At a Glance

Many UK SMEs still struggle with Making Tax Digital due to multiple issues, ranging from non-compliant software to poor data handling. Brookland Solutions can help streamline MTD compliance through Microsoft Dynamics 365 Business Central, integrating digital links and automating VAT submissions through HMRC-approved tools for accurate, penalty-free tax reporting.

MTD Timeline

2019 – MTD for VAT introduced for businesses over £85k turnover

2022 – MTD for VAT became mandatory for all VAT-registered businesses

2026 – MTD for Income Tax Self Assessment (ITSA) begins for £50k+

2027 – ITSA begins for £30k–£50k

Why Many SMEs Are Struggling with MTD Setup

Making Tax Digital, or MTD, came into force on April 1, 2019, as a digital-first initiative to make tax reporting easier for taxpayers and businesses. The MTD legislation requires all VAT-registered businesses with a turnover of above £85,000 (the VAT threshold) to report VAT electronically.

As MTD rules change in 2026, businesses continue to face challenges around the setup of MTD tools. Ranging from confusion on rules to relying on old systems, these reasons stand as roadblocks for MTD adoption in small businesses in the UK. But with the Making Tax Digital deadline looming closer, businesses are pressed for time, making it easier to make mistakes in setting up systems.

With these changes approaching, SMEs must ensure their setup is correct to avoid errors, penalties, or disrupted submissions. 

In this blog, Brookland Solutions explores the nine common mistakes businesses make when setting up MTD tools and how you can avoid them. 

9 Common Mistakes in Setting Up MTD Tools

Here are nine common MTD setup mistakes your small business may be making knowingly or unknowingly.

1. Using the Wrong Software

The biggest MTD mistake small businesses make is using software that’s not recognised by the HMRC. Assuming that your existing accounting software is compliant or continuing to use spreadsheets without proper connecting software can lead to rejected submissions.

You can avoid this by:

If you’re already a user of Microsoft Dynamics 365 Business Central, we recommend using its built-in Making Tax Digital tool, which connects to secure APIs (GovTalk Service).

2. Delaying the Transition

Many businesses underestimate the time and resources required for transitioning to Making Tax Digital, especially when switching from legacy systems or spreadsheets. Delaying the transition can cause you to rush, increasing the risk of errors and missed deadlines. 

You can avoid this by:

  • Starting early and doing your research 
  • Testing your software and digital links before your first submission
  • Giving your team time to adjust to the new tools and workflows

3. Assuming MTD Doesn’t Apply to Your Business

Misunderstanding whether MTD applies to your business can lead to serious compliance issues. If your total income from self-employment and/or property exceeds £50,000 in 2024-25, MTD applies to you (this threshold is based on HMRC’s criteria for entering ITSA from 2026).

Since April 2022, MTD for VAT has been mandatory for all VAT-registered businesses.

Avoid this mistake by:

  • Calculating your gross income, not profit
  • If you’re over £50,000, planning for April 2026
  • If you’re between £30,000 to £50,000, planning for 2027
  • Reporting VAT electronically if you’re over the £85,000 threshold

4. Not Registering with the HMRC

Using compliant MTD software for small businesses is important, but your setup is incomplete if you don’t formally register with the HMRC. Without this key step, your submissions won’t be accounted for even when you’re using the right software.

You can avoid this by:

  • Registering through your Government Gateway ID before filing your first MTD return
  • Waiting for official confirmation that your business has completed the registration process

If you’re unsure about this step, feel free to connect with our team for more assistance on MTD setup.

5. Entering Data Manually or Copying and Pasting

Typing data manually or copying and pasting it into spreadsheets and MTD tools may make the process easy, but you’re potentially causing a serious compliance risk. 

According to HMRC’s rules, they need a clear digital link from your original records to your submission. Manually entering data breaks this link and exposes your business to errors that can lead to rejected filings or penalties for non-compliance.

You can avoid this by:

  • Avoiding spreadsheets
  • Using BC’s built-in Group MTD and MTD software instead, which automatically maintains and links between records and checks your entries for errors, calculations, and submissions on your behalf
  • Avoiding copying and pasting or retyping data to maintain the full digital trail required by the HMRC

6. Missing Deadlines

Businesses used to filing once a year now need to file and submit quarterly. Missing deadlines is no longer a minor error under HMRC’s point-based system. You may be fined for repeated late submissions.

You can avoid this by:

  • Setting reminders of upcoming deadlines with the Making Tax Digital software in BC
  • Making a note of the key MTD dates 

7. Thinking Spreadsheets are Enough

Spreadsheets seem like the most user-friendly option, but they’re not enough for MTD. Their big issue is that they can lead to submissions with errors and don’t have integrated bank feed, automation controls, or updates like dedicated MTD tools.

You can avoid this by:

  • Using built-in MTD tools in your Business Central ERP, an ideal solution that answers the question: “What is the best software for Making Tax Digital?”

8. Not Keeping Records

Beyond filing and submissions, Making Tax Digital is also about how well you maintain records. 

Many businesses file through compliant MTD tools, but still rely on paper records or other non-compliant recordkeeping processes. If you’re in this boat, you might be unintentionally flouting HMRC’s rules, with a higher risk of errors.

You can avoid this by:

  • Using tools that record transactions like sales, expenses, income, and VAT in real-time to keep data up-to-date
  • Backing up and securing your records with cloud-based systems to avoid losing important data and maintain a clear, auditable trail

9. Combining Business and Personal Finances

Finally, combining business and personal finances is reportedly a common mistake among sole traders and landlords. This risky move not only results in confusing data but also makes tax audits complicated.

You can avoid this by:

  • Opening a business bank account separate from your personal account and connecting it to your MTD tool. (If you have a BC support plan with us, we can help you set it up.)
  • Ensuring you reconcile your accounts every month

Let Business Central with Brookland’s Support Keep You Confidently MTD‑Compliant

Following digital tax rules is simpler and more efficient when you’re using a unified system that works with your accounting software without purchasing a separate MTD tool.

We support your MTD efforts through Making Tax Digital and Group Making Tax Digital tools, which ensure:

  • Clear VAT reporting
  • Handling MTD rules in the background
  • Offering a clear overview of all your operational data
  • Checking for errors before submission
  • Updating you on new HMRC rules through built-in updates

Ready to simplify tax reporting within BC? Book a consultation with our team today.