Making Tax Digital (MTD) has already reshaped how businesses in the UK manage their tax affairs. For businesses in Scotland, the next steps are crucial. With HMRC’s plans to extend the scheme, it’s essential for business owners to understand what this means for them and how they can stay compliant without overwhelming their operations.
Uncertainty around MTD ITSA
The introduction of Making Tax Digital for income tax (MTD IT) has caused some uncertainty. Many business owners are unsure whether to take immediate action or wait until the deadlines are clearer. HMRC’s recent announcement to delay MTD IT until April 2026 might sound like a relief, but this delay doesn’t eliminate the need for Scottish businesses to prepare. Those with an annual turnover above £50,000 will need to comply by 2026, while those with an income above £30,000 will follow in 2027.
This staggered rollout leaves many wondering how to effectively manage their tax-reporting requirements. Will the software they currently use still be compliant? What new processes will they need to implement? We’re hearing these questions from businesses across Scotland, and the answers aren’t always straightforward.
The risks of being unprepared
For businesses that think they have time to spare, waiting too long could create more complications than anticipated. A survey by Intuit QuickBooks in 2023 revealed that nearly 40% of UK businesses are still not fully prepared for MTD. The key issue lies in the assumption that adapting to digital tax will be simple or quick once the deadline approaches. Unfortunately, rushing to meet compliance requirements close to the deadline often results in mistakes, higher costs and stress.
Another factor to consider is the potential penalties for non-compliance. HMRC has confirmed that businesses failing to keep digital records or file updates correctly will face penalties. The penalties are set to be points-based, with a fixed fine for persistent errors, making compliance a necessity and a financial priority. These fines could be an added strain for smaller businesses operating on tighter margins.
Moreover, HMRC’s digital infrastructure continues to evolve. While it is designed to simplify tax administration, many businesses face challenges with their current digital tools, especially if they rely on older systems or have limited in-house expertise. This makes the transition to fully digital records and reporting a potential pain point for many, especially those who haven’t begun preparing.
Steps to get ready for MTD
So, how can Scottish businesses prepare effectively without causing disruptions to their daily operations? Here are some clear steps you can take.
Assess your current accounting system
Start by reviewing the accounting software you’re using. If your system isn’t already MTD-compliant, it’s important to explore alternatives. Cloud-based software providers like Xero, Sage, and QuickBooks offer MTD-compliant solutions, making it easier to record, store and submit your financial data directly to HMRC.
Do not wait until the last minute to adopt new software. HMRC requires businesses to use compatible software, which means you need to understand whether your current setup is sufficient or if an upgrade is necessary. A good accounting platform will keep you compliant and streamline your entire financial process.
Train your staff
If you have a finance team or even a small group of employees handling bookkeeping, now is the time to ensure they are familiar with the new digital processes. Many MTD-compliant software packages offer free training and tutorials. Ensuring your staff are well versed in these systems will save you time and money in the long run. Additionally, it will reduce the likelihood of errors or misreporting, which could lead to penalties.
Start early with digital record-keeping
Even though the deadlines might seem far off, adopting digital record-keeping practices now can give you a head start. By maintaining digital records from today, you’ll be in compliance when the time comes and benefit from having real-time visibility of your finances. This will make it easier to make strategic business decisions based on accurate, up-to-date data.
Consult your accountant
Finally, your accountant can be a valuable resource in this transition. Accountants specialising in MTD, like us at Thomas Barrie & Co, will help you understand your obligations, select the right tools and implement best practices. We can also act as a safety net, ensuring your business remains compliant and free from penalty risks.
Looking ahead: the benefits of MTD
While the transition to MTD might feel daunting, it presents a valuable opportunity for Scottish businesses to modernise their financial processes. According to HMRC, MTD aims to reduce the £8.5bn tax gap due to errors and lack of compliance. By going digital, you’ll have better control over your tax obligations, be less likely to make mistakes and reduce the risk of being penalised for missed deadlines or inaccurate reporting.
Moreover, businesses that have embraced MTD are already experiencing the benefits of automation and real-time reporting. These advantages go beyond tax compliance. They provide a clearer financial picture, enabling better decision-making, forecasting and growth opportunities.
Final thoughts
Making Tax Digital is a step forward for businesses but requires preparation and action now. At Thomas Barrie & Co, we support Scottish businesses through this transition. Our expert team is equipped to help you navigate MTD compliance, ensuring you’re ready well before the 2026 and 2027 deadlines.
If you’re unsure where to start or need assistance with your current accounting setup, get in touch with us for tailored advice and solutions for Making Tax Digital in Scotland.