How Making Tax Digital Affects Small Businesses
Making Tax Digital has been around for a few years now, but many small business owners still feel unsure about what it actually means for them. The good news? With the right systems and support, Making Tax Digital can make your financial processes smoother, more accurate and far less stressful.
At Infinity Accounting, we help small businesses navigate these changes with confidence. Here’s what you need to know.
What is Making Tax Digital?
Making Tax Digital is a government initiative designed to modernise the UK tax system.
The aim is simple:
- Reduce errors
- Improve accuracy
- Make tax easier to understand
- Give businesses a clearer picture of their financial position
Instead of keeping paper records or manually typing figures into HMRC forms, businesses must use digital record-keeping and approved accounting software.
More details from HMRC:
https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital
Making Tax Digital has already been rolled out for VAT-registered businesses and will eventually apply to other taxes, including Self Assessment.
Who does Making Tax Digital currently apply to?
- VAT-registered businesses with taxable turnover above £85,000
These businesses must keep digital records and submit VAT Returns using compatible software. HMRC guidance: https://www.gov.uk/vat-record-keeping/making-tax-digital-for-vat
- Voluntarily VAT-registered businesses
If you register for VAT voluntarily, you may choose to join Making Tax Digital early, as software-based submissions are often easier and more accurate.
- Upcoming Making Tax Digital for Income Tax Self Assessment (ITSA)
Making Tax Digital for ITSA was delayed, and the updated timeline is:
- April 2026: Self-employed individuals and landlords earning over £50,000
- April 2027: Those earning between £30,000 and £50,000
MTD for partnerships has been postponed indefinitely.
HMRC’s rollout update:
https://www.gov.uk/government/publications/making-tax-digital-for-income-tax/overview-of-making-tax-digital-for-income-tax
How Making Tax Digital affects small businesses
Although the rules vary depending on business size and structure, most small businesses will experience the following changes:
- You must keep digital financial records
Paper receipts stuffed in drawers are no longer enough. You’ll need to use accounting software that:
- Records income and expenses
- Stores digital copies of receipts
- Tracks VAT correctly
- Produces accurate summaries for HMRC
Your records must be complete, clear and up to date.
HMRC guidance on record keeping:
https://www.gov.uk/self-employed-records
- You must use Making Tax Digital–compatible software
Manually typing figures into HMRC’s website is not permitted under Making Tax Digital.
Instead, businesses must use approved software such as:
- Xero
https://www.xero.com/uk/making-tax-digital/ - QuickBooks
https://quickbooks.intuit.com/uk/making-tax-digital/ - FreeAgent
https://www.freeagent.com/making-tax-digital/ - Sage
https://www.sage.com/en-gb/making-tax-digital/
These platforms send your VAT (and soon income tax) data directly to HMRC reducing errors and giving you clearer insight into your finances.
- Quarterly reporting may become the new normal
When Making Tax Digital for ITSA comes into effect, small businesses will no longer wait until January to submit information.
You’ll need to send quarterly updates throughout the year.
This helps HMRC monitor your income, but it also helps you:
- Better budgeting
- Fewer surprises
- More consistent financial habits
- No last-minute stress
FSB guidance on preparing for MTD:
https://www.fsb.org.uk/resources-page/making-tax-digital.html
- Your accountant relationship becomes even more valuable
With Making Tax Digital requirements, accountants take on a more active advisory role.
Infinity Accounting can help you:
- Choose the right software
- Set up compliant digital record-keeping
- Understand how Making Tax Digital affects your business
- Avoid penalties
- Stay compliant with minimal effort
- Use your numbers to plan ahead more effectively
Many small businesses decide that outsourcing bookkeeping or VAT submissions becomes far more cost-effective than trying to manage everything alone.
- Penalties for non-compliance
Not complying with Making Tax Digital rules can result in:
- Monetary penalties
- Incorrect tax liability
- HMRC delays or queries
- Extra stress during deadlines
HMRC’s penalty guidance:
https://www.gov.uk/guidance/penalties-for-making-tax-digital-for-vat
Compliance doesn’t have to be complicated as long as the right systems are in place early.
The benefits of Making Tax Digital (yes, there are many!)
Once small businesses get used to Making Tax Digital, they often experience:
- More accurate record-keeping
- Fewer errors
- Faster access to financial information
- Easier VAT submissions
- Better cash flow visibility
- Improved financial decision-making
- Reduced paperwork
In simple terms: less stress, more clarity.
How Infinity Accounting makes Making Tax Digital simple
We support small businesses through every stage of Making Tax Digital. That includes:
✔ Setting up MTD-ready software
✔ Full bookkeeping support
✔ VAT submissions
✔ Client training and confidence-building
✔ Quarterly reviews
✔ Proactive guidance
If you want Making Tax Digital handled for you, we can take care of everything, so you stay compliant without lifting a finger.
Making Tax Digital is here to stay, and while it may feel daunting at first, it’s designed to make your business life easier. With the right tools and support, small businesses benefit from smoother processes, clearer numbers and more confident decision-making.
If you’d like help getting your business Making Tax Digital ready, Infinity Accounting is here to guide you every step of the way.
Get in touch today:
https://infinity-accounting.co.uk/contact/
