With just 90 days to go before Making Tax Digital (MTD) becomes a mandatory reality for thousands of businesses, a important number are still unprepared for the biggest shake-up to the UK tax system in a generation. Affinia, a leading advisory firm, has warned that many smaller firms and sole traders remain in the dark about the new digital reporting rules, leaving them exposed to compliance risks, potential penalties and last‑minute disruption. As the countdown accelerates, the shift from paper records and annual returns to real‑time digital submissions is set to test not only the resilience of business owners, but also the readiness of the software and support systems they rely on.
Countdown to Making Tax Digital why thousands of small firms remain unprepared
With just three months left on the clock, many owner-managed businesses are still operating under the hazardous illusion that they can “sort it later”. In practice,that means paper invoices stacked in shoe boxes,spreadsheets with missing formulas and bank feeds that have never been reconciled. Affinia’s advisers say the firms most at risk are those who see the new regime as a one-off admin chore rather than a fundamental change in how records are kept and shared with HMRC. The warning signs are easy to spot: ad-hoc bookkeeping, last-minute VAT submissions and a total absence of testing the software that will soon be responsible for transmitting tax data on a rigid schedule.
- Micro-businesses still relying on manual records
- Hospitality and retail firms juggling multiple tills and cash systems
- Trades and contractors who invoice via text or messaging apps
- Freelancers with irregular income and mixed personal/business expenses
| Risk Area | Typical Problem | Likely Impact |
|---|---|---|
| Software choice | Free trial, never configured | Submission failures |
| Data quality | Missing receipts, gaps in records | HMRC queries and delays |
| Training | Staff not briefed on new process | Late filings and errors |
As deadlines approach, advisers warn that the administrative lag is turning into a real financial hazard. The firms that have not yet mapped out who will be responsible for digital record-keeping, which systems will be used, and how data will be reviewed before submission are the ones most likely to miss the first mandatory filing. For many, the barrier is less about technology and more about time: owners are still firefighting cashflow, recruiting staff and managing supply chains, leaving little capacity to interrogate software specs or migrate historic data. Yet the cost of inaction is becoming starkly clear, with penalties, increased scrutiny and the risk of misreported figures looming for those who continue to treat the change as tomorrow’s problem.
Key compliance pitfalls how legacy bookkeeping and late registrations risk penalties
Businesses clinging to spreadsheets, paper invoices and ad‑hoc reconciliations are finding that what used to “sort of work” now creates a digital audit trail of errors. HMRC’s systems can automatically flag mismatches between reported figures and bank data, inconsistent VAT treatment across quarters, or gaps in transaction records. Common traps include:
- Manual re-keying of data from sales systems into ledgers, creating duplicated or missing entries.
- Unclear digital audit trails where invoices, receipts and adjustments can’t be tied to a specific transaction history.
- Inconsistent VAT coding for similar supplies over time, exposing patterns that algorithms quickly detect.
- Unreconciled bank accounts, leaving unexplained differences that are hard to defend during a compliance check.
These weaknesses rarely stayed hidden under the old, largely paper-based regime; under real‑time, data-led scrutiny they can trigger questions, penalties and retrospective interest faster than many finance teams expect.
The risks are magnified when businesses delay VAT registration or fail to switch onto compliant software by the deadline, assuming they can “catch up later”. Late registrations can mean HMRC backdates the effective date, creating an unexpected liability across multiple quarters. Late submission of digital records, even if the tax is eventually paid, still attracts sanctions. Key exposure areas include:
| Issue | Typical Impact |
|---|---|
| Missed VAT registration threshold | Backdated VAT bill plus interest |
| Late digital sign‑up | Filing penalties despite accurate figures |
| Partial digital records | Risk-based enquiries and record-keeping fines |
| Unadvised errors | Higher “purposeful” penalty assessments |
What businesses should do now practical steps to get systems software and staff ready
With just three months left, finance leaders should be moving from theory to implementation. The priority is to audit existing processes and software for MTD readiness: check that current accounting platforms are HMRC-recognised and support digital record-keeping and direct submission. Where gaps are found,businesses should either activate MTD-compliant modules or migrate to alternative systems,ensuring data can be cleansed and imported without breaking audit trails. It is indeed also essential to map out which entities, VAT registrations and locations are in scope, then align filing dates, approvals and workflows so that nothing slips through the net at go-live.
- Review existing bookkeeping and VAT workflows for manual steps
- Confirm software compatibility and upgrade or switch where necessary
- Train finance teams and key managers on new submission processes
- Test digital links and pilot at least one end-to-end MTD-style return
- Document responsibilities, deadlines and escalation routes
| Focus Area | Immediate Action |
|---|---|
| Systems | Enable MTD add-ons and verify API connections |
| Data | Align VAT codes, tidy incomplete records |
| People | Run short, role-based MTD training sessions |
| Controls | Update internal policies and sign-off procedures |
Equally important is getting people comfortable with the new regime. Many businesses underestimate the behavioural shift required when spreadsheets and ad hoc workarounds are no longer acceptable as the primary record. Finance teams should be briefed on digital record-keeping standards, error-correction procedures and the potential penalties for non-compliance. Short,focused training for budget holders,branch managers and anyone raising invoices or expenses will minimise data errors at source. A dry run of the next VAT cycle, shadowing the full MTD process while still filing under the old rules, allows firms to surface issues early, refine their controls and enter the final weeks with evidence that systems, software and staff are ready for day one.
Expert advice from Affinia how proactive planning can turn MTD from burden to opportunity
Affinia’s tax specialists argue that the next 90 days can either be a frantic scramble or a pivot point for smarter financial management. By using the countdown to reassess systems, businesses can migrate from fragmented spreadsheets to integrated, compliant platforms that deliver real‑time visibility. This means mapping every data source that feeds VAT returns, cleansing historic records, and aligning internal processes with digital workflows. According to Affinia, firms that plan now are already using pilot dashboards to track filing status, spot anomalies before HMRC does, and model cash‑flow impacts across multiple quarters. The key is to treat implementation not as an IT chore,but as a finance change project with clear ownership,milestones,and measurable benefits.
Affinia recommends a staged approach that turns statutory pressure into operational advantage by focusing on:
- System readiness – selecting compatible software, testing API links to HMRC and ensuring robust backup routines.
- Data discipline – imposing consistent coding,timely reconciliations and documented audit trails across all entities.
- People and training – upskilling finance teams so they can interpret digital reports, not just submit them.
- Strategic insight – using cleaner, more frequent data to identify margin leaks, payment lags and growth hotspots.
| Step | Timing | Primary Benefit |
|---|---|---|
| Software selection | Days 1-15 | Compliance certainty |
| Data clean‑up | Days 10-45 | Fewer HMRC queries |
| Process redesign | Days 30-60 | Faster reporting |
| Team training | Days 45-75 | Reduced error rates |
| Full dress rehearsal | Days 75-90 | Confident first filing |
Future Outlook
As the 90-day countdown continues, the message from Affinia is clear: Making Tax Digital is no longer a distant policy shift but an imminent reality. For businesses that have yet to prepare, the risk is not just administrative inconvenience but potential disruption to cash flow, compliance standing and long-term planning.
With time running short, firms are being urged to review their systems, seek professional advice where needed and ensure that digital processes are firmly in place. Those who act now, industry experts suggest, are likely to find that the transition brings not only regulatory compliance but also opportunities to streamline operations in the years ahead.
