What is Making Tax Digital for Income Tax Self Assessment?

making tax digital

Making Tax Digital is changing how we submit tax returns. And with Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) coming into force from April 2026, it’s time to start planning how you’ll meet the compliance requirements for MTD for ITSA.

We’ve highlighted the four main areas where you need to take action, to be ready for the deadline – so you maximise all the benefits of going digital.

The basic requirements of MTD for ITSA

MTD for ITSA will affect you if you’re running a self-employed business or you’re a landlord with annual business or property income initially above £50,000. To comply with the MTD for ITSA rules when they kick in from the 2026/27 tax year, you’ll need to:

  • Keep digital records of all business transactions
  • Submit quarterly updates to HMRC
  • Submit an annual end-of-period statement
  • Finalise your tax return for the year
  • Pay any tax due to HMRC

This switch from an annual self-assessment tax return process to quarterly and annual returns is a major change. It means increasing your interactions with HMRC, keeping extremely accurate digital records and having a highly defined process for your tax return.

Some people will already be set up to meet these digital requirements. But, if you’ve not yet jumped onto the digital bandwagon, there are a few important steps to think about.

Switching to a digital tax process – what you need to do

The aim of MTD is that, over time, the whole of the UK tax system will move to digital. But for this to work, taxpayers, bookkeepers and accountants all need to take action, so every stage in the tax process can be carried out in the digital realm.

From the point of view of a self-employed business or landlord, this will mean:

  • Choosing a software solution for your digital record-keeping – to be able to keep digital records, you’ll need the right software tools. An Excel spreadsheet may be fine for traditional bookkeeping, but the MTD ITSA requirements mean you’ll need a more accurate and flexible software solution. Tools like Dext Prepare or Auto Entry, paired with a cloud accounting platform like Xero, Sage, QuickBooks or FreeAgent, will help you get those bank statements, receipts and documents digitised and recorded.
  • Working out a process for recording your income and expenditure – one of the big aims of going digital is to achieve real-time data for your business. But to be able to see real-time numbers, it’s vital that you enter your transactions on a regular basis. Think about how you’ll scan receipts and invoices, and how much time you need to set aside for bookkeeping and record-keeping. Yes, it will eat into your admin time, but the end benefits of this streamlined digital process make it a worthwhile investment.
  • Agreeing who will carry out your quarterly and annual updates – ultimately, it’s your responsibility to meet HMRC’s rules around MTD for ITSA. But you don’t have to do all the work yourself. Your tax adviser can help you collate and submit both the quarterly and annual digital updates. You can opt to do the updates yourself, but you’ll get a higher level of accuracy, review and analysis by partnering with your tax agent.
  • Partnering with your accountant to submit your return – despite what HMRC might tell you, tax can be complicated. Calculating your taxable profits, accounting for secondary income streams and making adjustments to your submitted numbers are tasks an accountant should be carrying out. MTD for ITSA will mean working much more closely (and more frequently) with your accountant, so make the most of their professional knowledge and expertise when it comes to finalising your tax return.

Talk to us about preparing for MTD for ITSA

Switching over to MTD for ITSA isn’t just a compliance requirement. Going digital also helps you run a more effective and flexible accounting and record-keeping system into the bargain.

You’ll have:

  • Better visibility of your income and expenditure
  • Improved control over your business numbers
  • A clearer idea of your tax liabilities for the year.

If you’d like advice on getting ready for the April 2026 MTD for ITSA deadline, feel free to contact us. We’ll help you understand what’s required, what the best software solutions will be for your business and the key changes you’ll need to action.

Get in touch to get set up for MTD for ITSA.

Five ways to build resilience

business resilience

Creating business resilience in changing conditions

Economies are in a perpetual heating and cooling cycle, with all phases providing opportunities to better serve your customers and thrive in your business.

There’s no denying the effects of higher interest rates and inflation are changing customers’ buying habits. This, combined with more expensive raw materials, stock and labour, and disruptions to supply chains, could test your business’s resilience. Planning is the best way to get ahead of changing conditions and build resilience.

Five ways to build resilience:

1. Opting in to planning. Adopting a structured approach to goal setting, planning, and execution enables leaders to be more responsive and adaptable in changing conditions.

2. Creating sustainable value. Evaluating your processes and product mix, and measuring relevant KPIs, will identify opportunities to maximise the return you get from your offering.

3. Closing product gaps. Reviewing your products and services to ensure they are what your customers want and need (right now), will help you close the gap between supply and demand.

4. Retaining your talent. Investing time and energy into your company culture to empower your team to thrive in their roles and be loyal to your business, is key to minimising disruption.

5. Identifying opportunities. Committing to working on your business (not just in it) allows for blue sky thinking, so you can recognise and capitalise on opportunities that pop up due to changing conditions.

Applying TLC (Thinking Like a Customer) to filter out what isn’t working in your business, and listening to your loyal customers’ wants and needs, are key to closing the gaps so that your supply meets demand.

Ongoing Business Planning is critical to building a resilient, sustainable, and thriving business. Call us to hear more about how we support our clients with Business Planning to stay on top of product-market fit, set achievable goals, and leverage opportunities that exist in their business

Business borrowing

business funding - picture of a potato on a spoon balancing on a calculator with some coins

Base rate rises again – what it means for business borrowing

The cost-of-living crisis is taking its toll across all areas of our lives now. While inflation has fallen very slightly this month to 8.7%, food prices remain stubbornly high, and the Bank of England (BoE) is expected to continue with its base rate rises until later this year.

The last rate rise in early May took the base rate to 4.5%, but analysts predict that the BoE could still push forwards with additional rate rises in the coming months and expect the base rate to hit 5% by the end of the year.

What is happening to business borrowing?

Rising base rates impact all types of borrowing – with mortgage borrowers on variable or tracker rate mortgages hit first as lenders are quick to pass these rises on. But businesses are affected too in a variety of ways, because it is also more expensive for them to buy goods and services to keep the business going. Many of these costs would ordinarily need to be passed onto consumers. But as they are already struggling with rising energy bills and mortgages, among other things, the amount that can be passed on without losing customers altogether is minimal.

So, businesses are being squeezed in the middle of these rising costs and many are taking out business loans to cover their outgoings in the short, and sometimes even longer term. The latest official figures from the BoE show that net business borrowing by UK non-financial businesses in March was £2.5 billion in bank and building society loans, including overdrafts.

Large non-financial businesses borrowed £3.2 billion net in March, while small and medium non-financial businesses actually repaid a net of £0.7 billion in March.

This compares with £4.5 billion, £3.7 billion and £0.6 billion of net repayments respectively in February. Borrowing by large businesses rose from 3.1% in February to 3.3% in March, while it fell by 4% in March for SMEs.

Interest rates on business loans have fallen back very slightly, but they are still much higher than they were in December 2021 when the BoE rate rises began. The average cost of new borrowing from banks for non-financial businesses was 5.76% in March, well above the 2.03% average back in December 2021.

For SMEs specifically, the average rate was even higher at 6.36% in March, when in December 2021 it was just 2.51%. But remember, the BoE base rate has risen twice since these figures were collated, so the likelihood is these loans will be even more expensive now.

Reassessing your business needs

These increases in borrowing and the reduction in spending by consumers will put additional pressure on many businesses, prompting them to run leaner and cut costs wherever possible and sensible to do so.

For example, if you hold a lot of stock within your business, you may want to free up some of your cash by either sending that stock back, if it is on sale or return, or putting it into a sale. Your profit margins on that stock may be reduced, but that freed-up cash can be used to plug potential holes elsewhere in the balance sheet.

You may also need to consider reducing staff numbers if you are not as busy as usual. But be careful about doing this because if your service standards reduce, it could drive customers away. Customers are the lifeblood of any business, so prioritise them no matter what is going on in the background.

Get advice on business borrowing

However, if you have cut your costs to the bone and made as many changes to your business as you dare, you may still need to raise funds to get you through a rough patch. You can do this in a variety of ways:

• Borrowing directly from your bank
• Raising money through a fundraiser from investors
• Remortgaging a property you own

The way you choose could depend on how quickly you need the money and what options are available to you. Borrowing directly from your bank would be the simplest and fastest option if your bank is prepared to lend to you. Speak to your accountant to find out what amount you would realistically need to get you through your difficulties based on your income and outgoings.

You don’t want to ask for too little because you will need to raise money again too soon. But you also don’t want too much because you will be paying interest on money you don’t really need.

Raising money from investors can be a good way to get additional investment but will involve parting with a proportion of your business in most cases. This is something to think about carefully, especially if it would involve losing the controlling stake in your business.

Remortgaging a property you own should be a last resort, especially if it is your home. The danger is that if your business ultimately goes under, you could lose your livelihood and your home at the same time. The ultimate double whammy. If things are so bad that the company might fail without remortgaging your home, then think seriously about whether letting the business fail is the best option, no matter how hard that decision might be.

Contact us: 01603 917870

There are many ways to reduce the overheads in your business or to increase the amount of money you have available to boost cashflow, buy machinery or stock, or to hire new employees. If you need to achieve any of these things or want to find out if there is a better way to manage the cashflow in your business, we are here to help. Please just get in touch with us and we will support you.

Our Annual Accounts Review service

annual review

It’s important to understand your Annual Accounts and taxation commitments. These reports tell an important story about your business; understanding them is one of your first steps towards making better and more informed business decisions.

An Annual Accounts Review meeting gives you the chance to:

  • Improve your financial awareness skills
  • Identify likely profit and cashflow improvement potential for your business
  • Discuss issues and challenges you’re facing in your business
  • Identify how to work with us to achieve your goals and address those challenges
  • And of course, really understand any upcoming taxation commitments

We’ll book you in for an Annual Accounts Review Meeting as soon as your Annual Accounts have been drafted.

By attending an Annual Accounts Review session, you’ll:

  • Understand the fundamentals of your Annual Accounts
  • Discuss ways to structure your business better
  • Identify tax efficiencies
  • Gain a better understanding of your business
  • Review and establish your goals and strategies for achievement

We believe it’s our job to empower our clients with financial skills so they can run a better business. Get in touch for more information about our Annual Accounts Review meeting.

The seventh cause of poor cashflow – Sales levels are too low

cashflow

It might sound obvious, but it isn’t to many businesses. If current sales levels don’t support the overheads and other cash demands on the business, then your overdraft will keep increasing.

This means that your business in its current state is not viable (unless you have ongoing access to new funds from investors or financiers).

There are five ways to improve your sales levels. These are:

1. Increase customer retention.
Stop your customers from defecting to the competition.

2. Generate more leads.
Gain more enquiries from people who are not yet customers.

3. Increase your sales conversion rate.
Get more of your prospects to buy from you.

4. Increase transaction frequency.
Engage your customers to buy from you more often.

5. Increase transaction value.
Help your customers to buy more products or services from you.

There are literally hundreds of individual strategies that you can implement within these categories to increase sales. Sending you a list would be pretty silly of us and overwhelming for you. Some strategies don’t apply to your industry, and some just won’t work in your business for whatever reason.

What we have found through experiencing a wide range of client situations over the years, is that certain things do work in each type of business. There’s a pattern that we see in clients – both good and bad! How does a business grow its sales without its owners becoming overwhelmed by a mountain of change?

The best and most supportive way to grow and improve a business is to have someone looking over your shoulder from time to time, helping you build a plan and a forecast, and keeping you accountable to making the changes that will make the most important differences.

Without that support, we all end up in our business and never working on it. Talk to us about how we can provide that support.

The sixth cause of poor cashflow – Overheads are too high

cashflow

Overheads isn’t typically a place where you will find a lot of wastage. Our experience is that business owners are very careful about managing their expenses, and the smaller the business, the truer that statement is.

Having said that, as a business grows, so do the layers of hierarchy. Management control can deteriorate, and the business can become a bit flabby. The trick is to trim the fat but not the muscle when evaluating your expenses.

As an absolute minimum, every business should do a thorough review of its overheads at the same time every year, so that it becomes a natural routine.

Here are some questions to ask yourself:

  1. Do appropriate managers and key staff have individual expense budgets? If so, how are these managed?
  2. Have you conducted a formal review of all debt service costs and related fees?
  3. What policies and cost control processes are in place for sales staff? Include all working away allowances, vehicle reimbursement expenses, entertainment, and credit card use.
  4. What was your total marketing and advertising spend for the last 12 months? Have you analysed each component of spend based on effectiveness and results to the business?
  5. When was the last time you renewed your IT support contract? Have you negotiated a fixed monthly fee? If so, is your current fee and contract appropriate (consider migration of services to cloud)?
  6. List all subscriptions you pay monthly for SaaS cloud services. Are you using all these services and on the right plan for each? Conduct a cost-benefit analysis.
  7. And finally, do you consider your accounting fees a cost or an investment? If they’re a cost, you need to reduce them. If you’re getting value from your annual spend with us, maybe you should invest more to get better business outcomes!

Best practice for keeping control over spending is to set budgets and monitor them monthly. Talk to us about the best way to do that. We can show you the impact reducing your overheads can have on your cashflow.

The fifth cause of poor cashflow – Gross profit margins are too low

cashflow

Your gross profit margin is what is left from your total sales after variable costs are deducted.

For example, if you’re a retailer and your sales in a given period are £1,000,000, and the cost of the goods you sell in that period is £650,000, then your gross profit margin is £350,000, or 35%.

In the above example, if you implement some strategies to improve the margin from 35% to 39%, your gross profit will improve from £350,000 to £390,000. That’s an increase in profit of £40,000. You may need to increase your overheads a little to get that increase, however, if you get the results, it will be well worth your investment and energy.

There are many ways to lift gross profit. Some will be appropriate for your business, and some won’t.

For example, if you’re a retailer, you could focus on reducing stock shrinkage and theft, avoiding some discounting, and making sure you minimise obsolete stock.

If you’re a contractor, you might focus on rework and wastage, ensuring all work and materials on jobs get billed, and team member productivity.

We can help you to determine the best strategies to lift your margins. We can then run your figures through our Cashflow & Profit Improvement Calculator to show you the impact of seemingly small changes.

Don’t let poor margins destroy your cashflow and working capital. Get some help from us to make a better plan

The fourth cause of poor cashflow – Your debt or capital structure

cashflow

Often a reduction in interest charges as well as significant cashflow improvements can be achieved with a regular review of existing debt.

A good place to start is to list all bank loans, mortgages, finance company loans, hire purchases, credit card debts, and any other debts (don’t include amounts owed to suppliers in this list). Add columns to cover:

  • The amount of the debt owed
  • The interest rate being charged
  • Whether the interest is charged on a fixed or floating rate basis
  • Repayment terms (the number of years the debt is to be repaid over)

Perhaps your debt can be consolidated, financed by one lender and paid off over a longer term. This will help you retain more cash in the business which is vital for growth (or even just to cover expenses and your drawings).

Are the drawings you take from the business for personal expenses placing pressure on cashflow? If so, that might mean that we need to look at strategies to lift the profitability of the business. It might mean that your drawings are just too high for the business to support right now. The business may need an injection of capital to fund its growth.

Here’s an interesting exercise for you to do. List out your annual personal expenditure in detailed categories; everything from rent, childcare, groceries and eating out. You may need to prepare yourself for a shock. If you’re serious about this, we have a Personal Budget Template that you can use to make life easier.

Getting your debt and capital structure right makes a big difference to the cashflow in your business. This is a subject that we have a lot of experience in. The first step is to prepare an updated personal budget and a Cashflow Forecast, then measure the extra cash the business will have as a result of making some simple changes. We can help you calculate this extra cash at our Cashflow & Profit Improvement Meeting.

Doing a forecast for the first time seems scary, but once you’ve done it, you’ll realise that it’s one of the most essential business tools you’ll ever put in place. We can do the forecast with you. You’ll sleep better for it!

The third cause of poor cashflow – Your stock turn

cashflow stock

Carrying stock for too long means full shelves but an empty bank account. Similarly, if you’re a service provider and are taking a long time to bill for your services, then you’re carrying too much stock in the form of work in progress. Consider that work in progress a form of virtual stock.

You can calculate your ‘stock turn’ by taking your cost of sales from your annual financial statements and dividing it by your average inventory (or work in process). Most clients need some help from us to work this out, so don’t worry if you don’t understand straight away; we’ll show you. Expected stock turn rates vary from industry to industry, so it’s important you don’t compare your stock turn to other types of businesses.

The key is to convert stock to cash faster. Ask yourself these questions, just for starters:

  1. Do you have a stocking strategy? Do you determine safety stock, desired stock levels, and re-order points for each stock category?
  2. What software do you use to measure how much stock you have on hand at any given point in time?
  3. What clear policies do you have to ensure you have no slow moving stock items?
  4. How much is stock shrinkage (theft, damage) costing your business?
  5. Do you have a formal stock ordering system so that stock levels don’t blow out?

These are just some of the ways to improve your stock turn. If you think your stock levels might be stifling cashflow in your business, make a time to see us.

At our Cashflow & Profit Improvement Meeting, we’ll use our calculator to show you how much cash you can unlock in your business by reducing stock turn with a simple action plan.