Making Tax Digital 2025: What Small Business Owners Need to Know

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The Government’s Making Tax Digital (MTD) programme continues to reshape the way businesses keep records and report their tax. With the next phase approaching, it’s vital that small business owners understand what’s changing, when it will apply, and how to prepare.

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The Updated MTD Timetable

MTD for Income Tax will be rolled out in stages to give businesses time to adapt:

From 6 April 2026 – Sole traders and landlords with annual turnover or gross rental income above £50,000 must join MTD.

From 6 April 2027 – The threshold reduces to £30,000.

From 6 April 2028 – The Government intends to extend MTD to those with turnover above £20,000, subject to further consultation.

- Partnerships are not yet required to join, and no start date has been confirmed.

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What MTD Involves

Under the new rules, affected businesses must:

Keep digital records of income and expenses, recording the date, amount, and category of each transaction.

Submit quarterly updates to HMRC through MTD-compatible software.

File a final year-end declaration to confirm income and claim reliefs—this will replace the Self Assessment tax return for those within MTD.

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Simplifications for Smaller Businesses

HMRC recognises that many small businesses will face challenges in transitioning, so a number of easements are included:

Jointly Held Property – Landlords can report gross income quarterly, with expenses deferred until the year-end. No digital link is required between co-owners’ records.

End of Period Statement abolished – Adjustments can now be included in year-to-date figures, simplifying reporting.

Three-line accounts – Businesses under the VAT threshold can submit simplified figures: total income, total expenses, and net profit.

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Penalties for Non-Compliance

Businesses that fail to comply may face penalties, including:

Fines of up to £3,000 for not keeping proper digital records.

Points-based late submission penalties – for example, two late quarterly submissions could result in a £200 fine, with escalating penalties for repeated failures.

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How to Prepare

To stay compliant and avoid unnecessary stress, small business owners should begin planning now:

Check your turnover – confirm when your business will be required to join MTD.

Select software – HMRC publishes a list of approved providers, from simple tools to full accounting systems.

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Digitise your records – if you use spreadsheets, consider bridging software to link with HMRC systems.

Plan for quarterly updates – familiarise yourself with reporting deadlines.

Seek professional advice – an accountant can help ensure your systems and processes are ready.

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Final Thoughts

While MTD introduces extra reporting obligations, it also presents an opportunity to modernise financial management, improve record-keeping, and gain greater real-time insight into your business finances.

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Our team can guide you through every stage of the process, from choosing the right software to ensuring your records are compliant and submissions are stress-free.

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Get in touch with us today to book a free consultation and start preparing for MTD 2025 with confidence.