Common Making Tax Digital Mistakes Businesses Make (And How to Avoid Them in 2026)

1. Assuming MTD Is “Just Another HMRC Portal”

One of the biggest misunderstandings is thinking MTD is simply a new online form.

It isn’t.

MTD changes how records are kept, not just how information is submitted. You can’t continue running everything on paper or disconnected spreadsheets and then log in once a year to file a return.

Why this causes problems

• Records are incomplete or inconsistent
• Quarterly updates become rushed
• Errors creep in long before anyone notices

How to avoid it

Shift your mindset early. MTD is about ongoing digital record keeping, not annual reporting. Once your records are maintained consistently, submissions become routine rather than painful.

2. Waiting Until April 2026 to Get Ready

Another common mistake is assuming preparation can wait until MTD becomes mandatory.

By the time April 2026 arrives, businesses that delay will be:

• Learning new software under pressure
• Fixing months of disorganised records
• Trying to meet deadlines at the same time

How to avoid it

Start small and early:

• Choose software ahead of time
• Get comfortable capturing income and expenses digitally
• Test a quarterly-style routine even before it’s required

Early preparation turns MTD into a gradual adjustment instead of a forced change.

3. Mixing Business and Personal Finances

This is already a problem under Self Assessment, but MTD makes it far more visible.

When personal and business spending are mixed:

• Categorisation becomes messy
• Quarterly updates take longer
• Errors are more likely to be repeated every quarter

How to avoid it

A separate business bank account is one of the simplest MTD upgrades you can make. It keeps records cleaner, speeds up reconciliation, and reduces the risk of incorrect reporting.

Even if you stay small, this habit pays off quickly.

4. Thinking Quarterly Updates Are Quarterly Tax Bills

This misunderstanding causes unnecessary anxiety.

Quarterly updates are reporting checkpoints, not tax demands. Submitting an update does not mean you are being asked to pay tax four times a year.

What actually happens

• You report summary totals each quarter
• HMRC builds a picture of your income across the year
• Tax is still calculated and settled through the usual process

How to avoid confusion

Treat quarterly updates as health checks. They help you see how your business is performing and reduce surprises later, but they don’t change when tax is due.

5. Ignoring the End-of-Year Step

Some businesses assume quarterly updates replace the annual return entirely.

They don’t.

MTD still requires you to:

• Finalise your figures
• Confirm reliefs and allowances
• Submit a final declaration

Skipping or misunderstanding this step can lead to penalties, even if all quarterly updates were submitted on time.

How to avoid it

Build the full MTD cycle into your calendar:

• Quarterly updates
• End-of-year review
• Final declaration

Think of MTD as continuous reporting plus a final confirmation, not a replacement for year-end responsibility.

6. Choosing Software That Doesn’t Match How You Work

Not all MTD-compatible software is right for every business.

Common issues include:

• Buying complex tools with features you never use
• Choosing spreadsheet-only setups that don’t scale
• Using software that feels like extra admin rather than support

How to avoid it

Choose tools based on:

• How often you invoice
• How many expenses you track
• Whether you work alone or with an accountant
• How much visibility you want over cash flow and tax

The best software is the one you’ll actually use consistently.

7. Assuming Your Accountant Will “Handle Everything”

Accountants remain essential, but MTD changes how responsibilities are shared.

Problems arise when:

• It’s unclear who maintains digital records
• Both parties assume the other is submitting updates
• Deadlines are missed due to confusion

How to avoid it

Have a clear agreement:

• Who keeps the records?
• Who submits quarterly updates?
• Who handles the year-end finalisation?

MTD works best when roles are defined, not assumed.

8. Poor Record-Keeping Between Quarters

MTD rewards consistency and punishes last-minute catch-ups.

Businesses that leave records untouched for months often struggle with:

• Missing receipts
• Incorrect categorisation
• Stress before submission deadlines

How to avoid it

Adopt a light but regular routine:

• Capture receipts as they happen
• Review transactions monthly
• Treat quarterly updates as a review, not a rebuild

A little effort spread out beats a big effort under pressure.

9. Assuming Penalties Don’t Matter in the First Year

It’s true that penalty points won’t apply for late quarterly updates in the first year of MTD for Income Tax.

But that doesn’t mean there are no consequences.

Penalties can still apply for:

• Late end-of-year submissions
• Late payment of tax due

How to avoid issues

Use the first year as a learning period, not a free pass. Build good habits early so compliance remains smooth when penalty rules fully apply.

Final Thought

When you step back, most MTD mistakes come down to three things:

• Leaving preparation too late
• Using systems that don’t fit the business
• Treating MTD as a filing task instead of an ongoing process

Fix those three, and most compliance issues disappear.

Making Tax Digital isn’t designed to trip businesses up. It’s designed to bring tax reporting closer to how businesses already operate day to day.

Those who struggle tend to react at the last minute. Those who adapt early find that MTD actually reduces stress, improves visibility, and makes taxes more predictable.

Avoid the common mistakes, keep things simple, and treat digital records as part of running your business, not an extra burden.