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Making Tax Digital: What Businesses Need to Know for 2026

07/03/2025

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For businesses across Norfolk and Cambridgeshire, understanding and preparing for these changes is essential to ensure both compliance and operational efficiency in the coming years.

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DIGITAL EVOLUTION, NOT REVOLUTION

The landscape of UK taxation continues to transform as HM Revenue & Customs progresses with its ambitious Making Tax Digital (MTD) initiative. For businesses across Norfolk and Cambridgeshire, understanding and preparing for these changes is essential to ensure both compliance and operational efficiency in the coming years.

Despite being several years into the MTD rollout, many local businesses remain underprepared for the next phase of implementation. Whether due to confusion about timelines, uncertainty about requirements, or simply focusing on more immediate business concerns, delaying preparation could lead to significant challenges when deadlines arrive.

This guide aims to clarify the current state of MTD, outline upcoming requirements, and provide practical steps to ensure your business is fully prepared for the digital tax landscape of 2026 and beyond.

Current Status: Where We Are with MTD Implementation

The Making Tax Digital journey began with VAT-registered businesses, requiring them to maintain digital records and use compatible software for VAT submissions. This phased approach has allowed HMRC to refine the system before expanding to other tax types.

Current requirements:

  • All VAT-registered businesses must use MTD-compatible software for their VAT accounting
  • Digital links must be maintained throughout the VAT record-keeping process
  • Manual adjustments and calculations outside the digital system should be minimised

What’s working well: For businesses that have embraced digital accounting systems, MTD for VAT has generally streamlined processes and reduced errors. Cloud-based solutions have created opportunities for real-time financial visibility that many businesses are now leveraging for better decision-making.

Common challenges: The transition has been more difficult for businesses with complex VAT arrangements or those previously using spreadsheet-based systems. Integration issues between different software platforms continue to present occasional challenges, though solutions are improving.

Key Deadlines: What’s Coming and When

Understanding the timeline for upcoming MTD implementations is crucial for effective planning:

April 2026 – MTD for Income Tax Self Assessment (ITSA):

  • Applies to self-employed individuals and landlords with annual business or property income above £50,000
  • Requires quarterly digital updates to HMRC rather than a single annual tax return
  • Will necessitate approved MTD-compatible software for record-keeping

April 2027 – MTD for ITSA expansion:

  • Requirements extend to those with business or property income above £30,000

Future developments:

  • Corporation Tax is expected to be brought into the MTD framework, though specific dates remain under consultation
  • The threshold for MTD for ITSA may eventually decrease further, potentially bringing most business taxpayers into the system

For Norfolk and Cambridgeshire businesses, these deadlines represent significant changes to established tax reporting processes. Early preparation is essential to avoid last-minute compliance challenges.

Required Software Changes: What You’ll Need

The cornerstone of MTD compliance is appropriate software that meets HMRC’s requirements. For many businesses, this will mean either upgrading existing systems or adopting new solutions.

Essential software capabilities:

  • Digital record-keeping for all business transactions
  • Preservation of digital links in the record-keeping chain
  • Direct submission capabilities to HMRC’s API platform
  • Ability to receive information from HMRC about tax obligations

Software options to consider:

  • Full accounting packages: Solutions like Xero, QuickBooks, Sage, and FreeAgent offer comprehensive accounting features along with MTD compliance
  • Bridging software: For those wishing to continue using spreadsheets for some functions, bridging software can connect these with HMRC’s systems
  • Industry-specific solutions: Specialised software designed for particular sectors often includes MTD-compatible features

Factors in software selection:

  • Business size and complexity
  • Integration requirements with other business systems
  • Staff capability and training needs
  • Growth projections and scalability
  • Budget considerations and return on investment

Many of our Norfolk clients have found that investing in more comprehensive solutions, rather than minimum compliance options, has delivered significant business benefits beyond mere tax compliance.

Common Compliance Challenges and Solutions

Through our experience helping local businesses navigate MTD implementation, we’ve identified several recurring challenges along with effective solutions:

Challenge: Legacy systems with poor integration capabilities Solution: Rather than partial fixes, consider this an opportunity for a complete systems review. Many businesses discover that a fresh implementation, while initially more disruptive, provides better long-term outcomes and additional business insights.

Challenge: Staff resistance to new digital processes Solution: Implement changes gradually where possible, provide comprehensive training, and emphasise the benefits of the new system. Involving key team members in the selection process often increases buy-in.

Challenge: Data quality issues when transitioning systems Solution: Conduct thorough data cleansing before migration, and implement validation processes after transition. Allow sufficient parallel running time to identify and resolve discrepancies.

Challenge: Understanding the technical requirements Solution: Partner with an accountant experienced in digital transitions who can translate technical requirements into practical steps tailored to your specific business needs.

Challenge: Cost concerns, particularly for smaller businesses Solution: Consider the broader efficiency benefits beyond compliance. Many businesses find that improved financial visibility and automation of routine tasks offset the initial investment.

Step-by-Step Preparation Checklist

To ensure your business is ready for upcoming MTD requirements, follow this preparation roadmap:

1. Assess your current position (Immediate action)

  • Evaluate existing record-keeping systems against MTD requirements
  • Identify potential gaps in digital capabilities
  • Review staff digital skills and training needs

2. Develop your implementation strategy (12-18 months before deadline)

  • Select appropriate software solutions based on business needs
  • Create a budget for implementation costs
  • Establish a realistic timeline for transition

3. Prepare your data (6-12 months before deadline)

  • Clean existing financial records
  • Structure chart of accounts to support future reporting needs
  • Consider starting period for transition (ideally beginning of financial year)

4. System implementation (3-6 months before deadline)

  • Install and configure chosen software
  • Migrate historical data where necessary
  • Test system functionality and HMRC connectivity

5. Staff training (3-6 months before deadline)

  • Provide comprehensive training on new systems
  • Develop updated procedure documentation
  • Identify internal champions to support the wider team

6. Parallel running (1-3 months before deadline)

  • Operate new and old systems simultaneously to ensure accuracy
  • Address any issues before full transition
  • Fine-tune processes based on user feedback

7. Full implementation (1-2 months before deadline)

  • Complete transition to MTD-compliant systems
  • Conduct final verification of digital links and submission capabilities
  • Establish ongoing compliance monitoring procedures

8. Continuous improvement (Ongoing)

  • Regularly review system performance
  • Identify opportunities to leverage digital records for business insights
  • Stay informed about evolving MTD requirements

How Welbourne & Co Can Support Your Digital Transition

Navigating the MTD landscape requires both technical understanding and practical business sense. Our team offers support tailored to businesses across Norfolk and Cambridgeshire, including:

  • Digital readiness assessments to evaluate your current systems against MTD requirements
  • Software selection guidance based on your specific business needs and future growth plans
  • Implementation planning to ensure smooth transition with minimal business disruption
  • Staff training programmes designed for different roles and technical capabilities
  • System setup and configuration aligned with your business processes
  • Ongoing support to address questions and challenges as they arise
  • Strategic advice on leveraging digital accounting for business advantages beyond compliance

Our approach emphasises not just meeting compliance requirements but identifying opportunities to enhance your financial management processes through digitalisation.

Frequently Asked Questions About Making Tax Digital

Q: Can I opt out of MTD if my business is below the threshold? A: Businesses below the specified income thresholds may be able to opt out of current requirements, but voluntary adoption often provides benefits beyond compliance. As thresholds continue to decrease, preparing early can avoid rushed implementation later.

Q: What happens if I miss the MTD deadline? A: HMRC has indicated it will take a “light touch” approach to penalties initially, focusing on helping businesses become compliant. However, persistent non-compliance will eventually result in penalties. More importantly, delaying implementation often results in rushed decisions and suboptimal system choices.

Q: Will MTD mean I have to submit tax information more frequently? A: For income tax, MTD will require quarterly updates rather than a single annual submission. This represents a significant change in the tax compliance calendar for many businesses.

Q: Can I continue to use spreadsheets under MTD? A: Spreadsheets can still play a role in your financial record-keeping, but they must be connected to HMRC’s systems via bridging software, and digital links must be maintained throughout your processes.

Q: How much will it cost my business to become MTD compliant? A: Costs vary widely depending on business size, complexity, and current digital maturity. Basic compliance solutions might cost only a few hundred pounds annually, while comprehensive accounting systems represent a larger investment but often deliver broader business benefits.

Conclusion: Embracing the Digital Opportunity

While Making Tax Digital represents a compliance requirement, forward-thinking businesses across Norfolk and Cambridgeshire are recognising the broader opportunities it presents. Beyond meeting HMRC’s requirements, digital accounting systems offer improved financial visibility, enhanced business intelligence, and often significant time savings in routine accounting tasks.

By beginning your preparation now, you can approach MTD methodically and strategically rather than reactively. This measured approach allows you to select solutions that not only satisfy compliance needs but support your broader business objectives.

At Welbourne & Co, we’re committed to helping local businesses navigate this digital transition successfully. Whether you’re just beginning to explore MTD requirements or are ready to implement new systems, our team provides the expertise and support you need to make this change with confidence.

Contact us today to discuss your specific situation and how we can help ensure your business is fully prepared for the digital tax landscape of 2026 and beyond.