Don’t fall for these Making Tax Digital myths
As a small business owner or startup founder, you may have been hearing a lot about Making Tax Digital (MTD) for Income Tax. It’s set to be a significant change, kicking off on 6 April 2026, and the rumour mill has been working overtime. With so much chatter, it’s easy to fall prey to misconceptions and myths. This article will debunk some of the most common myths and provide clarity on what MTD really means for you.
The Myth: “It’s basically four tax returns a year”
Contrary to popular belief, MTD is not about filing quarterly tax returns. It requires quarterly updates via MTD-ready software. These updates are not detailed tax returns; they are simple summaries of your income and expenses. For businesses with a gross income under £90,000, only a total income and expenses figure needs to be sent in each quarterly update. The full tax return is still due once a year, on 31 January, just as before.
The Myth: “I’m not VAT-registered, so this doesn’t affect me”
Many business owners, especially those not registered for VAT, assume that MTD is a VAT-only concern. This is a misconception. MTD for Income Tax is an entirely different mandate targeting sole traders and landlords based on income, not VAT status. The phased rollout for those earning above £50,000 starts in April 2026, dropping to £30,000 in April 2027, and reaching £20,000 by April 2028, pending legislation.
The Myth: “HMRC just wants to spy on my books”
This fear is unfounded. The quarterly updates required by MTD don’t give the HMRC a detailed view of every transaction. The shift is towards more frequent reporting, not more detailed reporting. In fact, more frequent reporting can benefit business owners by encouraging good bookkeeping and providing a clearer picture of cash flow.
The Myth: “MTD means I’ll end up paying more tax”
MTD doesn’t change how your tax is calculated, just how it’s reported. The government’s stated aim is to close the tax gap caused by avoidable errors and fraud, not to raise the tax rate. For businesses that keep accurate records, MTD should not result in any increase in tax liability.
The Myth: “Penalties won’t bite in year one”
It’s true that HMRC has confirmed a soft-landing period in which late quarterly submissions won’t attract penalties. However, the leniency doesn’t extend to the annual digital tax return or the obligation to keep digital records from the start. Treating the first year as a free pass could lead to a chaotic catch-up when enforcement tightens.
The Bottom Line
MTD for Income Tax is not the bureaucratic nightmare that it’s often made out to be. For the majority of businesses, it will serve to improve bookkeeping and provide valuable insights into cash flow. So, let’s debunk the myths and view MTD as an opportunity rather than a burden.
Source: Here
