Don’t fall for these Making Tax Digital myths

Yet the rumour mill is working overtime. Here’s what startup founders and small business owners actually need to know.

If you’re a small business, there’s a good chance you’ve heard rumblings about Making Tax Digital (MTD) for Income Tax. 

It might be that you’re preparing right now for 6 April 2026, when it starts. 

The trouble is, lots of conversations about MTD could be laced with half-truths. MTD is a huge change, so that’s perhaps understandable. But let’s clear the air.

“It’s basically four tax returns a year”

This is the myth that refuses to die and even some national newspapers have run with it.

It’s wrong. MTD requires quarterly updates (every three months) submitted via MTD-ready software. But they aren’t mini tax returns. They’re simple summaries of your income and expenses—running totals that your accounting software can submit almost automatically. You’ll just check it over and click a button.

If your gross income is under £90,000, you only need to send a total income and expenses figure in each quarterly update. No adjustments, no reliefs. Just the basics. 

Your full tax return still has a deadline once a year of 31 January, almost exactly as before, but it’s now digital and must be submitted through the software. And because you’ve been making those quarterly updates, all the data will be right there. 

“I’m not VAT-registered, so this doesn’t affect me”

Here’s how this one goes: Because HMRC rolled out MTD for VAT first, many business owners assume the whole programme is a VAT matter. And if you’re not registered for VAT, you can therefore ignore MTD for Income Tax. 

That’s incorrect. MTD for Income Tax is a completely separate mandate. 

It targets sole traders and landlords based on income, not VAT status. Some businesses will use both MTD for VAT and Income Tax. Some will use just one of them.

The phased rollout of MTD for Income Tax starts with those earning above £50,000 in April 2026, drops to £30,000 in April 2027, and will reach £20,000 by April 2028 (pending legislation). 

“HMRC just wants to spy on my books”

Maybe this is understandable paranoia, but misplaced. 

And it’s not new. People said the same thing about MTD for VAT when it was introduced back in 2019. It hasn’t come true since that date, either. Businesses still submit the same nine boxes of VAT data they always have. They just do it digitally. 

The income tax quarterly updates don’t hand HMRC a window into every transaction. The shift is frequency, not depth. 

But here’s the part that’s not in everyday conversation: more frequent reporting actually benefits you. It forces a rhythm of good bookkeeping and gives you a clearer picture of your cash flow. Each time you make an update, HMRC estimates your tax bill. It means the January tax return holds fewer nasty surprises, and you don’t have to set aside a nebulous third of your cash for the tax bill. You’ll know almost exactly how much to set aside. 

“MTD means I’ll end up paying more tax”

This fear crops up constantly. 

If HMRC gets more frequent visibility into your income and expenditure, surely it will find ways to squeeze more out of you? 

In reality, MTD doesn’t change how your tax is calculated. It only changes how you report it. If you’ve been filing those quarterly updates correctly, what you pay is calculated in the exact same way. 

The government’s stated aim is to close the tax gap caused by avoidable errors and fraud, not to raise the rate.

For business owners who already run tight books, this is a non-event. If your current record-keeping is rough around the edges, the enforced discipline of digital reporting might actually help you claim allowable expenses you’ve been missing.

“Penalties won’t bite in year one”

There is a grain of truth here.

HMRC has confirmed a soft-landing period in which late quarterly submissions won’t attract penalty points. 

But that leniency doesn’t extend to the annual digital tax return or to the obligation to keep digital records from day one. 

Treating the first year as a free pass is a recipe for a chaotic catch up when enforcement tightens. Get it right from day one.

The bottom line

MTD for Income Tax is not the bureaucratic nightmare some would have you believe. In fact, for the vast majority of businesses, it will improve their bookkeeping and very likely deliver insights into cash flow that are long overdue.

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