Making Tax Digital (MTD) for Small Businesses: What You Need to Know Before April 2026

If you run a small business — such as a hair salon, plumbing business, trade service, or local shop — you may have heard about Making Tax Digital (MTD) but aren’t quite sure what it actually means for you.

You’re not alone.

Many sole traders and small business owners don’t realise that new Making Tax Digital rules for Income Tax come into force in April 2026, and they will change how you keep records and report your income to HMRC.

This guide explains Making Tax Digital for small businesses in clear, practical terms — without accounting jargon.

What is Making Tax Digital (MTD)?

Making Tax Digital is HMRC’s way of moving tax reporting fully online.

Making Tax Digital is HMRC’s move towards fully digital tax reporting.

Instead of:

• Keeping paper records

• Relying on spreadsheets alone

• Dealing with tax just once a year

HMRC wants small businesses to:

• Keep digital records of income and expenses

• Submit tax information using MTD-compatible software

The aim is to reduce mistakes, but for many small businesses, this means changing how things are currently done.

Who does Making Tax Digital (MTD) apply to?

From April 2026, Making Tax Digital for Income Tax will apply to:

• Self-employed individuals

• Landlords

…who have combined annual income over £50,000.

⚠️ Over time, this threshold is expected to reduce, meaning more small businesses will be brought into MTD.

If you’re a:

• Hairdresser or salon owner

• Plumber or tradesperson

• Mobile service provider

• Local shop owner

It’s sensible to assume that Making Tax Digital will apply to you at some point, even if it doesn’t yet. should assume MTD will apply to you at some point, even if it doesn’t yet.

What actually changes under Making Tax Digital (MTD)?

MTD means you will need to:

✅ Keep digital records

You will need to keep digital records of:

• Income

• Expenses

• Invoices

• Receipts

Paper records alone will no longer meet HMRC requirements.

✅ Use MTD-compatible software

HMRC requires you to use approved bookkeeping software, such as:

• Xero

• QuickBooks

• FreeAgent

• Other MTD-approved tools

Spreadsheets can still be used only if they are digitally linked to approved software.heets can still be used only if they link digitally to approved software.

✅ Submit updates more often

Instead of one tax return per year, MTD introduces:

• Quarterly updates (summaries, not full tax bills)

• An end-of-year declaration

This doesn’t mean you pay tax four times a year — but you do report more often.

Why small businesses struggle with MTD

Making Tax Digital often feels difficult because it exposes problems that already exist, such as:

• Businesses not being set up digitally from the start

• Confusing or inconsistent bookkeeping

• Poor visibility of pricing, expenses, and cashflow

• Lack of time to deal with admin

• Uncertainty about what HMRC actually expects

MTD doesn’t create these issues — it highlights them.

How to prepare for Making Tax Digital

If you’re a small or early-stage business, the best approach is to prepare early:

1️⃣ Check whether MTD applies to you now or in the near future
2️⃣ Get your bookkeeping organised sooner rather than later
3️⃣ Choose simple, user-friendly software
4️⃣ Put basic systems in place for income and expenses
5️⃣ Get practical support if you’re unsure

There’s no need to panic — but preparation is essential.

Making Tax Digital - Common Questions

• When does Making Tax Digital start for small businesses?

  Making Tax Digital for Income Tax starts in April 2026 for self-employed people and landlords earning over £50,000, with lower thresholds expected later.

• Do I have to pay tax quarterly under MTD?

  No. You submit quarterly updates, but tax is still paid in the usual way.

• Can I still use spreadsheets for MTD?

  Only if they are digitally linked to MTD-compatible software.

Final thought

Making Tax Digital isn’t just a tax change — it’s a business systems change.

Handled well, it can:

• Improve cashflow

• Reduce stress

• Give you clearer insight into your business

• Help avoid unexpected tax bills

Handled badly, it can feel overwhelming.

Need Help Getting MTD-Ready?

We offer simple, affordable MTD support for sole traders and small businesses, including:

✔ Choosing the right MTD-compatible software
✔ Setting up your bookkeeping correctly
✔ Basic training so you understand the numbers
✔ Getting your digital records ready for HMRC
✔ Optional “we do it for you” monthly support

If you want to stay compliant and avoid fines, we can help you set everything up quickly.

👉 Book a Free Discovery Call
We’ll walk you through exactly what you need to do before April 2026.