Making Tax Digital is coming – here’s what you need to know

It sounds like yet another piece of government legislation to get your head around, but once you understand what’s changing and when, it becomes much less daunting. Like many changes to the tax system, the aim is to make keeping on top of your finances easier in the long run. The good news is that you don’t have to navigate it on your own – we’re here to help you prepare every step of the way.

So, what exactly is Making Tax Digital (MTD) for Income Tax Self Assessment? In simple terms, it’s HMRC’s move towards a fully digital tax system. Instead of keeping paper records or leaving everything until it’s time to complete your annual Self Assessment tax return, you’ll keep digital records throughout the year using compatible software and submit regular updates to HMRC. The intention is to improve accuracy, reduce common mistakes and help people stay on top of their finances as they go, rather than facing everything at once at the end of the tax year.

One of the biggest misconceptions is that everyone will need to change immediately, but that’s not the case. The introduction of Making Tax Digital is being phased in over several years. From April 2026, it will apply to self-employed individuals and landlords with qualifying income over £50,000. From April 2027, the threshold reduces to £30,000, and from April 2028, it will reduce further to £20,000. If your income falls below these thresholds, you won’t need to join the scheme just yet, although it’s worth keeping an eye on future announcements as the system continues to develop.

So, what does this actually mean day to day? Instead of gathering everything together once a year, you’ll keep your records digitally throughout the year using HMRC-compatible software. Every quarter, you’ll submit a summary of your income and expenses, followed by a final declaration after the end of the tax year. Although it sounds like a big change, many people find that spreading the workload across the year is much more manageable than trying to deal with everything in one go.

I know what many business owners are thinking, that sounds like even more paperwork. In reality, once you’ve got the right software and processes in place, many people find the opposite is true. Keeping your records updated little and often gives you a much clearer picture of how your business is performing, helps you manage your cash flow and reduces the likelihood of any unexpected tax bills arriving at the end of the year.

Choosing the right accounting software is one of the most important parts of preparing for Making Tax Digital. At Nene Valley Accountancy, we work with Xero, which is fully compatible with MTD and designed to make managing your finances straightforward. Whether you’d like to manage your records yourself with a little guidance, or you’d prefer us to handle as much of the process as possible, we can tailor our support to suit the way you work.

My advice is not to wait until the last minute. If you’ve always managed your records using spreadsheets or paper files, giving yourself plenty of time to move over to a digital system will make the transition much smoother. Starting early means you can become familiar with the software, develop good habits and avoid unnecessary pressure as your implementation date approaches.

Another advantage of keeping your records up to date throughout the year is having greater visibility of your finances. Rather than waiting until January to find out what your tax bill might look like, you’ll have a much clearer understanding of your income, expenses and likely tax position as the year progresses. That makes budgeting easier and allows you to plan ahead with much greater confidence.

Change isn’t always easy, especially when you’ve been doing something the same way for years. However, many businesses that have already switched to digital accounting tell me they wouldn’t go back. Having everything organised in one place saves time, improves accuracy and makes managing a business much less stressful.

If Making Tax Digital is due to affect you over the next few years, now is the ideal time to start preparing. Whether you simply want to understand what the changes mean, need help choosing the right software or would like support getting everything set up, I’m always happy to have a chat. With the right advice and the right systems in place, Making Tax Digital can become an opportunity to make managing your business finances simpler and more efficient, rather than something to worry about.