{"id":141,"date":"2025-08-26T12:52:41","date_gmt":"2025-08-26T12:52:41","guid":{"rendered":"http:\/\/www.ccsbinc.com\/?p=141"},"modified":"2025-09-11T16:03:04","modified_gmt":"2025-09-11T16:03:04","slug":"making-tax-digital-for-income-tax-what-small-businesses-need-to-know","status":"publish","type":"post","link":"http:\/\/www.ccsbinc.com\/index.php\/2025\/08\/26\/making-tax-digital-for-income-tax-what-small-businesses-need-to-know\/","title":{"rendered":"Making Tax Digital For Income Tax: What Small Businesses Need To Know"},"content":{"rendered":"<div class=\"booster-block booster-read-block\"><\/div>\n<p><em>Main photo by <a href=\"https:\/\/unsplash.com\/@magellol?utm_content=creditCopyText&amp;utm_medium=referral&amp;utm_source=unsplash\">Thomas Lefebvre<\/a> on<a href=\"https:\/\/unsplash.com\/photos\/person-using-laptop-gp8BLyaTaA0?utm_content=creditCopyText&amp;utm_medium=referral&amp;utm_source=unsplash\"> Unsplash<\/a><\/em><\/p>\n<p><strong>Britain\u2019s tax system is finally kicking its paper habit. \u2018Making Tax Digital&#8217; (MTD) started with VAT in 2019 and is now marching toward Income Tax Self Assessment (ITSA). If you run a micro-company, side-hustle or rental portfolio perhaps, here\u2019s a guide to what lies ahead and how to get ready without losing your weekends to spreadsheets.<\/strong><\/p>\n<h2>What is MTD for Income Tax in a Nutshell?<\/h2>\n<p>HMRC (His Majesty\u2019s Revenue and Customs) wants every business and landlord to:<\/p>\n<ul>\n<li>Keep records in software (or an app) that can talk to HMRC\u2019s servers<\/li>\n<li>Send four mini-returns a year instead of one big January panic-ridden one<\/li>\n<li>Finish with an End-of-Period Statement and a final declaration that sweeps in any other income (dividends, PAYE, bank interest, etc.)<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>The aim? To stamp out avoidable mistakes, as &#8216;failure to take reasonable care\u2019 already accounts for <a href=\"https:\/\/www.gov.uk\/government\/statistics\/measuring-tax-gaps\/7-tax-gaps-illustrative-tax-gap-by-behaviour#:~:text=In%202022%20to%202023%2C%20failure,gap%20in%202022%20to%202023.\" target=\"_blank\" rel=\"noopener\">30% of the UK tax gap<\/a>. With the total gap sitting at <a href=\"https:\/\/committees.parliament.uk\/publications\/44617\/documents\/221625\/default\/\" target=\"_blank\" rel=\"noopener\">\u00a335.8 billion in 2021-22<\/a>, that\u2019s roughly \u00a310-11 billion a year lost to simple errors.<\/p>\n<p>&nbsp;<\/p>\n<h2>Who Has to Join \u2026 and When?<\/h2>\n<p>Think of MTD for Income Tax as rolling out in three waves:<\/p>\n<h3>Wave One &#8211; 6 April 2026<\/h3>\n<p>If the combined turnover from your <a href=\"https:\/\/realbusiness.co.uk\/can-employed-self-employed\" target=\"_blank\" rel=\"noopener\">self-employment<\/a> and\/or UK property income topped \u00a350,000 in the 2024-25 tax year, you\u2019ll be automatically pulled into the system at the start of the 2026-27 tax year.<\/p>\n<h3>Wave Two &#8211; 6 April 2027<\/h3>\n<p>Those whose relevant income falls between <a href=\"https:\/\/www.gov.uk\/guidance\/check-if-youre-eligible-for-making-tax-digital-for-income-tax\" target=\"_blank\" rel=\"noopener\">\u00a330,000 and \u00a350,000<\/a> in 2025-26 follow one year later.<\/p>\n<h3>Wave Three &#8211; (Pencilled in for) 6 April 2028<\/h3>\n<p>The Government has published draft legislation to reduce the threshold again to \u00a320,000; ministers say the final go-ahead will come after further consultation, but the target date is the 2028-29 tax year.<\/p>\n<p><b>Below \u00a320,000?<\/b> You can stay on the old Self Assessment timetable for now, though HMRC has signalled that everyone is to migrate eventually.<\/p>\n<p>As for <a href=\"https:\/\/realbusiness.co.uk\/10-examples-of-why-co-founding-and-partnerships-work\">ordinary partnerships<\/a> (non-LLPs), HMRC has pushed their start date beyond 2025 and promises at least twelve months\u2019 notice when a firm date is set.<\/p>\n<p>&nbsp;<\/p>\n<h2>How the Workflow Will Feel<\/h2>\n<ul>\n<li><b>Quarterly update<\/b>: Your software pings HMRC a simple profit-and-loss snapshot. No tax is due at this point<\/li>\n<li><b>End-of-Period Statement (EOPS)<\/b>: After your year-end you adjust for allowances or stock and lock the figures<\/li>\n<li><b>Final declaration<\/b>: Wrap in dividends, PAYE income or pension contributions, hit \u2018submit\u2019 and your true tax bill appears<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>HMRC will let you pay in-year if you like, but the normal 31 January and 31 July deadlines for balancing payment and payments on account stay the same (at least for now).<\/p>\n<p>&nbsp;<\/p>\n<h2>Choosing Software<\/h2>\n<p>Popular \u2018ready-to-go\u2019 options include FreeAgent, QuickBooks, Sage, Xero and Crunch; all appear on HMRC\u2019s approved list, with a few offering up free tiers for the simplest set-ups. If you love spreadsheets, you can keep them &#8211; just bolt on \u2018bridging\u2019 software to <a href=\"https:\/\/realbusiness.co.uk\/the-importance-of-measurement-in-business\">file the data<\/a>.<\/p>\n<p>&nbsp;<\/p>\n<h2>Why Bother? The Upside<\/h2>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-large wp-image-196917\" src=\"http:\/\/www.ccsbinc.com\/wp-content\/uploads\/2025\/08\/online-tax-1024x682-1.jpg\" alt=\"\" width=\"800\" height=\"533\" \/><\/p>\n<p>Photo by <a href=\"https:\/\/unsplash.com\/@carlheyerdahl?utm_content=creditCopyText&amp;utm_medium=referral&amp;utm_source=unsplash\">Carl Heyerdahl<\/a> on<a href=\"https:\/\/unsplash.com\/photos\/silver-imac-with-keyboard-and-trackpad-inside-room-KE0nC8-58MQ?utm_content=creditCopyText&amp;utm_medium=referral&amp;utm_source=unsplash\"> Unsplash<\/a><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li><b>Fewer slip-ups<\/b>: Apps flag missing receipts and mis-typed figures before HMRC ever sees them &#8211; vital if you\u2019re juggling rent statements and repairs under <a href=\"https:\/\/www.landlordstudio.com\/uk-blog\/making-tax-digital-for-landlords\" target=\"_blank\" rel=\"noopener\">making tax digital for landlords<\/a><\/li>\n<li><b>No January cliff-edge<\/b>: You\u2019ll see an updated, rolling estimate of what you owe every three months<\/li>\n<li><b>Automation<\/b>: Bank feeds can auto-tag transactions, while receipt-scanner apps store the paperwork for you<\/li>\n<li><b>Productivity gains<\/b>: HMRC\u2019s 2025 research shows VAT businesses using full MTD software <a href=\"https:\/\/www.gov.uk\/government\/publications\/estimating-the-wider-economic-benefit-of-making-tax-digital\/making-tax-digital-estimating-the-wider-economic-benefit\" target=\"_blank\" rel=\"noopener\">saved 32-49 million hours<\/a> in 2022-23 &#8211; worth a cool \u00a3603-\u00a3915 million in staff time. Expect similar dividends once Income Tax joins the club<\/li>\n<li><b>Extra peace of mind for landlords:<\/b> If you use a <a href=\"https:\/\/www.apexhousingsolutions.co.uk\/guaranteed-rent\" target=\"_blank\" rel=\"noopener\">rent guarantee<\/a> scheme, digital records make it far easier to track rent payments, missed rent, and claims. This streamlines communication with insurers and helps ensure you\u2019re fully covered if tenants default, giving you extra confidence in your rental income.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2>The Pain Points (and How to Soften Them)<\/h2>\n<h3>Software Fees<\/h3>\n<p>Free plans exist, but multi-user or inventory-heavy firms may need to spend \u00a315-30 a month.<\/p>\n<ul>\n<li><b>Why it hurts<\/b>: Those modest monthly fees quickly snowball once you add extra entities, users or bolt-ons like stock control and multicurrency. If you\u2019re a landlord with three SPVs or a retailer with seasonal staff, the headline price can double<\/li>\n<li><b>How to soften it<\/b>: Ask your accountant whether you can share their \u2018bureau\u2019 licence (often 30-40% cheaper), pay annually for a 10-20% discount and strip out optional modules until you genuinely need them<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h3>Learning Curve<\/h3>\n<p>Paper-led traders will need training. The good news is that HMRC\u2019s <a href=\"https:\/\/www.gov.uk\/government\/organisations\/hm-revenue-customs\/contact\/online-services-helpdesk\" target=\"_blank\" rel=\"noopener\">MTD helpline <\/a>and YouTube tutorials are free and most vendors run webinars.<\/p>\n<ul>\n<li><b>Why it hurts<\/b>: Switching from ledger books or loose spreadsheets to double-entry software feels like learning a new language. Early mistakes &#8211; mis-tagging sales as drawings, forgetting to reconcile bank feeds &#8211; can snowball into messy quarters<\/li>\n<li><b>How to soften it<\/b>: Create a dummy \u2018sandbox\u2019 file and rehearse importing a bank feed before you touch live data; book one twenty-minute webinar a week instead of a daunting full-day course and turn on the software\u2019s built-in \u2018rule learning\u2019 so it starts auto-coding your regular transactions<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h3>Quarterly Discipline<\/h3>\n<p>Four deadlines a year may sound a tad brutal, but bank-feed automation means many users complete an update in under an hour\u00a0 &#8211; once they\u2019re up to speed.<\/p>\n<ul>\n<li><b>Why it hurts<\/b>: If you normally cram a year\u2019s bookkeeping into January, quadrupling the frequency feels impossible &#8211; and missing an update triggers penalty points<\/li>\n<li><b>How to soften it<\/b>: Block a recurring two-hour slot a month after each quarter end, reconcile feeds weekly so the update becomes a quick review and switch on app notifications so HMRC\u2019s deadlines can\u2019t creep up unnoticed<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2>Five-Step Head-Start Plan<\/h2>\n<h3>1. Pick a Package Now<\/h3>\n<p>Running 12-18 months of parallel digital books before you\u2019re forced to switch is the single best stress-buster. Use that grace period to:<\/p>\n<ul>\n<li><b>Trial at low stakes<\/b>. Post the same month\u2019s transactions in your old spreadsheet and the new app; differences will jump out immediately<\/li>\n<li><b>Stress-test edge cases<\/b>. Set up sample projects, multi-currency sales or rent-free periods so you\u2019re not scrambling for a fix in 2026<\/li>\n<li><b>Negotiate pricing<\/b>. Vendors love annual contracts that begin mid-cycle; agreeing early can lock in \u2018founder\u2019 rates for three years<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h3>2. Scan Every Receipt<\/h3>\n<p>Apps such as Dext, AutoEntry &#8211; or even your accounting package\u2019s native scanner &#8211; turn petrol slips into line-item data with OCR. To get the most lift:<\/p>\n<ul>\n<li><b>Batch the backlog<\/b>. Spend one rainy Sunday photographing the last quarter\u2019s paperwork so you can begin again with a clean slate<\/li>\n<li><b>Create rules on the fly<\/b>. When the app mis-reads \u2018Tesco\u2019 as \u2018Tosco,\u2019 correct it once; AI will nail it next time<\/li>\n<li><b>Link to the cloud<\/b>. Push PDFs straight to Google Drive or OneDrive so you\u2019re already compliant with HMRC\u2019s six-year record-retention rule<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h3>3. Check Your Turnover Trajectory<\/h3>\n<p><a href=\"https:\/\/www.peoplehr.com\/en-gb\/resources\/blog\/staff-turnover\/\" target=\"_blank\" rel=\"noopener\">Employee turnover<\/a> is on the rise, especially as employees retire or move on to other positions.<\/p>\n<p>If you\u2019re hovering around \u00a328k or \u00a348k, a single big contract or rent review could drag you into Wave Two a full year early.<\/p>\n<ul>\n<li><b>Run rolling 12-month totals<\/b>. Most software shows this by default; export it and set a traffic-light alert in Excel or Google Sheets<\/li>\n<li><b>Scenario-plan cash flow<\/b>. Price rises or extra properties might be great news &#8211; until quarterly filings and payments on account collide<\/li>\n<li><b>Consider timing income<\/b>. Legitimately delaying an invoice by a week in March could buy you another full tax year outside MTD<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h3>4. Talk to Your Accountant<\/h3>\n<p>Good advisers aren\u2019t just form-fillers; they\u2019re translators and troubleshooters.<\/p>\n<ul>\n<li><b>Get their tech stack<\/b>. If they\u2019re a Xero or QuickBooks specialist, aligning with their platform means faster answers and often cheaper licences<\/li>\n<li><b>Share your pain points<\/b>. Tell them if reconciliations or CIS are your nightmare; they can build step-by-step checklists or automate the lot<\/li>\n<li><b>Clarify roles early<\/b>. Decide now whether you\u2019ll file quarterly updates yourself and let them handle the End-of-Period Statement &#8211; or vice versa &#8211; so no deadline is missed<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h3>5. Volunteer for the Pilot<\/h3>\n<p>HMRC\u2019s open pilot lets real businesses road-test Making Tax Digital for ITSA right now. Early adopters benefit from:<\/p>\n<ul>\n<li><b>Priority support<\/b>. Pilot users get a named HMRC contact who will actually pick up the phone &#8211; gold dust in January<\/li>\n<li><b>Feature previews<\/b>. You\u2019ll see new dashboard widgets and integration tweaks months before the crowd, giving you a competitive edge<\/li>\n<li><b>Influence on design<\/b>. Pilot feedback has already shaped VAT MTD; shout now and quirks in the Income-Tax version could be ironed out before go-live<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>Lock these five moves into your 2024-25 agenda and by the time MTD for Income Tax becomes mandatory, your \u2018new\u2019 system will feel about as dramatic as ordering the weekly groceries online.<\/p>\n<h2>From Burden to Safety Net<\/h2>\n<p>MTD for Income Tax isn\u2019t optional, but it doesn\u2019t have to be a headache, either. Switch to digital records early, automate the dull bits and by 2026 those quarterly nudges could feel more like a safety net than a burden.<\/p>\n<p>For the official word &#8211; and the ever-growing list of compatible apps &#8211; see HMRC\u2019s MTD for ITSA guidance.<\/p>\n<p>The post <a rel=\"nofollow\" href=\"https:\/\/realbusiness.co.uk\/making-tax-digital-income-tax-small-businesses-need-know\">Making Tax Digital For Income Tax: What Small Businesses Need To Know<\/a> appeared first on <a rel=\"nofollow\" href=\"https:\/\/realbusiness.co.uk\">Real Business<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p class=\"text-justify mb-2\" >Main photo by Thomas Lefebvre on Unsplash Britain\u2019s tax system is finally kicking its paper habit. \u2018Making Tax Digital&#8217; (MTD) started with VAT in 2019 and is now marching toward Income Tax Self Assessment (ITSA). If you run a micro-company, side-hustle or rental portfolio perhaps, [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":143,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-141","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"_links":{"self":[{"href":"http:\/\/www.ccsbinc.com\/index.php\/wp-json\/wp\/v2\/posts\/141","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.ccsbinc.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.ccsbinc.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.ccsbinc.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.ccsbinc.com\/index.php\/wp-json\/wp\/v2\/comments?post=141"}],"version-history":[{"count":2,"href":"http:\/\/www.ccsbinc.com\/index.php\/wp-json\/wp\/v2\/posts\/141\/revisions"}],"predecessor-version":[{"id":144,"href":"http:\/\/www.ccsbinc.com\/index.php\/wp-json\/wp\/v2\/posts\/141\/revisions\/144"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/www.ccsbinc.com\/index.php\/wp-json\/wp\/v2\/media\/143"}],"wp:attachment":[{"href":"http:\/\/www.ccsbinc.com\/index.php\/wp-json\/wp\/v2\/media?parent=141"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.ccsbinc.com\/index.php\/wp-json\/wp\/v2\/categories?post=141"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.ccsbinc.com\/index.php\/wp-json\/wp\/v2\/tags?post=141"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}