Half of small businesses unprepared for first Making Tax Digital deadline, Lloyds warns

More than half of UK small businesses are not yet ready for the first Making Tax Digital (MTD) for Income Tax submission deadline, according to new research from Lloyds Banking Group.

The bank found that 55 per cent of small businesses still have work to do before the first submission deadline on 7 August. Based on HMRC estimates of the number of sole traders and landlords affected, Lloyds said this could mean around 475,000 businesses have yet to complete their preparations.

The first phase of MTD for Income Tax requires eligible sole traders and landlords to keep digital records and submit quarterly tax updates using HMRC-compatible software.

Despite concerns over readiness, the research suggests businesses that have already adopted digital tax tools are seeing benefits. Forty per cent of respondents said the new process had made them more organised, while 28 per cent said it had reduced last-minute tax stress.

The study also found strong demand for integrating tax administration into everyday banking, with 93 per cent of respondents saying they would find it useful to manage tax records, deadlines and submissions through their banking app or online banking.

The new rules currently apply to sole traders with annual revenue of £50,000 or more. The threshold will fall to £30,000 over the next year before reducing again to £20,000, bringing more businesses into scope.

Lloyds recently added HMRC-recognised MTD software to its business accounts. The tool enables sole traders to maintain digital records, categorise income and expenses, store receipts and prepare quarterly submissions.

“Making Tax Digital represents one of the biggest administrative changes many sole traders will have experienced for years,” said Ramki Sankaranarayan, head of business banking at Lloyds. “Our research suggests that while businesses recognise the benefits of digital record keeping, many are still working through what they need to do before the first submission deadline.