We’ve found the phrase “Making Tax Digital” causes very different reactions depending on who we’re talking to. Most sole traders and business owners receive the phrase with a mild disinterest, “That sounds like a good idea” is the most animated reply we’ve heard. But, the same phrase, spoken to fellow accountants and bookkeepers, strikes cold fear into their eyes, leaving many wheezing in and out of a paper bag. This is because UK accountants and bookkeepers know something about Making Tax Digital you don’t.
What is MTD?
Simply put, Making Tax Digital is the UK government’s plan to transition tax reporting to an exclusively online system. This means that after 6 April 2026 the only acceptable way for most sole traders to file their taxes and submit your paperwork will be online. No more paper and no more free HMRC software. A *mostly* scanned set of receipts and an Excel spreadsheet might have been enough in 2003 but not now.
Here are five things business owners are going to have to implement in the very near future:
- Keep digital records. What this means for you: every single receipt, invoice, bill and napkin notation is stored electronically and filed on MTD-compatible software.
- Implement and use MTD-compatible software. What this means for you: accounting software which is able to upload your information directly to HMRC (some popular examples include Xero, FreeAgent, Quickbooks & Sage)
- Get a business bank account. What this means for you: no more mixing personal and business payments. Once you’ve opened a dedicated account for your business, link it to your accounting software, and only use it for business income and expenses.
- Register for MTD with HMRC. What this means for you: you’ll need to apply for a Government Gateway account (which is basically an online login for HMRC).
- From 2026 submit quarterly and annual returns to HMRC digitally via your accounting software.
Who is affected by MTD and when?
Everyone. If fact, Making Tax Digital, has already kicked into action for all VAT registered businesses. The next group of people to be affected is sole traders and landlords earning over £50,000 annually. They will need to start reporting online from 6 April 2026. For the rest of us who are turning over £30,000 a year, we have until 6 April 2027. Think this gives you plenty of time to get ready? We envy your optimism.
Why bother with Making Tax Digital?
Unfortunately, eventually there won’t be a choice. It will be the only way to interact with HMRC. Like most things, though, there are plenty of silver linings, and once the initial teething phase is over, we truly believe the tax reporting system will be easier, more accurate, and less stressful. This infographic prepared by Sage explains the benefits nicely.
We understand this is a lot to take in and for the busy sole trader or limited company owner you might be feeling a little overwhelmed by the amount of work needed to get MTD ready. This is where we can help. Of course we do the usual bookkeeping and accounting tasks but we can also assist with short term projects such as setting up and integrating software, transitioning to a paperless system and managing the process of registering with HMRC. Book a free meeting here or send us a WhatsApp here
