If you’d like clarity on how MTD affects you, we’re here to help.
Clear records. Clear advice. Clear direction.