Making Tax Digital (MTD) is transforming how businesses interact with HMRC. It’s more than just a requirement – it’s an opportunity to streamline processes and improve accuracy in financial reporting. Whether you’re already using digital systems or just starting to explore the options, here’s what you need to know to prepare.

What is Making Tax Digital?

MTD is a government initiative designed to modernise the tax system. It aims to make tax administration more efficient, effective and user-friendly by requiring businesses to use compatible software for record-keeping and submissions.

Currently, MTD applies to VAT-registered businesses with a taxable turnover above the VAT threshold of £90,000. However, it’s expanding, with all VAT-registered businesses now mandated to comply and income tax (MTD IT) set to follow in April 2026 for sole traders and landlords earning over £50,000.

Why does this matter for your business?

Non-compliance with MTD requirements can lead to penalties, but the actual cost is often inefficiency. Manual processes can lead to errors and missed deadlines, which not only waste time but may also result in costly fines. HMRC estimates that avoidable mistakes cost the government £9bn in lost tax revenue annually. Using digital systems can significantly reduce these errors.

Essential steps to prepare for MTD

To ensure your business is ready, follow these straightforward steps.

1. Assess your current systems

Take stock of how you currently manage your financial records. Are you using spreadsheets or paper-based systems? If so, it’s time to explore MTD-compatible software. HMRC provides approved software options catering to various budgets and business sizes.

If you’re already using software, check if it complies with MTD requirements. Some older systems may need upgrades to enable direct submissions to HMRC.

2. Choose the right software

Not all accounting software is created equal. When selecting a solution, consider your business needs.

• Scalability: Will it grow with your business?
• Ease of use: Does it simplify processes for your team?
• Integration: Can it connect with your existing payroll or inventory systems tools?
• Support: Does the provider offer guidance if you encounter issues?

Popular options like Xero, QuickBooks and Sage offer MTD-compliant versions, but the best choice depends on your specific requirements.

3. Train your team

Even the best software won’t deliver results if your team isn’t equipped to use it. Schedule training sessions to ensure everyone understands how to record transactions, generate reports and submit returns. Many software providers offer online tutorials or customer support to get you started.

4. Update your processes

Switching to digital systems often highlights inefficiencies in existing workflows. Take this opportunity to streamline how you handle invoices, receipts and other records. For example:

• automate repetitive tasks like invoice generation and payment reminders
• digitise expense tracking with apps that sync directly to your accounting software.

5. Test your system

Before submitting your first MTD-compliant return, run a trial submission. This will help you identify any issues and resolve them in advance. HMRC’s pilot schemes offer a safe way to test your setup without the risk of non-compliance.

Common challenges and how to overcome them

While MTD offers clear benefits, transitioning to digital systems can feel daunting. Here are some common challenges and practical solutions.

• Cost concerns: Many businesses need to pay more attention to the expense of new software. However, HMRC-approved options start at just a few pounds per month, and the efficiency gains often outweigh the costs.
• Time investment: Learning a new system takes time, but phased implementation can help. Start with one area of your finances, such as VAT submissions, before expanding.
• Technical issues: If technology isn’t your strong suit, work with a professional who can guide you through setup and ensure compliance.

The benefits of embracing MTD

Beyond compliance, MTD offers long-term advantages. Digital systems reduce errors, save time and provide real-time insights into your business finances. This means you can make better-informed decisions and stay on top of cashflow without wading through mountains of paperwork.

According to a recent report by QuickBooks, 60% of small business owners say digital tools have improved their understanding of business performance. By adopting MTD-compatible systems, you’re not just meeting a requirement – you’re investing in the future of your business.

Where we can help

At Fairman Keable, we’re here to support businesses like yours every step of the way. Whether you need help selecting the right software, training your team, or reviewing your processes, we simplify the transition to Making Tax Digital.

Contact us today to find out how we can make compliance effortless.