Tax is no longer a once-a-year job, and SMEs are spending £4.8bn on software to stay compliant

For most small businesses, tax has always been cyclical: spikes of activity around key deadlines, with the bulk of reporting and payments concentrated at the end of the financial year.

But Making Tax Digital (MTD) is changing that rhythm. From April 2026, eligible sole traders and landlords will need to keep digital records and submit updates to HMRC every quarter. And the rules don’t just affect filing; they’re reshaping how businesses track income, monitor cash flow, and manage bookkeeping throughout the year.

Research from Monzo shows that the impact is already significant. UK SMEs are spending £4.8 billion annually on tax and accounting software, signaling that compliance tools have become core operational investments, not optional extras.

A quiet shift in how businesses operate

Rather than concentrating paperwork at the end of the year, income and expenses now need to be recorded as they happen, and some sole traders are already feeling the impact. Monzo’s research shows that seven in 10 are aware of the upcoming MTD changes, but more than a quarter (28%) admit they aren’t confident they’ll be ready in time. 

Fortunately, it isn’t too late to get organised, and choosing the right digital tools now can make all the difference in turning compliance into a manageable process.

Nearly two thirds (61%) say integrated, simpler tools would make filing easier, highlighting demand for systems that combine business banking, bookkeeping, and tax. And this is reflected in spending. 

UK SMEs and sole traders now collectively invest nearly £5 billion (£4.8bn) a year on tax and accounting software, showing that digital compliance tools have become a core part of everyday operations. 

For many, these systems provide more than a way to submit updates: they give visibility over income, expenses, and tax obligations, helping owners monitor cash flow, budget for tax payments, and reduce last-minute surprises.

More than just compliance: how software is changing day-to-day finance

The rise in digital tools isn’t only about meeting HMRC requirements. For many sole traders and small businesses, tax software is becoming a hub for managing cash flow and financial visibility. Systems that integrate bank accounts, invoices, and expense tracking can make it easier to:

• See what money is coming in and going out in near real-time

• Set aside funds for tax payments

• Spot errors or missing transactions before deadlines

• Plan budgets and forecast cash flow more accurately

In short, the same tools that help businesses stay compliant can also reduce stress, save time, and give owners more control over their finances.

Getting ahead of Making Tax Digital

Even if your income is below the first threshold — £50,000 from April 2026, dropping to £30,000 and then £20,000 in subsequent years — most sole traders and landlords will be brought into MTD eventually. Preparing early can make the transition smoother, reduce last-minute stress, and help you turn compliance into a tool for managing your business more efficiently.

Some practical steps to get ahead include:

• Check when MTD applies to you: Know your thresholds for income and property so you understand exactly when you need to start submitting quarterly updates.

• Choose HMRC-recognised software that fits your business: Some tools focus on simple record-keeping, while others integrate invoicing, expenses, and bank feeds. Picking the right software for your needs will mean fewer manual updates, less chance of mistakes, and a smoother reporting process.

• Connect bank feeds to automate record-keeping: Linking your business accounts to your software can save time and reduce errors. 

• Get into the habit of quarterly updates: Even if your deadlines aren’t imminent, practising quarterly reporting now can help you develop a routine and spot gaps in your record-keeping before it matters. 

• Factor software costs into cash flow planning: Digital tools are no longer optional; they’re a standard operating expense, alongside credit card fees, insurance, and broadband. Treating them as part of your regular budget can help you avoid surprises.

By taking these steps, compliance with MTD can move from being a potential source of stress to a strategic part of running your business, giving you better visibility over your finances and freeing up time to focus on growth.

Want to learn more about Making Tax Digital? Check out our step-by step guide.