Making Tax Digital: What It Actually Means for Small Businesses

Making Tax Digital (MTD) is HMRC's ongoing move towards digital record-keeping and reporting. It sounds bigger and more complicated than it usually is in practice, but it does change how some businesses need to keep records and submit information.

The core idea

Instead of keeping records however you like and filling in a return at the end of the year, MTD requires digital record-keeping using compatible software, with figures submitted to HMRC directly from that software rather than typed into an online form by hand.

Who it currently applies to

• VAT-registered businesses generally need to follow MTD for VAT, keeping digital records and submitting VAT returns through compatible software.
• MTD for Income Tax is being phased in for self-employed people and landlords above certain income thresholds — the exact thresholds and timing have shifted over time, so it's worth checking current requirements rather than relying on older articles (including this one).

What “compatible software” means in practice

It doesn't mean spreadsheets are banned outright — some bridging software can connect a spreadsheet to HMRC's systems — but for most small businesses, moving to proper cloud accounting software ends up being the simpler long-term option, since it also makes day-to-day bookkeeping easier.

Why this trips people up

The most common issue isn't understanding the concept — it's not realising a threshold applies to them, or leaving the software switch until close to a deadline. If you're not sure whether MTD currently applies to your business, or you need help setting up compliant software, that's exactly the kind of thing worth asking a professional about directly rather than guessing.