A lot of people have already shifted to HMRC’s Making Tax Digital (MTD) system, and many more will be making the switch soon. The first threshold came into effect this year (April 2026), and will be lowered in 2027 and again in 2028, giving thousands of businesses a shake-up to their tax reporting. But what does MTD mean for you?
In this guide, we’ll take a realistic look at what you can expect from the new tax system, warts and all. From increased costs to more admin, it isn’t necessarily good news for all businesses – but the best way to handle change is to be prepared.
What is Making Tax Digital (MTD)?
MTD is HMRC’s new system for tax reporting for self-employed individuals and landlords. Essentially, they want to move away from paper-based tax, making it mandatory for everyone to go digital. They’re also changing the way you report your income and expenses.
Read our guide on What is MTD for ITSA to learn more.
What Are the Changes You Need to Know?
There are two main changes under MTD that you need to know:
- Everyone eligible must use MTD-compliant financial software
- HRMC requires quarterly reporting alongside an annual submission
Let’s take a look at each of these in closer detail to learn exactly how they’re going to affect your business.
MTD-Compliant Financial Software
When you reach the threshold for MTD, you’ll need to switch to a digital system for recording your income and expenses. You can’t use just any system, though; HMRC is specifically requesting that you use financial software that they’ve approved.
You’ll then use this system to record your cash flow, submit your quarterly reports, and send off your annual submission. Essentially, all of your HMRC tax tasks will now be done through your new digital platform.
There’s quite an extensive list of MTD-compatible software, so you do have a lot of choice. HMRC also has a software finder tool to help you find the right system for your requirements, making this a little bit easier.
The downside, of course, is that many of these systems cost money – and they don’t all come cheap! If your current tax reporting system hasn’t been costing your business, that’ll likely change when you’re eligible for MTD. While there are a couple of free systems that are MTD-compatible, they tend to be a little basic and clunkier than paid-for software.
It also means getting to grips with an entirely new financial recording and reporting system. If you’re already strapped for time and don’t really have hours to spare navigating QuickBooks or Sage, this is an annoying task to add to your to-do list.
While there are perks to switching to a digital bookkeeping system, it’s not going to suit everyone.
Quarterly Reporting
Until now, you should have been submitting a yearly tax return by the 31st January. When MTD comes into effect, your financial reporting schedule is going to get a fair bit busier.
HMRC requires that you now submit quarterly reports each year, alongside an annual submission (your tax return, essentially). These reports will be staggered throughout the year, with submissions in August, November, February, and May. Each report should include a breakdown of your income and expenses for that period, as well as any additional information that HMRC requests.
Of course, this is going to be far more time-consuming than the previous tax system. You’ll need to stay on top of your bookkeeping throughout the year, meaning no last-minute dashes to get everything together. There’s definitely a benefit to that, but it’s also going to make it hard for busy business owners to keep up.
So, What Does MTD Mean For You?
In short, MTD means more work. Your tax responsibilities are increasing and, depending on your software, they’re also going to be more expensive.
You’ll need to constantly keep up with your bookkeeping admin to maintain your quarterly reports, and low-priority tasks can’t be pushed aside until the end of the tax year. It’s now or never, and you’ll face HMRC fines and penalties if you don’t keep the pace.
Main hurdles to navigate include:
- Finding the right MTD-compliant software to suit your bookkeeping
- Ensuring you have the income to pay for your software
- Understanding how to use the software (look for systems with in-depth demos if you’re worried)
- Creating a new bookkeeping schedule to keep up with your quarterly reports
MTD definitely hasn’t made the tax system easier, and we empathise with anyone who’s worried about making the changes. We’re also here to help, which leads us on nicely to our next section.
How You Can Make MTD Easier
Our first piece of advice is to start sooner rather than later. If you think you’ll reach the 2027 or 2028 threshold, begin exploring software options while you still have months to spare. If you can, start using the software before MTD kicks in, too, giving yourself plenty of time to learn the system and adjust your bookkeeping.
You can volunteer to switch to MTD early, which is a good move if you want to get your system up and running before compliance becomes mandatory.
If you’re worried about finances, look into free MTD-compliant software. There are a few options out there for people who don’t want the added expense, though don’t expect all the bells and whistles of paid-for systems.
If you’re worried about time, your best bet is to avoid handling this switch alone. A bookkeeping team – like ours – can take control of your essential tasks for you, making it far easier to transition to the new system.
At Angel Bookkeeping and Payroll Services, we can manage your entire MTD bookkeeping and tax system. We’ll set you up with cloud-based bookkeeping software (we use Sage, a leading provider of financial tech in the UK), start tracking your cash flow for quarterly reports, and handle your reporting.
This isn’t just ideal for busy schedules, but also for sticking to the rules. We’re already working with the new regulations, and we’ll make sure you don’t make any errors in your reporting for full compliance with HMRC. Skip fines and penalties, and free up your time to focus on your business.
Contact Our MTD Bookkeepers
You know what MTD means for your business; now it’s time to take action. Get prepared for the changes before they become a legal requirement with the help of our team, and let us take the stress of MTD from your shoulders.