Making Tax Digital for Income Tax is one of the biggest changes to tax reporting in recent years, and a lot of the confusion comes from small assumptions that can easily catch people out.
The good news is that most of the common mistakes are avoidable once you know what to look for. Here are some of the main ones we’re already seeing, along with practical guidance to help you stay one step ahead.
1. Assuming MTD is still a long way off
One of the easiest mistakes to make is thinking Making Tax Digital is something to deal with “later”. In reality, the rollout starts sooner than many people expect.
MTD for Income Tax begins from 6 April 2026 for sole traders and landlords with qualifying income over £50,000. It then expands from 6 April 2027 for those over £30,000 and from 6 April 2028 for those over £20,000.
HELPFUL TIP
Review your latest Self Assessment figures now rather than waiting for HMRC to contact you. This will help you understand when the rules may apply to you and give you time to prepare properly.
2. Thinking it only affects “big” businesses
A lot of people still assume MTD is mainly for larger businesses, VAT-registered companies or people with more complex finances. In reality, many sole traders and landlords will fall within the rules depending on their income levels.
If you have self-employed income, rental income or a combination of the two, Making Tax Digital may apply to you once the relevant thresholds are reached.
HELPFUL TIP
Don’t rule yourself out too quickly. If you have both rental income and self-employed income, these may be considered together when determining whether MTD applies. If you’re unsure, it’s always worth seeking advice to confirm your position.
3. Not Realising MTD Is Based on Turnover, Not Profit
Many people assume that MTD won’t apply to them because their profit isn’t particularly high. However, the thresholds are not based on profit, they are based on gross income (turnover) before expenses are deducted.
This means you may still fall within the rules even if your actual take-home income is much lower.
For example, a sole trader with £55,000 turnover but £25,000 expenses may only have £30,000 profit. But they would still fall into the first MTD threshold because their income before expenses exceeds £50,000.
HELPFUL TIP
When checking whether MTD will apply to you, look at the income figure on your Self Assessment return before expenses are deducted, not the final profit figure. If you’re unsure, it’s worth speaking with your accountant so there are no surprises when the rules come in.
4. Leaving your record keeping exactly as it is
MTD is built around digital record keeping. That means people who still rely heavily on paper files, manual spreadsheets or sorting everything at the end of the year may find the transition much harder than expected.
It’s not just about submitting figures to HMRC, it’s about keeping records in a way that supports those submissions throughout the year.
HELPFUL TIP
Start improving your record keeping now, even if MTD doesn’t apply to you just yet. A smoother bookkeeping process now will make future quarterly submissions much less stressful.
5. Underestimating the move from annual to quarterly reporting
Many people are used to dealing with tax once a year but MTD is changing that rhythm completely.
Instead of one annual Self Assessment process, eligible taxpayers will need to keep digital records and send quarterly updates during the year, followed by a Final Declaration after the year end.
HELPFUL TIP
Think ahead about how you’ll stay on top of your figures every few months, not just every January. Even simple habits like regular bookkeeping and monthly check-ins can make a big difference.
6. Assuming any software will do
Not every bookkeeping system will work for MTD and not every spreadsheet setup will be enough on its own.
Using recognised, MTD-compatible software will be a key part of meeting the requirements. Platforms such as Xero are already widely used for digital bookkeeping and can help make quarterly reporting much more manageable.
HELPFUL TIP
If you’re planning to move to software, don’t wait until the last minute. Choose something you’ll actually feel comfortable using day to day, and give yourself time to get used to it.
7. Thinking the quarterly updates are the whole job done
A common misunderstanding is that once the quarterly updates are submitted, that’s everything sorted for the year. In practice, there is still an end-of-year process to complete.
MTD includes quarterly updates, but you will also need to submit a Final Declaration to confirm the overall position for the tax year.
HELPFUL TIP
Treat the quarterly updates as ongoing reporting, not the final answer. The year-end declaration still matters and still needs proper review.
8. Waiting until there’s a problem before speaking to your accountant
Some people assume they should only ask for help once they’re already struggling with software, deadlines or HMRC letters. Usually, that makes the process feel harder than it needs to be.
An accountant can help much earlier, from checking whether MTD applies to you to helping you choose the right software, improve your records and decide how much support you actually need.
HELPFUL TIP
Getting advice early often saves both time and stress. Even a short conversation can help you avoid setting things up the wrong way and having to undo it later.
Looking Ahead: Why Making Tax Digital Will Actually Be a Positive Change
While Making Tax Digital may feel like a big change at first, you may be surprised at how much it can help once you settle into this new routine
Keeping digital records and updating your figures regularly can help you stay much closer to your finances throughout the year. Instead of leaving everything until the January Self Assessment deadline, you’ll have a clearer view of your income, expenses and potential tax position as the year progresses.
For many people, this can mean:
- Fewer last-minute bookkeeping catch-ups
- Fewer surprises when it comes to tax bills
- Better visibility of how the business is performing throughout the year
- More opportunity to plan ahead financially
Rather than a once-a-year rush to gather paperwork and figures, MTD encourages a more regular rhythm of record keeping that can make managing your finances feel much more manageable.
Like any change, the key is getting set up properly and finding a process that works for you.
How Venton Can Help
Making Tax Digital doesn’t have to mean doing everything on your own.
At Venton, we support clients in different ways depending on how hands-on they want to be, from light-touch review through to more complete support with quarterly submissions and year-end requirements.
Whether you’d like help choosing software like Xero, guidance on digital record keeping or a fully managed service, we can help you stay compliant and confident under the new rules.