With the first Making Tax Digital (MTD) for Income Tax submission deadline on 7 August fast approaching, many sole traders and landlords are still working through what they need to do to comply.
Although Making Tax Digital has been in force since April for those with qualifying income over £50,000, the first quarterly submission deadline has focused attention on the practicalities of the new regime. However, recent research suggests many businesses are still not ready. According to figures based on HMRC estimates, 55% of businesses affected by the new rules are not yet fully prepared, representing around 475,000 sole traders, landlords and small business owners.
Nicholas Smith, Head of Tax at Duncan & Toplis, says there is still time to get organised, but businesses need to act now rather than assume the transition can be left until the last minute.
"Making Tax Digital is one of the biggest changes to personal tax administration we've seen for many years. The businesses that are in the strongest position are those that have taken the time to understand what is required and have started adapting their processes. If you haven't begun preparing yet, don't panic, but don't delay either."
The first step is understanding whether you need to comply.
Making Tax Digital for Income Tax currently applies to self-employed individuals and landlords with qualifying income over £50,000. The threshold will reduce to £30,000 from April 2027 and £20,000 from April 2028, bringing many more taxpayers into the regime over the next two years.
Nick says many people mistakenly assume they are outside the scope of the new rules.
"One of the biggest issues we're seeing is uncertainty. Some clients assume they won't be affected when they actually are, while others are unsure when they'll need to comply. Understanding your position is the first and most important step."
Making Tax Digital isn't simply about filing returns electronically.
Businesses must maintain digital records and submit information to HMRC using compatible software. If your bookkeeping is still largely paper-based or relies on information being gathered at the end of the year, now is the time to review your processes.
"Good record keeping has always been important, but under Making Tax Digital it becomes a necessary and ongoing process rather than an annual exercise. The sooner businesses establish good habits, the easier future submissions will become."
Compatible software forms the backbone of Making Tax Digital.
If you haven't already selected a solution, take time to identify software that suits your business and allows you to maintain accurate digital records throughout the year. If you work with an accountant, they can help recommend software that integrates well with your existing processes.
The first deadline has highlighted a common challenge: many businesses underestimate how long implementation takes.
Setting up software, understanding reporting requirements and ensuring information is accurate all take time. Leaving preparations until the final few days increases the risk of errors and unnecessary stress.
"We've found that businesses who leave everything until the last minute often discover questions they hadn't considered. Starting now gives you time to resolve those issues before they become urgent."
Making Tax Digital affects every qualifying business differently.
Whether it's understanding income thresholds, choosing software, reviewing bookkeeping processes or managing multiple income sources, professional advice can help avoid unnecessary complications.
"Most of the conversations we're having aren't about the legislation itself," Nick explains. "They're about how the rules apply to individual businesses and what practical steps they should take. That's where tailored advice really adds value."
Although Making Tax Digital introduces additional reporting requirements, it also encourages businesses to maintain more accurate, up-to-date financial information.
Those that embrace digital record keeping often find they have greater visibility over cash flow, profitability and business performance, helping them make more informed decisions throughout the year rather than waiting until their annual accounts are prepared. Businesses that have already adopted digital tax processes also report benefits such as improved organisation and reduced last-minute administration.
With the first submission deadline now approaching, businesses that haven't yet started preparing should make this an immediate priority.
"Our advice is simple," Nick concludes. "Understand whether the rules apply to you, get your digital records in order, choose the right software and seek advice if you're unsure. Taking action now will make the transition far smoother and help ensure you're compliant with confidence."
If you're unsure whether Making Tax Digital applies to you, need help selecting compatible software or would like advice on preparing your business for the new reporting requirements, the Duncan & Toplis tax team is here to help.
Contact Nicholas Smith today or speak to your usual Duncan & Toplis adviser to discuss how we can support your transition to Making Tax Digital.
