Are You Ready for Making Tax Digital? 1 in 3 Sole Traders Aren’t – And Time Is Running Out

The tax landscape for sole traders in the UK is about to undergo a seismic shift — and worryingly, a huge number of self-employed individuals are completely in the dark.

According to a recent survey by IRIS Software, 31% of sole traders have never even heard of Making Tax Digital (MTD) — despite the fact that from April 2026, those earning over £50,000 will be legally required to submit quarterly digital tax returns under the new system.

With an estimated three million sole traders in the UK, this translates to over 900,000 individuals at serious risk of non-compliance — and potential penalties — due to sheer lack of awareness.

And it gets worse: nearly half of those who do know about MTD say they’re still unprepared.

What Exactly Is Making Tax Digital?

In short, MTD is HMRC’s flagship digital transformation initiative. Its goal is to modernise the UK’s tax system by requiring businesses and individuals to keep digital records and submit updates to HMRC every quarter using MTD-compliant software.

From April 2026, MTD for Income Tax Self Assessment (MTD for ITSA) will apply to sole traders and landlords earning over £50,000 annually. A year later, the threshold drops to £30,000.

This means most sole traders will be affected sooner or later — ready or not.

What Are the Responsibilities of Sole Traders and Business Owners?

Whether you’re a sole trader, freelancer, or landlord, you have a legal responsibility to understand and comply with tax regulations that apply to your income level and business type. Relying on accountants alone isn’t enough.

You are expected to:

• Stay informed about key changes like MTD.

• Maintain accurate and up-to-date financial records.

• Transition to digital bookkeeping systems in time for the deadlines.

• Ensure your tax returns are filed accurately and on time.

Failing to take ownership of your obligations could lead to costly fines, HMRC scrutiny, and avoidable stress. MTD is not a suggestion — it’s the law. And it’s coming, whether you’re ready or not.

Why Are So Many Sole Traders Still Unaware?

The blame doesn’t fall solely on business owners. A staggering 74% of survey respondents believe HMRC hasn't done enough to communicate what MTD actually is or what it means for them.

Even more worrying, some say their accountants haven't mentioned it — with 1 in 10 surprised their accountant never raised the issue. This lack of proactive communication is leaving many small business owners in the dark.

What About Accountants and Agents? Their Role Is Crucial Too

While the responsibility starts with business owners, accountants and agents have a vital role to play in guiding and supporting their clients through the MTD transition.

Yet, a third of accountants say they’re not ready, and 80% list MTD as their biggest professional challenge this year. Despite that, businesses are counting on their advisors to:

• Inform them about MTD and its implications.

• Recommend or implement suitable digital tools.

• Support quarterly filing and ongoing compliance.

• Educate clients who may be technologically reluctant or unaware.

Firms that fail to prepare risk damaging trust, losing clients, or being overwhelmed during peak filing periods. For accountants, this is a moment of opportunity — and responsibility.

If your accountant isn’t talking to you about MTD yet, it might be time to ask why.

Why This Matters — Now

The consequences of not preparing for MTD are real. Non-compliance can lead to fines, penalties, and unnecessary stress — especially for sole traders already stretched thin managing their businesses.

Many still use paper records or basic spreadsheets, which will no longer be sufficient under the new rules. Transitioning to digital accounting software is not just a compliance issue — it’s a necessity.

But with less than a year to go, the window for preparation is closing fast.

What Should You Do Next?

1) Find Out If You’re Affected

If your annual income from self-employment or property exceeds £50,000, MTD will apply to you from April 2026.

2) Talk to Your Accountant

Don’t assume they’ve got everything under control. Ask if you’re on track for MTD compliance and what changes you need to make.

3) Go Digital Now

Start exploring MTD-compliant accounting software. The earlier you make the switch, the easier the transition will be.

4) Stay Informed

HMRC has started writing to affected taxpayers. If you receive a letter, don’t ignore it — read it carefully and take action.

Final Thoughts: Don’t Be the 1 in 3

Making Tax Digital is not a distant future. It’s imminent. And if you’re not ready — or haven’t even heard of it — you’re putting your business at risk.

Whether you’re a seasoned sole trader or just starting out, now is the time to get ahead of the curve. Don’t wait until 2026 to scramble for compliance. The sooner you act, the smoother the journey will be.

The Tax Faculty Accounting Services can help take the guesswork out of the transition. With specialist expertise in both MTD compliance and tax efficiency strategies, we work closely with business owners to implement digital systems that save time, reduce errors, and maximise profitability.

From choosing the right MTD-compliant software to providing hands-on support with quarterly filing and year-end submissions, our team makes sure you're always one step ahead of the rules — and your tax bill.

Contact us today to schedule a free consultation.

Capital Gains Tax Expertise: The Tax Faculty LLP Managing Partner Charles Tateson Named UK Capital Gains Tax Advisor of the Year 2023

The Finance Monthly Taxation Awards recognises the achievements of tax professionals from around the globe.

Winning such an award is no small feat. It is a reflection of hard work, extensive knowledge, and an ability to navigate the intricacies of the UK tax system.

Read more about Charles and the award here.

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