Making Tax Digital (MTD) was introduced to modernise the UK tax system, reduce errors, and make tax reporting more efficient. While many small businesses are now aware of MTD, we still see the same mistakes cropping up time and time again.
If you’re a sole trader, landlord, or limited company owner, here’s what small businesses still get wrong about MTD – and how to avoid costly issues with HMRC.
What Is Making Tax Digital?
Making Tax Digital is an HMRC initiative that requires businesses to:
- Keep digital records
- Use MTD-compatible software
- Submit tax information digitally to HMRC
Currently, MTD applies to:
- VAT-registered businesses
- All VAT returns, regardless of turnover
From April 2026 onwards, MTD will also apply to Income Tax Self Assessment (MTD for ITSA) for many sole traders and landlords.
1. Thinking MTD Is “Optional”
One of the most common misconceptions is that MTD is optional or something you can “opt out of”.
If you are VAT-registered, MTD is mandatory unless HMRC has granted you a formal exemption. Filing VAT returns manually through the old HMRC portal is no longer allowed.
Getting this wrong can lead to penalties, rejected VAT returns, and unnecessary stress.
2. Believing Spreadsheets Alone Are Enough
Another frequent mistake is assuming that keeping records in Excel or Google Sheets is fully MTD-compliant.
While spreadsheets can still be used, they must be digitally linked to MTD-compatible software using:
- Bridging software, or
- Integrated accounting software
Manual copying and pasting figures into HMRC’s system breaks MTD rules and can lead to compliance issues during an HMRC review.
3. Not Understanding “Digital Links”
HMRC places heavy emphasis on digital links, yet many businesses are unclear on what this actually means.
A digital link is an electronic transfer of data, such as:
- Automatic imports
- API connections
- Linked formulas within spreadsheets
What doesn’t count:
- Copying and pasting numbers
- Manually re-typing totals
- Emailing figures between systems
Broken digital links are one of the most common reasons businesses fail MTD compliance checks.
4. Assuming MTD Is “Just a VAT Thing”
Many small business owners believe MTD only affects VAT and won’t apply to them otherwise.
In reality:
- MTD for Income Tax is coming soon
- Quarterly digital submissions will be required
- Landlords and sole traders will be affected first
If you’re self-employed or earn rental income, now is the time to prepare — not when the deadline hits.
5. Leaving It Too Late to Set Up Software
MTD-compatible software isn’t something you want to set up the day before a deadline.
We often see businesses:
- Rushing software setup
- Missing transactions
- Submitting incorrect figures
- Stressing unnecessarily
Setting up cloud accounting early allows you to:
- Keep cleaner records
- Spot errors sooner
- Save time throughout the year
- Reduce accountancy fees in the long run
6. Assuming HMRC Will “Fix It Later”
If figures are wrong or submissions are late, some businesses assume HMRC will simply correct things later.
Unfortunately, HMRC expects businesses to:
- Get it right first time
- Keep compliant records
- Meet digital submission deadlines
Penalties for late filing and incorrect submissions are becoming more automated and stricter, especially under MTD.
How to Stay MTD-Compliant (Without the Stress)
To stay compliant with Making Tax Digital, small businesses should:
- Use MTD-compatible accounting software
- Ensure digital links are in place
- Keep records updated regularly
- Understand upcoming MTD changes
- Get professional advice if unsure
How We Can Help
At Crossley & Davis, we help small businesses stay fully compliant with Making Tax Digital without confusion or overwhelm.
We can:
- Set up MTD-compatible software
- Review your current systems
- Ensure digital links meet HMRC rules
- Prepare you for MTD for Income Tax
- Handle VAT returns and ongoing compliance
If you’re unsure whether you’re fully MTD-compliant, get in touch with our team today. We’re happy to help!
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