My Experience of Making Tax Digital, and What I Would Do Differently

One of the things that consumes my spare time is supporting my partner with her small e-commerce business. She makes personalised cards and gifts, sold across Shopify, Etsy and TikTok Shop. I support with running marketing campaigns and maintaining the website, and also accounting. I’m not a qualified accountant, let’s make that clear. But the business is relatively simple and my partner has never felt it necessary to hire one. She operates as a sole trader and her turnover exceeded £50k for the last tax year - which meant this year we needed to work to the Making Tax Digital requirements.

With a relatively small number of data sources, all online, I thought it would be a relatively straightforward process. The existing accounts were already driven by a spreadsheet, we just needed to tighten up how some of the data got from the relevant platforms to the summary sheet. Easy. Or so I thought.

The basics of Making Tax Digital

It’s beyond the scope of this article to outline all the requirements of Making Tax Digital, but I’ll cover some of the basics to help with context:

• Use compatible software. HMRC does not provide any software and you need to use an approved tool or platform to make submissions. You cannot simply upload a spreadsheet.

• Create digital records. Every source of income or expenditure needs a digital record. You cannot type in figures manually. If you use spreadsheets in your process, data needs to be imported or linked, not copy and pasted.

• Submissions are now quarterly. HMRC now requires a quarterly submission which enables you to see your predicted tax bill as the year progresses.

For full detail on what’s required, read HMRC’s guide on how to Use Making Tax Digital for Income Tax.

Having considered all the various options, we decided to improve our existing process of a master accounts spreadsheet. In order to become compliant with the Making Tax Digital rules, some upgrades were needed. There is no real shortcut to the final submission to HMRC - you have to use an approved tool. But you can control how you gather the data to get to that point. With most of the business operating on online marketplaces and platforms, we decided to utilise the data points they provide, organising everything ready for upload to the chosen tool for submission. Here’s how that went.

The bit that actually took the time

Nobody warned me the hard part would not be the tax rules. It was getting clean, comparable numbers out of nine different platforms that all define things differently. Every platform has its own idea of what counts as the date. Order date, invoice date, charge date, payout date, and settlement date are all different things, and only the date money actually changed hands counts for cash basis reporting, which is the default under £150,000 of qualifying income. Get the wrong one and the mistake is invisible until someone checks.

Some exports only give you the net figure, what actually landed in the bank after fees. HMRC wants turnover reported gross, with fees claimed back separately as an expense. I processed a full quarter against a net export before realising, and had to redo it from a more detailed report.

Etsy only lets you pull one calendar month of data at a time, but the tax quarter runs from the sixth to the fifth, not by calendar month. A single quarter needed four separate exports, not three, because the last few days spilled into the next month. It is an easy thing to under-request without noticing.

The rule that actually surprised me

This is the one I would tell a first-timer about above everything else. Each quarterly update has to include the whole tax year to date, not just that quarter in isolation. Quarter two's submission covers quarter one and two combined, not quarter two alone.

It sounds like a technicality, but it changes how you should build things from day one. If you make a mistake, you can resubmit that specific quarter directly, or let the correction flow through in the next quarter's cumulative total, as long as it is fixed before the year's Final Declaration in January.

The thing nobody warns you about

This is the one that nearly caught me out, and I have not seen anyone else write about it. If you choose to setup like we did, Making Tax Digital can quietly turn you into a data controller for personal information you never asked to hold. In previous years, we were simply reading gross figures off the screen - that’s no longer allowable under Making Tax Digital. You have to have a traceable data source.

PayPal's export includes the customer's name and email as standard columns, with no way to opt out. Royal Mail's includes the customer's name, tracking number, and notification email or mobile. You do not find this out until you are looking at a spreadsheet full of it.

If any of your bookkeeping touches a personal bank account that also handles some business spend, you have a second version of the same problem, genuine personal and family transactions sitting in the same statement as business ones. That needs deliberate filtering, not exporting everything and sorting it later.

The counterintuitive lesson was that logging everything for a tidy audit trail actually makes this worse, not better. We decided not to record which specific rows got excluded from the personal account, even just row numbers, because that just moves the sensitive data into a different file instead of dealing with it. What we kept instead was a count, how many rows came in, how many were kept, how many were excluded. That is enough to catch a mistake without ever storing the personal content itself.

If your business touches customer data through any of these exports, and most e-commerce businesses will, this is worth sorting out before you build anything else. For a business that deliberately avoids handling customer data outside of major platforms, this was a big thing for us to get right.

How much should you automate?

From the start, I was determined to create a process that was easy to repeat in following quarters. With only annual submissions being required previously, I could cope with feeling like I was starting from scratch every time. That was no longer an option for me with quarterly submissions. I wanted the process to run in minutes, not days or hours. Whether my stubbornness over the desire to automate will serve me well in subsequent quarters, only time will tell. But automating this submission took far longer than doing it manually would’ve done. The rules require traceability of the figures - but nothing says it has to be totally automated. You can’t read figures off a screen, you can’t type figures directly into boxes or cells, and you can’t copy/paste from one file to another. The brute force approach would’ve been to download every data file, import it into the spreadsheet as its own sheet and then build custom lookups for each line item. Time-consuming, but conceptually simple.

Instead, I ended up with a multi-layered process:

1. Download the source data (the only manual bit)

2. Strip PII using Google Apps Script

3. Harmonise dates using an AI-written python script

4. Categorise the data and build a ledger

5. Write the formula to pull from the ledger

6. Match the mapping for the final submission

7. Upload the final submission

8. Clean-up the source files ready for next quarter

As I was building this out, it was common to find issues that meant re-tracing steps. This was usually due to surprise issues with the source files. Needless to say I burned several evenings trying to get these processes right.

Paying for help is not a failure

For most small traders, the realistic choice is between free bridging software, a paid bookkeeping tool, or handing the whole thing to an accountant. Paying for something is the practical option for a lot of people, not an admission of defeat.

We used aligned.tax, which is free for individuals and is HMRC-recognised, and the experience was genuinely good. It takes your spreadsheet summary, uses AI to map to the breakdown HMRC requires and handles the submission for you.

On my first attempt, the upload lumped every expense into a single consolidated line instead of splitting into HMRC's proper categories. There are options to map your fields to the ones the system wants but it’s just as easy to match the format from the outset. Download their own template spreadsheet and match your output to its structure, even if you keep a more detailed breakdown for your own purposes behind the scenes. That is exactly what we did for the second attempt, and it mapped correctly straight away.

It’s worth noting that there aren’t many truly free options out there. Some may view the cost as minimal in order to simplify the process, others may view it as another unnecessary expense. To find the right software or tool for your business, use HMRC’s software tool finder. Be sure to check before signing up to anything though - many solutions present themselves as free in the finder tool but may still have a charge for your specific need.

Does your business bank account already cover this

There is no requirement for sole traders to have a separate bank account for their business. Whilst my partner uses a separate personal account mainly for business transactions, it wasn’t perfectly clean. And she, much like others, left it too late to move to a bespoke business account for this submission deadline. But it’s certainly something worth considering. Several UK business accounts now bundle bookkeeping features into the account itself, Tide, Countingup, Anna Money, Zempler (Coconut) all offer some version of this, and it is a reasonable question to ask before paying for anything separate. But having bookkeeping features and actually covering Making Tax Digital properly are not the same claim, so it is worth checking a few things before assuming a bundled tool means you do not need anything else:

• Does it see money that never touches the bank account. A tool plugged into the bank feed only sees what lands in that account. If income arrives via a marketplace or payment processor before being paid out, a bank-only tool sees the net payout, not the gross turnover HMRC wants.

• If you use platforms such as Shopify, Etsy or eBay, the bookkeeping tools may connect to them, to save you the effort of manually downloading. Check whether the platforms you use are supported.

• Does it use the actual cash movement date, or just the date the bank feed shows it.

• Can it submit cumulatively, covering the whole tax year to date, not just the current quarter.

• Does it let you map to HMRC's actual expense categories, not just its own generic ones.

• Is it specifically HMRC-recognised MTD software, checked against HMRC's own list, not just described as accounting software in the marketing.

• What happens if the account is not entirely business only.

If you are weighing this up, you can compare business bank accounts on HowMuch.

If this has not caught up with you yet

The threshold that pulled my partner's business in was £50,000 of qualifying gross income, combined across all self-employment and property income if you have more than one source. That threshold drops to £30,000 from April 2027, and HMRC has already confirmed a further drop to £20,000 from April 2028. If you are anywhere near those figures, it is worth getting your systems in order before the deadline arrives rather than during the week it does.

Lessons learned

As people who are more tech-savvy than average, and with a relatively simple business model, we still managed to under-estimate what was needed for Making Tax Digital. We’re already looking at switching to a business bank account to properly keep business and personal expenditure separate. Whether we continue to persevere with the spreadsheet-first solution will largely depend on how smoothly the next quarter’s run goes. The biggest takeaway for those looking for things to improve on next quarter, or for those doing Making Tax Digital for the first time next year, is don’t leave it to the last minute. Preparation can start even before the quarter ends. Know what data sources you need to handle, regardless of how you’re doing it. Decide if you’re going to use paid software. Identify any exceptional income or expenditure that you might not have a process for. The earlier you start thinking about it the better - make it part of your weekly routines.