If you’re a small business owner, it’s important to be aware of upcoming changes to the Making Tax Digital for Income Tax (MTD for IT) rules. The government recently announced plans to extend the MTD system to include more businesses over the next few years — including smaller sole traders.
This change may affect how you manage your finances and file your tax returns. Here’s what it means for you and how to prepare.
What is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax is part of HMRC’s initiative to modernise the tax system. It requires business owners to:
- Keep digital financial records
- Submit quarterly income and expense updates to HMRC
- Use MTD-compatible accounting software to stay compliant
The idea is to make tax reporting more accurate and reduce errors — but it also means big changes for businesses that currently use spreadsheets or paper-based systems.
When will it apply to your business?
The government is phasing in MTD over several years. The income threshold for compliance is gradually being lowered to include smaller businesses:
| Tax Year | If your business earns over… | You’ll need to comply from… |
| 2024/25 | £50,000 | 6 April 2026 |
| 2025/26 | £30,000 | 6 April 2027 |
| 2026/27 | £20,000 | 6 April 2028 |
So, if your total self-employed income is expected to exceed £20,000 by 2026/27, you’ll be brought into the MTD system from April 2028.
What changes for small businesses?
Under MTD, you’ll be required to:
- Keep digital records of all income and expenses
- Submit updates every three months instead of once a year
- File your year-end return using MTD-compatible software (you won’t be able to use HMRC’s free online system anymore)
This could be a significant change — especially if you’re used to doing your own bookkeeping manually or only speaking to your accountant once a year.
How can you prepare now?
If your small business falls within the new income thresholds, here’s how to get ahead:
- Switch to MTD-compatible software early — there are plenty of affordable, user-friendly options designed for small businesses.
- Review your bookkeeping process — digital record-keeping will soon be a must.
- Speak with your accountant or adviser to get clear on what’s required and how to stay compliant.
- Plan ahead — waiting until the last minute could mean a rushed, stressful transition.
We’re here to help
We know that small business owners already have a lot on their plates — and adapting to new tax rules can feel like just another headache. But with the right tools and support, Making Tax Digital doesn’t have to be complicated.
Our team can help you:
- Choose the right accounting software
- Set up your digital records correctly
- Understand what needs to be submitted and when
- Stay compliant and avoid penalties
Need advice or help getting started? Get in touch with us today — we’ll guide you through every step so you can focus on running your business.
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