Nearly half of sole traders don’t know about Making Tax Digital

The Government’s Making Tax Digital (MTD) initiative will become mandatory for many self-employed individuals from April 2026. The new rules aim to make managing business taxes easier and more efficient for solopreneurs.

Yet despite the plans, statistics from IRIS software reveal that many UK sole traders haven’t gotten the message, as nearly half admit to not being ready for the changes.

And with the deadline to register for MTD looming, the lack of preparation can easily lead to facing penalties if they don’t comply.

But even with today’s digitisation, including the increased use of accounting software, these statistics beg the question of why so many sole traders are falling with the new MTD rules.

What is Make Tax Digital (MTD)?

MTD is a Government initiative that makes it mandatory for businesses to use a digital system to keep tax records, submit tax data and make payments.

The initiative was first proposed in April 2019, and currently only applies to value-added tax (VAT) payments. 

However, for sole traders with income tax over £50,000, MTD is being phased in from April 6 next year — meaning those eligible have a year to transition to digital-only for their taxes.

MTD will also apply to those who earn over £30,000 from 2027, and to anyone earning £20,000 from 2028.

MTD is coming, but sole traders aren’t ready

MTD will be a legal requirement for sole traders from next year, yet alarmingly, many of them aren’t prepared for this change.

According to software company IRIS — which surveyed over 1,000 UK sole traders — 31% of respondents reported that they’d never even heard of MTD. Moreover, 45% are at risk of failing to comply with new tax legislation.

“These findings highlight an important moment of opportunity for the UK’s sole traders,” Mark Chambers, Managing Director at IRIS Accountancy, comments. 

“With MTD just around the corner, there’s a real chance for firms to modernise their financial processes, unlock efficiencies, and gain better visibility of their income and expenses.”

Why are sole traders so unprepared?

So why do so many struggle to go fully digital? Aside from the admission of not knowing about MTD, the inadequacy in preparation could boil down to a generational divide, a reported lack of communication and misunderstanding of eligibility.

The IRIS study also found that sole traders aged 25-34 were the most prepared for MTD (37%), followed by those aged 35-44 (23%). On the other hand, just 10% of sole traders aged 45-44 felt the same.

Meanwhile, 74% of sole traders say that there’s a communication breakdown between them and HMRC. Most notably, many have said that they’re waiting for official guidance on navigating MTD, suggesting a lack of knowledge on how it works.

Additionally, according to an Intuit QuickBooks study reported by Bytestart, 21% of self-employed taxpayers don’t believe MTD applies to them, despite meeting the required threshold. 

Last month, research from Takepayments found that as many as 31% of sole traders and freelancers are clueless about their tax band. 

Chambers adds: “It’s encouraging to see that nearly a quarter feel ready to meet the requirements, but that leaves a significant portion not experiencing the benefits of digitised tax reporting that compliance will bring.

“The next step is making sure everyone, regardless of age or experience, has access to the knowledge and resources they need to move confidently towards compliance.”