Small Businesses “Positive” About Making Tax Digital but Need More Support to Feel Confident About New Legislation

New research shows that small businesses are positive about Making Tax Digital but need additional guidance. Making Tax Digital support is essential to help them feel confident about the new legislation.

During an industry discussion event – hosted by accountancy software company FreeAgent and attended by Exchequer Secretary to the Treasury James Murray MP – delegates agreed that accountants, advisors, software vendors and the government all had a shared responsibility to help educate small businesses about the forthcoming tax changes, which are due to come into effect next year. The agreement came after panellists heard that while just 17.66% of UK small businesses think that Making Tax Digital will have a negative impact on them, the majority are still unsure about the legislation and do not know how prepared they will be for it.

The panel of experts, which also included HMRC’s Director of Making Tax Digital Craig Ogilvie and representatives from accountancy firms working with small business clients, was brought together by FreeAgent to share their experiences about Making Tax Digital for Income Tax (MTD for IT) – the latest stage of the government’s ambitious plans to digitise tax for UK businesses. From April 2026, the legislation will require all self-employed individuals and landlords earning a qualifying income of more than £50,000 per year to keep digital financial records and make quarterly updates to HMRC to report their tax affairs. Making Tax Digital support remains a top concern as many firms struggle to navigate deadlines and system changes.

FreeAgent also revealed new research which showed that, although there is less than a year to go before MTD for IT is mandated, there appears to be a significant lack of knowledge among UK small businesses about it, or the wider digital tax agenda in general – with 18.79% of survey respondents saying they don’t understand anything about MTD for IT, while 38.84% said they had never even heard of Making Tax Digital before.

In addition, 76.35% of small businesses surveyed said they did not think they had received enough information about MTD, while just a quarter of respondents (25.18%) said they either felt “very” or “moderately” confident about being ready for the legislation when it comes into effect next year.

However, the research also found that small businesses who are already using accounting software are generally more positive about the legislation – with twice as many FreeAgent customers saying they felt the legislation would have a positive impact on SMEs (41.2%) compared to non-FreeAgent customers (23.65%)

Roan Lavery, CEO and co-founder of FreeAgent, said: “While it’s certainly good to see that many small businesses are already engaging with MTD and saying they think the legislation will be positive in the long run, there is still a lot of uncertainty and a lack of knowledge about MTD in the wider SME community.

“This is the biggest tax change in a generation, which will impact millions of people over the coming years. Understandably, many are concerned about what they will have to do to comply with the legislation – but it’s also worrying to see just how many people still do not understand MTD, or who have never even heard of it.

“With less than a year to go before the first wave of small businesses will have to comply with MTD for IT, it is more important than ever to make sure everyone is fully informed, ready and confident about the tax changes. We all – software vendors, HMRC, accountants and other business advisors – need to continue working closely together to spread the message about MTD and ensure that no-one will be left behind when it comes into effect from next April.”

Speaking at the event, James Murray MP said: “A really crucial part of having confidence in the time line that we set out (for MTD) is not only about what we can do internally at HMRC, but, crucially, what the wider tax and software community can do to help.

“It’s for all of our advantage to make sure we use this window now before April 2026 to test the (MTD for IT) system, to make it as robust as possible and to make sure we identify any issues so we’re in the strongest possible position to make it a success. This is absolutely something we need to do together.

“MTD comes at just the right time when I think a lot of businesses are already starting to make really big changes in the digitalisation of how they operate. When businesses start to see the benefits, when software providers can accelerate their innovation, when agents understand it and are promoting it to their clients, and when the final end users can really start to see it as something which enables them to operate their business more automatically and more efficiently, I think that’s where we will see the really big leaps forward.”

Craig Ogilvie, HMRC’s Director of Making Tax Digital, added: “We are committed to working closely with the software industry to understand their experiences of MTD.

“The best way businesses can prepare is by joining our early testing programme, to get used to and prepare for the changes ahead. 

“Through direct communications, letters, webinars, live events, social media and marketing, we’re doing everything we can to make people aware, informed and ready for MTD for Income Tax.” Without clearer Making Tax Digital support, small businesses may face ongoing uncertainty as rollout continues.