It means no more typing in VAT figures onto the HMRC website. Those affected will have to submit key information and data relating to their VAT return digitally instead, using software that is compatible with HMRC's system.
The software will not be provided by HMRC, so it will be up to businesses to upgrade their existing software or buy new software. (more on that later)
For now, businesses which are registered for VAT with a taxable turnover - not profit - above £85,000 will need to start filing their returns using "Making Tax Digital-compatible software" from April. There are some exceptions - those businesses seen as having "more complex requirements" – such as trusts. For them, the timetable has been pushed back until October 2019.
This is just a first step as HMRC is already developing the system to be used for other types of tax including income tax and corporation tax.
It will be a big change for many - the Institute of Chartered Accountant of England and Wales has suggested that currently, only 10-12% of businesses currently use VAT software - the rest use the HMRC Gateway.
Despite speculation that the Chancellor could drop the VAT turnover registration threshold at the 2018 Autumn Budget – thereby bringing thousands more small firms into the scope of MTD by stealth – he acknowledged FSB’s concerns in his Budget speech and will now maintain the £85,000 registration point until 2022.
HMRC says that it is a major step towards "bringing VAT into the 21st Century" and will make it easier for businesses to get their tax right first time. They point out that more and more people are doing their banking, paying bills and doing business online. They say "avoidable mistakes" cost the Exchequer more than £9bn a year.
It has been argued that going digital could also save small businesses money in the long term - by making the process of VAT returns more efficient.
It's fair to say there are quite a few. One peer investigating Making Tax Digital, Lord Hollick, suggested that it "seems to be a recipe for a bit of a car crash".
Awareness. It appears that the majority of small businesses are not really aware that MTD is on its way and HMRC has been urged to rapidly step up its communication to small businesses. With less than six months to go, FSB chairman Mike Cherry told a Lords committee: "We do not believe that our members understand it, or are anywhere near ready for it."
The Office for Tax Simplification has said that its survey suggests only 25% of the smallest businesses have "some awareness" that it is coming - compared with 70% of other businesses. They say many small businesses will rely on agents for their tax compliance, who will be better informed. However, there will be many small businesses which do not employ accountants who they can consult.
Cost. HMRC will not be supplying the software SMEs will need to make their systems MTD-compatible. This means it will be up to business owners to find their own - and they may be baffled by the choice as scores of software packages are expected to be developed by April.
These are also cloud-based accountancy packages, which will mean businesses will pay a monthly subscription, which may be new to them. Cost estimates have varied widely between £100 a year to more than £2,000.
An FSB review in 2017 suggested the costs to businesses in terms of time spent by the business owner and staff alone would be well over £2,000. Those small businesses who invested in a software package some years ago could now face the cost of getting a new one. "Bridging" software may be the answer for those relying on spreadsheets - which will effectively take information from the spreadsheet and extract it into an MTD-ready file.
Is everyone digitally ready? Broadband speeds vary across the country and businesses that can't rely on a decent internet connection may find the idea of relying on it to do something as important as their tax rather daunting. A minority of businesses will not be regular computer users and there is concern their needs could be overlooked.
Additional burdens on business at a turbulent time. Making Tax Digital is due to come into force on the UK's first day outside the EU - with continuing uncertainty about VAT on transactions between the UK and EU. It will be an extra concern and potentially a drain on time and money, at an already difficult time for small businesses.
FSB policy adviser Lorence Nye says tech-savvy businesses which are already using accounting software will find it easier than others who are not used to accountancy software - such as sole traders in rural areas, who are currently more likely to use manual means of VAT reporting.
Some FSB members have reported receiving costly quotes - both from software companies and accountants - to comply with MTD, but he says the FSB's own investigations suggest there will be cheaper options out there.
"The main thing is to plan ahead as much as possible. Shop around. Speak to people, speak to your accountant, especially, if you have got one. We are going to put out information that will assist members," he said.
"The information isn't all there yet but over the next couple of months we should have a lot more. Don't panic. But do try to plan ahead as early as possible."
HMRC’s guide to Making Tax Digital can be accessed here. There are more than 20 software suppliers currently offering MTD-compatible products, be sure to consider all of your options. If you're already an FSB member, login and visit the FSB Legal Hub where you will find more information and you can also call the Legal Advice Line for advice on Making Tax Digital