Are you ready for Making Tax Digital?

Are you ready for Making Tax Digital?

The first stage of HMRC’s new fully digitalised system is being introduced in April

What steps is HMRC taking to ensure sole traders are aware of their obligations under Making Tax Digital?

That was the question asked by one MP last week as the April deadline for the first phase of the government’s new Making Tax Digital (MTD) for Income Tax fast approaches.

It is a query which has been on the minds of many business leaders and experts, with concerns expressed that a significant number of small business owners remain blissfully unaware of the new rules.

Today, we explain what sole traders need to be aware of, why Making Tax Digital is being introduced, and what the government had to say in reply to that all-important question.

What is Making Tax Digital for Income Tax? 

Making Tax Digital for Income Tax is set to affect around three million taxpayers by introducing a fully digital tax system in the UK.

It will require taxpayers to keep digital records and use specialised software to make their tax submissions electronically.

Businesses, including sole traders, will need to report their earnings to HMRC on a quarterly basis, although these submissions will be summaries rather than a complete tax return.

The government says the scheme will make the tax system simpler and address tax avoidance. HMRC has stated MTD for Income Tax will raise around £780m worth of additional tax revenue by 2028/9.

This April’s deadline will require most self-employed individuals and businesses with a qualifying income of over £50,000 to start using MTD for Income Tax.

In April next year, the threshold will be reduced to £30,000 and by April 2028, this qualifying income level will fall again to £20,000.

The big question - are businesses ready?

The Parliamentary query referred to in our introduction came from Independent MP James McMurdock last week.

In a written question, he asked the government to explain “what steps HM Revenue and Customs is taking to ensure that sole traders and landlords impacted by the new Making Tax Digital for Income Tax rules are aware of their obligations”.

It is a valid enquiry given the concerns expressed ahead of the roll-out that sole traders and the self-employed are not prepared for the new rules.

Indeed, research conducted in December 2025 by IPSE, The Self-Employed Association, and accounting software company, Sage, found that 70% of the 1,000 sole traders they surveyed were not aware the changes were coming.

IPSE said most sole traders are still managing their finances in ways that won’t meet the new requirements, including a third who still use pen and paper for their books.

The worry is that thousands of sole traders will only discover the change when they come to complete their tax return. IPSE says this will be far too late to avoid disruption.

Those who don’t prepare ahead of time are likely to find the transition frustrating and time-consuming, meaning the best time to start preparing is now.

Of course, sole traders and self-employed individuals can only make changes if they are aware the new rules are coming.

To return to James McMurdock’s question, what is the government doing to make people aware that MTD for Income Tax is coming – and soon.

In his reply, Labour’s Dan Tomlinson MP, Exchequer Secretary at HM Treasury, insisted every possible step is being made to inform people of the new requirements.

He said the government is “undertaking a range of activities to ensure those needing to use Making Tax Digital for Income Tax from April 2026 are ready and able to do so successfully”.

Mr Tomlinson added that this work includes media campaigns, awareness letters, issuing guidance, and working with software experts to ensure a range of MTD-compatible products are available for “different needs and budgets”. 

He added that: “Free options will support those with the simplest affairs.”

Despite this reassurance, question marks remain about the readiness of businesses. Last week, the man behind the roll-out, Director of MTD at HMRC, Craig Ogilvie told accounting and finance professionals body, AccountingWEB, that around 5,000 people have signed up to MTD testing programme – a small fraction of MTD’s own target of 800,000 by April 2026.

What can people do to prepare?

If you are self-employed, there are several steps you can take to prepare for the April deadline. Even if you do not meet the £50,000 qualifying income level for the initial roll-out, it is worth getting ready for MTD now.

Indeed, the first step people should be taking is to work out their qualifying income to ascertain when they will need to start using the new system. The government has put guidance in place to help people do this, while further advice outlining if and when you need to use MTD for Income Tax is also available.

It is also important to start investigating the best software option to enable you to use MTD. Accounting software such as Sage, Quickbooks and Xero are already compatible. This software will also help you to take the vital step of starting to keep digital records of your income and expenditure.

Finally, self-employed professionals should also look into legal protection insurance to ensure they are protected against any possible HMRC enquiries that may come up. Legal protection insurance provides cover for the cost of defending or pursuing any legal disputes, as well as expert representation when to comes to HMRC tax queries.