The digital shift is here. Making Tax Digital (MTD). Are you ready?
HMRC has been talking about it for a while. The idea that taxes should be “digital by default” isn’t new, and many countries, such as Spain, are already much further ahead than the UK. But now, the changes are real, and they are finally coming, affecting more businesses than ever.
If you already run a business, you may have already noticed changes in how Companies House is also operating.
They now require more information disclosed digitally, such as identity verification, and higher compliance costs, including increased incorporation fees from £12 to £50, and increased Confirmation Statement charges from £13 to £34 per year.
And for many small business owners, it’s bringing more confusion than clarity.
So, in this guide, we will cut through the jargon.
What does the new HMRC digital tax system mean for you?
What do you need to do?
And how can you make compliance feel less like a burden, and more like a smart way to run your business?
After all, there are sometimes hidden opportunities behind regulatory changes, particularly if you can make the intention resonate with clients.
Let’s get into it.
What is Making Tax Digital (MTD), and why does it matter?
Making Tax Digital (MTD) is HMRC’s long-term plan to modernise the UK tax system.
The idea is simple: reduce errors, increase transparency, and make tax admin more efficient for everyone.
But in practice? It means:
- Keeping digital records of your income and expenses
- Submitting your tax data using compatible software
- Filing updates more often (quarterly, in many cases)
No more last-minute spreadsheets or packaging together random bits and pieces, hoping it will be enough. No more manual uploads to HMRC’s portal. Everything flows through connected systems.
It started with VAT in 2019. Then comes MTD for Income Tax (MTD for ITSA), which starts rolling out for self-employed businesses and landlords from April 2026 (after a recent delay).
But if you’re already VAT-registered, or earning over £50,000 from self-employment or property, you’re probably on HMRC’s radar right now.
Will you be affected right now? (and who/what will be next)?
Let’s break it down simply:
Already affected:
- VAT-registered businesses (even those under the £85,000 threshold)
Next in line:
- Self-employed individuals and landlords earning over £50,000 (from April 2026)
- Those earning between £30,000 and £50,000 (from April 2027)
Eventually:
- Most self-employed individuals and landlords in the UK
So even if you’re not affected yet, you probably will be. Getting your systems in place early will make life much easier down the line.
Like all changes, there will be teething issues, and change can be uncomfortable to begin with. However, the aim, is that once it becomes habitual, everything will be more true, more accurate, and more automated.
The overarching aim is to bring the UK into the 21st century, and close the tax gap, which is estimated at 5.3% by the 2025 Measuring Tax Gaps Report.
It mainly comes from the small business sector (60%), with 40% estimated to be due to lost Corporation Tax.
The reasons behind this are estimated to be behavioural, predominantly failing to take reasonable care (31%), and due to error (15%), and evasion (14%).
Common mistakes we’re already seeing
At RedBrick, we’ve been helping small businesses adjust to MTD since it first launched. And we’ve noticed a few patterns. Here are some of the most common traps people fall into:
1. Using the wrong software
A lot of businesses think Excel still counts. It doesn’t (unless you’re using bridging software).
You need HMRC-recognised, MTD-compatible software. That means accounting tools like Xero or FreeAgent that can send data directly to HMRC.
2. Not keeping real-time records
Scrambling to update your books every three months isn’t the same as good bookkeeping. MTD is about consistent, ongoing record-keeping. If you’re still doing a mad dash before every VAT return, something’s broken.
And it isn’t just your VAT!
Having records that are behind and out of date, means you aren’t following your numbers with a fine-tooth comb. The best performers in your industry will undoubtedly be doing this regularly.
3. Thinking MTD is just about the numbers
This isn’t just a compliance exercise. It’s about improving your overall financial operations. Done right, MTD could help you make faster, more confident business decisions. It could help form better financial habits, which lead to enhanced performance and bigger profits.
How to handle MTD without the stress
You don’t need to become a software expert. You don’t need to become a tax wiz! You just need to get the basics right.
Here’s a step-by-step checklist to help:
1. Know your deadlines
Don’t guess. Find out:
- When your first MTD return is due
- What format it needs to be in
- What records you need to supply
If you’re not sure, ask your accountant (or us).
2. Choose the right tools
If you’re not already using MTD-compatible software, switch now. Look for tools that:
- Link directly to HMRC
- Support bank feeds and automation
- Are easy for you to use day-to-day
- Have an easy way to attach & view photos and backup documents
We help clients choose tools that suit their business, not just tick a compliance box.
Too often clients will pick software too big, or too small and inadequate for their needs. The right choice, made with experience, can make all the difference.
3. Sort your bookkeeping process
That means:
- Uploading receipts in real time
- Reconciling bank transactions regularly
- Staying on top of invoices (issued and paid)
Even better? Hire someone to do this for you. (Remote bookkeepers exist for a reason, and we have a whole team at RedBrick. See our blog post on Remote Finance Teams).
4. Use quarterly updates as a planning tool
Quarterly reporting can be your superpower. It gives you a regular checkpoint. You can:
- Spot cash flow issues early
- See how profitable you actually are
- Make smarter decisions throughout the year
- Identify costs which are no longer serving you and can be cut
It’s like giving your business a financial health check, four times a year.
What if I do nothing?
Here’s the thing: MTD isn’t optional.
If you don’t comply:
- You could face financial penalties
- You might lose access to simplified systems
- You’ll fall behind competitors who are already running smarter, leaner finances
This isn’t mean to scare you. But ignoring the shift certainly won’t make it go away!
The hidden opportunity in all of this
Yes, MTD is a compliance change. But it’s also a moment to reassess how you run your business finances.
Many of the businesses we work with used MTD as the push they needed to:
- Move to the cloud
- Automate admin
- Get more useful financial insights
- Spend less time on spreadsheets
- Actually feel in control of their finances
- Start utilising Artificial Intelligence (AI) tools to make the above easier for them
It’s about building a better home for your business numbers. One that’s tidy, well organised, and supports your goals.
What RedBrick clients are doing differently
We’ve seen clients go from shoeboxes of receipts and late-night tax panics to:
- Real-time dashboards with profit and cashflow data
- Scheduled reminders for tax deadlines and payments
- Clearer insights into what’s working, and what isn’t
They’re not just ticking boxes for HMRC, they’re building stronger businesses and making better decisions. Some have never had the high level, “big picture” view they needed for their finances to finally make sense. It’s been a real game changer.
And compliance? That just improves quietly in the background.
It’s not just about rules. It’s about improving rhythm and response times. Relevance and reliability.
You can treat digital tax rules like a checklist. Or you can use them to increase the beat of your business, and make it better.
At RedBrick, that is always our end goal. To build the best home for our clients’ finances.
The regulations might feel overwhelming now, but we promise with the right setup and technological development, MTD will (eventually!) become a non-event. Especially with a plethora of AI solutions on the horizon, and the speed of change gathering pace.
It will all become more habitual, and eventually handled by AI autonomous agents.
That will leave more time and headspace for you and the stuff you actually care about.
Want to feel more at home with your business finances? Want to feel ready for MTD?
We’re already helping small businesses handle the shift without the headaches, complicated jargon, or guesswork.
Whether you want help choosing software, sorting your books, or just understanding what’s next from HMRC, we’re here for you. For a better home for your business finances, email: hello@redbrickaccounting.com
