Making Tax Digital (MTD) for Income Tax is fast approaching, with the first phase taking effect from April.

With fewer than 50 days until implementation (at the time of writing), now is the time for affected individuals and businesses to ensure they understand their obligations and are prepared for the transition.

If you are unfamiliar with MTD, we recommend reading our previous articles, which outline the background and answer some of the most frequently asked questions:

• https://www.glx.co.uk/news/an-introduction-to-making-tax-digital/
• https://www.glx.co.uk/news/making-tax-digital-questions/

If you are continuing to read, it is likely that MTD will apply to you from April. The key question now is: what practical steps should you take?

1. Consider your obligations under Making Tax Digital for Income Tax

Under MTD, you will be required to keep digital records and submit quarterly updates to HMRC using compatible software.

There are a number of HMRC-approved software providers available. A full list can be found here:

https://www.tax.service.gov.uk/find-making-tax-digital-income-tax-software/how-will-you-use-it

The options we most commonly recommend are:

• Xero
  • A reliable, cloud-based accounting platform with excellent training resources. It is market-leading for good reason and offers a comprehensive solution for businesses seeking robust reporting and scalability.
• Dext Prepare
  • A simpler option, particularly well suited to sole traders and smaller businesses. It allows you to photograph receipts and link your bank account, helping to reduce manual input and streamline record-keeping.
  • It is also possible to use spreadsheets, provided they are structured correctly and integrated with compatible bridging software.

The right solution will depend on the size and complexity of your business, and how involved you would like to be in the day-to-day bookkeeping.

2. Enrol with HMRC

If you are required to join Making Tax Digital for Income Tax this year, you should either have received, or will shortly receive, a letter from HMRC confirming this.

We recommend enrolling well in advance of the 6 April deadline to allow sufficient time for setup and testing. You can register here:

https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax

3. Recognise the benefits

Although MTD will require more frequent submissions to HMRC, there are clear advantages.

Quarterly updates provide greater visibility over your tax position throughout the year, helping you plan ahead and set funds aside accordingly. Maintaining digital records in real time should also reduce the pressure traditionally associated with the January self-assessment deadline.

We recognise that this represents a significant change for many businesses. If you would like to discuss how Making Tax Digital for Income Tax will affect you, or would value support in selecting and implementing software, contact us today and our team would be pleased to assist.

If you run a business in the UK, you will often hear accountants talk about expenses and capital allowances. They sound similar, and both reduce your tax bill, but they work in very different ways.

Understanding the difference between expenses vs capital allowances helps you avoid overpaying tax, plan cash flow more effectively, and feel more confident about your business finances, especially in the early years.

What Are Business Expenses?

Business expenses are the everyday costs of running your business. These are usually regular payments that keep things ticking along and are used up within the year.

Typical examples include rent, utilities, phone and internet bills, marketing costs, accountancy fees, software subscriptions, and travel costs such as fuel or train fares.

For example, if you pay £30 per month for accounting software, that £360 for the year is normally treated as a business expense.

Expenses are usually deducted in full from your profits in the same accounting period. For example, if your business earns £50,000 and you have £5,000 of allowable expenses, you are only taxed on £45,000.

What Are Capital Allowances?

Capital allowances apply to larger purchases that are expected to last for more than one year. These are items that provide ongoing value to your business rather than being used up quickly.

This typically includes things like equipment, machinery, computers, office furniture, tools, and business vehicles. Instead of deducting the cost as an expense, the tax system allows you to claim tax relief through capital allowances.

In many cases, that relief can still be claimed immediately, but it is recorded differently in your accounts.

Why Capital Items are Treated Differently

HMRC treats capital items differently because they are not short-term costs. A laptop, for example, might be used for three or four years, and office furniture may last much longer.

Rather than distorting one year’s profits, capital allowances spread or structure the tax relief in a way that better reflects how the asset is used by the business.

For example, you buy a laptop for £1,200 to use exclusively for your business. This would not usually be classed as a normal expense, instead, it would fall under capital allowances.

However, most businesses can use the Annual Investment Allowance (AIA), which currently allows up to £1 million of qualifying purchases each year to be deducted in full. In this case, you could still reduce your taxable profits by the full £1,200.

If your profits before the purchase were £45,000, they would reduce to £43,800 after claiming the allowance.

Expenses vs Capital Allowances: What’s the Difference?

The key difference comes down to how long the item benefits the business.

Expenses relate to day-to-day running costs. Capital allowances relate to assets that will still be in use in future years. Both reduce tax, but they appear differently in your accounts and are governed by different rules.

This distinction becomes particularly important when your business starts investing in equipment, vehicles, or premises.

Repairs, Replacements and Improvements

A common grey area is deciding whether something counts as a repair or a capital improvement.

If you are simply restoring something to its original condition, it is usually treated as an expense. For example, repairing a broken boiler or replacing damaged roof tiles would normally be allowable as a business expense.

However, if the work improves the asset beyond its original state, such as installing a more advanced heating system or adding air conditioning where none existed before, this may be treated as a capital improvement and fall under capital allowances.

Vehicles and Capital Allowances

Vehicles deserve special mention, as the rules are more complex.

Cars are treated differently depending on their emissions, whether they are new or used, and whether they are electric. Some low-emission or electric cars may qualify for 100% tax relief in the first year, while higher-emission vehicles may only attract relief at a much slower rate. For more information on buying and leasing company cars, read our article here.

Vans are often more straightforward and frequently qualify for full relief under the Annual Investment Allowance.

Why Getting This Right Matters

Classifying costs incorrectly can have real consequences. Claiming too much relief can lead to HMRC challenges, while being overly cautious can mean paying more tax than necessary.

It also affects how your business performance looks on paper, which matters if you are applying for finance, planning growth, or working with investors.

Getting the treatment right from the start keeps your accounts clean, consistent, and easier to understand.

How GLX Can Help

Differentiating between expenses and capital allowances is one of the most common areas where business owners feel uncertain, particularly when starting out or making new investments.

At GLX, we help you look at purchases in context, ensure they are treated correctly, and make sure you receive all the tax relief you are entitled to, without unnecessary risk.

Contact our team today for a free, initial, no-obligation conversation.

Following on from our introduction to Making Tax Digital blog, we’ve answered some of the most common questions we have been asked. Take a look at our FAQ’s below:

It seems that HMRC have been talking about Making Tax Digital for a long time and, in fact, it was ten years ago it was first announced. What followed was a number of delays, but it has been confirmed that this is finally happening! 

You may even be reading this blog because HMRC have sent you a letter saying you might be required to register from 6 April 2025. A lot has become clearer with regards to what this will involve, and GLX are here to keep you up to date with any further developments.

So ‘What do you need to do?’ The first thing is to not panic; you may already have systems in place that will be suitable, and even if you do not then we have a year to work out the right solution for you. The important thing is to engage with your accountant and work with them to find the easiest and best solution for you.

If you already have a self-employed business or are a landlord, and are below the VAT threshold, you will be very used to only having to submit a tax return to HMRC once a year, with a January deadline. 

Maybe currently you are someone who uses software to quickly and efficiently complete your record keeping in a few minutes on a Friday afternoon before then having the weekend to enjoy family life, or maybe you are the sort of person who just drops off a shoe box full of receipts to your accountant once a year! The great news, in both scenarios, is you are currently keeping records in line with HMRC requirements (and we love working with you equally)!

However, from 6^th April 2026 businesses who have combined self-employed and rental income of £50,000 (That is the total amount of receipts, before any expenses; not profit) will have to submit an update of the year to date profits, every quarter, in an electronic format to HMRC. This will need to be made within a month and 7 days of the period end, as well as a final statement by 31 January the year after. 

The essential requirement of MTD is that businesses must maintain their records in a digital format. This can include compatible software or spreadsheets. Maintaining records in paper format ceases to meet the legal requirements.

The first year will look a little something like this:

1. Submission 1 – Quarter: 1 April 2026 – 30 June 2026

• Due: 7 August 2026

2. Submission 2 – Quarter: 1 April 2026 – 30 September 2026

• Due: 7 November 2026

3. Submission 3 – Quarter: 1 April 2026 – 31 December 2026

• Due: 7 February 2027

4. Submission 4 – Period: 1 April 2026 – 31 March 2027

• Due: 7 May 2027

5. Final Submission (Year-End Report): 1 April 2026 – 31 March 2027

• Due: 31 January 2028 (along with any tax due)

As you can see you will have this will mean that you have to submit information to HMRC much more regularly. By working with your accountant to ensure you have the right system in place, that works best for you, should minimise the hassle of this and there are a number of benefits to this;

You will have much better year to date figures than just doing it at the end of the year. This means your accountant can project tax liabilities further ahead meaning you never have a nasty shock when January comes round. Secondly, if ever asked to provide estimated figures for financing or other purposes you will have these to hand. Finally, by submitting quarterly you are not creating more work, but splitting it over the year, hopefully meaning less stress overall.

Ultimately, working closely with your accountant we aim to make this transition as smooth as possible. 

We will be posting a number of blogs in the following months as the final details are announced to ensure you are kept fully up to speed, and if you are an existing client we will contact you during the preparation of the 24/25 tax return to let you know if you will need to join in April 26 and to get all the building blocks in place to ensure complying with Making Tax Digital is stress-free.

If you have any queries around Making Tax Digital or would like to know more about how GLX can help you, contact us today.

Q: How flexible is the outsourced Finance Director role? 

A: For many businesses, especially growing SMEs, flexibility in financial leadership is crucial — and this is where outsourcing shines.

An outsourced Finance Director (FD) offers significant flexibility that a full-time, in-house hire simply cannot match. Whether your business requires strategic input for a short-term project or ongoing part-time support, an outsourced FD can be engaged on terms that suit your needs.

This model allows you to adapt your financial management approach without the high cost and long-term commitment associated with full-time employees. It’s a scalable solution — giving you the ability to increase or decrease involvement based on your business’s current stage or challenges.

What adds to the flexibility is the broad range of services that an outsourced FD can provide. These include:

• Financial planning and forecasting
• Budgeting and cost control
• Cash flow management
• Financial reporting and analysis
• Strategic financial advice

You get high-level expertise tailored to your company’s specific requirements, all while maintaining cost-efficiency and operational agility. Whether you’re navigating growth, restructuring, or preparing for investment, this flexible arrangement ensures your financial leadership scales with you.

If you’re asking “how flexible is the outsourced Finance Director role”, the answer is: very. It’s a solution designed for adaptability — a smart, modern approach for businesses looking to optimise performance without sacrificing control or budget.

If you’d like to explore how an outsourced Finance Director could benefit your business, contact us for a free chat.