Making Tax Digital sounds like a perfectly sensible thing to do. In an age where everyone carries a smartphone in their pocket it’s hardly rocket science to do away with paper tax returns, make everything online and use software to do the work for you.
Except, there are huge hidden costs for small businesses – Everyone who’s total income from self employment and property (before deducting expenses) is over £50,000 will have to use Making Tax Digital for Income Tax from the 6th of April 2026.
This will doubtless come as a shock to those starting up small businesses – hit the £50k threshold, and no longer can you tap a few numbers into the HMRC website once a year, you’ll be submitting five times a year to HMRC and probably need to buy accountancy software, pay an accountant, or both!
I’ve had the call with my accountant this morning and they still don’t have all of the answers. They’re looking at potential software solutions and reckon the cost of a package (when they buy in bulk) will be about £150 a year per client minimum (and yes they’ll pass the cost on to me!).
£150 a year isn’t the end of the world, but the costs of Making Tax Digital only start there! Up until now, I’ve had one interaction with my accountant a year where they would tot up the numbers and submit my tax return. That has cost me about £300 odd a year. With Making Tax Digital my accountant will have to make five submissions a year! One per quarter plus they’ll still have to submit my tax return (there’ll be a few small deductions not included in the quarterly figures – such as use of home as an office – that they’ll be knocking off the final numbers). Their fees will be going up and they still haven’t figured out what they’re going to charge yet!
So, you might save money by doing your own tax return, but you’re still going to need software to comply with Making Tax Digital – we checked the current costs of some of the most popular accounting software packages (before any short term introductory offers).
- Freeagent Sole Trader – £19 a month for income tax and VAT
- Freshbooks Lite – £15 a month for income tax and VAT
- Quickbooks – £10 a month for income tax, £16 a month for income tax and VAT
- Sage Accounting Start – £18 a month for income tax and VAT
- Xero Ignite – £16 a month for income tax and VAT
If you use Excel for your accounts, you may be able to opt for Bridging Software, but that will still probably cost you around £10 a month.
The net result of Making Tax Digital won’t impact larger SMEs as they’re almost certainly already using compliant accounting software solutions (or in many cases already compliant for VAT, and will become compliant for Income Tax). However the hidden cost for those who use accountants will be the increased invoice for their time.
Finally, a word of warning! If you need to comply with Making Tax Digital from the 6th of April 2026, speak to your accountant early! They will need to finalise your 2025/26 tax return in order to have the closing balances to enter into the software package for the start of the new tax year, and complete your first quarter or Making Tax Digital return for the 2026/27 tax year, all by the end of July!
Accountants are going to be exceptionally busy, as normally they’d have until the end of January 2027 to submit your 2025/26 Income Tax returns and so they’d be spread out throughout the year. Now they will need to submit everyone’s Income Tax returns and file the first quarter’s return of the new year all by July. Book your time with your accountant now to make sure they schedule time to accommodate your needs!
