Making Tax Digital: What small businesses and landlords need to know

The Making Tax Digital (MTD) initiative is set to transform the way businesses and landlords manage their tax responsibilities in the UK. At our recent webinar, qualified accountant Emma Bail provided a comprehensive breakdown of what MTD means, who it will impact, and how you can prepare. Here’s a recap of the key takeaways.

What is making tax digital?

Making Tax Digital is a UK government initiative designed to modernise the tax system. Its aim is to ensure accurate record-keeping and reduce errors through the use of approved digital software. Under MTD, businesses and landlords will need to:

• Maintain digital records using MTD-compliant software or spreadsheets with bridging tools.

• Submit quarterly tax returns directly to HMRC.

This change eliminates manual data entry errors and creates a seamless digital record from bookkeeping to submission.

Who will be affected?

The rollout will affect specific groups at different stages:

• April 2026: Sole traders and landlords with incomes over £50,000 will be required to comply with MTD.

• April 2027: The threshold lowers to £30,000 for these groups.

• MTD already applies to VAT-registered businesses.

If you’re unsure whether your business falls within these thresholds, HMRC will likely use your most recent self-assessment tax return to determine compliance.

Why plan ahead?

With less than 18 months until the first rollout, preparation is essential. Emma highlighted several reasons why early planning is critical:

1. Avoid penalties: Late or inaccurate submissions under MTD will incur penalties. Starting now gives you time to refine your processes.

2. Reduce costs: Improving your bookkeeping skills or using MTD-compliant software now can save you money in the long run by reducing errors and professional fees.

3. Ensure support: With an expected increase in demand for qualified accountants, securing support early ensures you’re not left scrambling for help in 2026.

Key updates from the webinar

• Bookkeeping clarity: Accurate bookkeeping is the foundation of successful MTD compliance. Emma demonstrated how software like Xero can simplify this process, offering real-time insights into your business’s financial health.

• Planning for growth: The quarterly reporting requirement forces businesses to review finances regularly, creating opportunities to identify trends and make informed decisions.

Practical steps to prepare

Emma outlined several actionable steps to ensure you're ready for MTD:

1. Choose the right tools: Whether it’s Xero, QuickBooks, or a compliant spreadsheet, invest in a solution that suits your business.

2. Upskill your team: Take advantage of software training to ensure you can manage your records accurately.

3. Consult a qualified accountant: An accountant can provide invaluable advice and support during this transition. Ensure your chosen professional is fully regulated.

What’s next?

Making Tax Digital represents a significant shift, but it’s also an opportunity to gain better control over your finances. By taking the necessary steps now, you can avoid disruption and position your business for long-term success.

Watch the full webinar

Catch up on Emma Bail’s in-depth analysis of Making Tax Digital here and ensure your business is ready for 2026.

About Evolve Accounting

Evolve Accounting is a family-run, qualified accountancy practice dedicated to making finance simple and accessible. With our jargon-free approach, we help sole traders, small business owners and landlords navigate the complexities of tax and accounting with confidence.