Making Tax Digital for Small Businesses: A Simple Guide to Staying HMRC Compliant in 2026.
In 2026, Making Tax Digital will affect more sole traders and landlords than ever before. If you run a small business, rely on basic records, or manage tax tasks on your own, this change will shape how you report income, track expenses, and deal with HMRC.
How You Can Stay Compliant with Making Tax Digital In 2026
Making Tax Digital requires you to keep digital tax records and send updates to HM Revenue and Customs using approved HMRC bridging software. In 2026, this applies to many sole traders and landlords who report their income through the Income Tax Self-Assessment process.
If you rely on spreadsheets, paper files, or last-minute calculations, you must change how you work. The aim of this mandate is simple: HMRC wants regular updates rather than a single annual rush. You gain clearer tax visibility, but only if you set up the right process.
Step 1: Check Whether MTD Applies to Your Business
You need to confirm whether your income crosses the MTD threshold set by HMRC. Businesses with income over £50,000 per year must follow MTD ITSA rules. If so, you must follow the digital record rules and the quarterly reporting requirements. Many owners assume MTD applies only to VAT. That assumption creates risk.
You should review:
- Your total income from self-employment or property
- Whether you already submitted the Self Assessment
- Whether an accountant files on your behalf
If you feel unsure, treat that uncertainty as a signal to prepare now, not later.
Step 2: Understand What Digital Records Really Mean
Digital records do not mean scanned paper boxes. HMRC expects structured data that software can read. You must record:
- Business income: date, amount, and category
- Expenses: supplier, date, category, and purpose
- VAT details: if applicable
If you use spreadsheets, you can still comply, but you must connect them to HMRC through HMRC bridging software. This connection sends figures digitally without manual retyping. Many small businesses choose this route during the first year.
Step 3: Set Up A Quarterly Routine You Can Keep
Quarterly updates cause anxiety because they feel frequent. In reality, they reduce pressure when you spread the work. A practical routine looks like this:
- Update digital records weekly to avoid backlog
- Reconcile your bank once a month
- Review totals at the end of each quarter
- Submit the quarterly update at least a week before the HMRC deadline
This routine works even if you manage accounts on your own. It also reduces errors because you fix problems while details remain fresh.
Step 4: Choose Software That Fits Your Size And Skills
The software you choose will determine how smooth your MTD journey becomes. You should not choose complex systems built for large firms. You need tools that explain figures clearly and guide you through each step.
Focus on:
- Ease of use: simple dashboards, clear categories
- Direct submission: connects to HMRC for ITSA and VAT
- Flexibility: supports spreadsheets if you prefer
Look for free accounting software early on to save costs. Before choosing VAT-compatible software, make sure to conduct a free demo. If the software is complex and confusing, your compliance will suffer later.
Step 5: Manage VAT alongside ITSA
If your business is VAT-registered, you are already under MTD for VAT. You must submit VAT returns using VAT-compatible software. HMRC no longer accepts manual entries through its online portal.
MTD for VAT and MTD ITSA follow the same principle. Both require digital records and approved submission methods. Many small business owners manage both under one system.
You must look for the best free VAT return software or bridging options that connect your existing spreadsheets to HMRC.
The right tool handles VAT calculations, keeps digital records, and submits data directly to HMRC. It also reduces the risk of errors that trigger HMRC penalties.
How Acxite Helps You Stay MTD Compliant Without Complexity
Acxite is HMRC-recognised accounting software designed for small business owners who want to manage their own records and meet HMRC deadlines.
Manage Your Digital Records
Acxite allows you to upload receipts, invoices, and bank statements in one place. It stores your records digitally in a format HMRC accepts for MTD ITSA and MTD VAT.
This removes the need to chase paperwork at quarter-end or rebuild records before a deadline. For small business owners who work alone, this single change saves time and reduces stress.
If you want free accounting software that still supports MTD rules, Acxite is a reliable starting point that won’t lock you into complex workflows.
Works As HMRC Bridging Software For Spreadsheet-Based Businesses
Many small business owners already track income and expenses in spreadsheets. MTD does not require you to stop using them. What HMRC requires is a digital link between your records and their systems.
Acxite works as HMRC bridging software. It connects your existing spreadsheets to HMRC and submits your MTD ITSA or MTD VAT updates digitally. You do not need to copy figures into portals or retype totals at the end of the quarter.
Supports both MTD ITSA and MTD VAT
Acxite supports submissions for MTD for Income Tax and MTD for VAT. If your business is VAT-registered, the platform functions as VAT-compatible software, preparing VAT figures for direct submission to HMRC.
For owners who manage both income tax and VAT, this avoids running two separate systems. Your records stay consistent, and deadlines become easier to manage.
Acxite is the best free VAT return software option for small businesses that want compliance without unnecessary features.
Summing Up
Making Tax Digital does not exist to punish small businesses. It exists to standardise reporting and reduce long-term errors. You can stay compliant by understanding what HMRC expects, setting a simple routine, and using tools tailored to your size and skill level.
If you want a practical route into MTD compliance, explore Acxite and test how it fits your business. It is a free accounting software that also serves as HMRC bridging software for business owners who don’t want to switch spreadsheets.
Join for free now and stay compliant without changing how you run your business.