The UK is implementing its most significant reform of personal tax administration in decades with the introduction of Making Tax Digital for Income Tax. Effective from 6 April, this initiative requires higher-earning landlords and sole traders to maintain digital records and make quarterly submissions using approved software.
Despite its scale, nearly half of those impacted are reportedly unaware of the incoming requirements, raising widespread concerns over taxpayer readiness and the speed of the transition.
The government aims to modernise tax collection and improve accuracy, but professionals and affected individuals have highlighted issues around communication, implementation costs, and administrative burden.
Major overhaul to tax administration
Making Tax Digital (MTD) represents the largest transformation of the UK’s personal tax system since the introduction of Self Assessment. Announced over a decade ago, the transition begins on 6 April and will initially apply to individuals earning over £50,000 from self-employment or property income during the 2024/25 tax year.
The threshold will reduce to £30,000 from April 2027, with an eventual extension to those earning above £20,000 in April 2028. The government’s stated objective is to reduce tax errors and modernise the system.
According to HM Revenue & Customs (HMRC), over 900,000 higher-earning sole traders and landlords will be required to submit digital records and quarterly updates in the first phase. The reform seeks to increase transparency and ensure tax obligations are met throughout the financial year.
Who is affected by Making Tax Digital?
Initially, the new regulations apply to anyone earning more than £50,000 annually from self-employment or property in 2024/25. The scope will expand in stages to include earners above £30,000, and subsequently those with income exceeding £20,000 from relevant sources.
Participants will need to keep ongoing digital records and send quarterly summaries to HMRC via software recognised by the government. Affected taxpayers will make quarterly submissions on set dates 7 August, 7 November, 7 February, and 7 May with a final declaration due by 31 January, replacing the current annual Self Assessment process for those in scope.
Concerns over awareness and preparation
Recent industry research highlights substantial gaps in public knowledge of the reform. A survey by the Association of Independent Professionals and the Self Employed (IPSE) in conjunction with Sage found almost 40 per cent of sole traders had not heard of Making Tax Digital, and only one in three reported being fully aware of the policy.
Specifically, senior IPSE policy officer Josh Toovey cautioned, “Hundreds of thousands of sole traders will only find out about this whole change when they come to submit their annual return.”
He added that individuals who file without professional assistance are at greatest risk of being unprepared.
New reporting and software requirements
In order to comply, taxpayers must select an authorised software provider, with government guidance listing available options. While some free products exist, these usually accommodate only the simplest tax situations. Stephen Relf, technical manager at the Institute of Chartered Accountants in England and Wales (ICAEW), commented,
“Raising awareness of MTD income tax has been, and continues to be, a huge challenge.” ICAEW has warned that some individuals may only receive notification letters when the requirements take effect. Many users will have to familiarise themselves with digital record-keeping and commercial accounting platforms for the first time.
The system’s rollout, requiring regular digital submissions, has prompted questions around accessibility and error risk, particularly among smaller businesses and older taxpayers.
Financial impact and software costs
A notable proportion of those aware of the changes express concern over the additional costs of compliant software. The IPSE study revealed that 45 per cent of respondents cited software expenses as a primary worry, and some uncertainty remains about whether such costs will qualify for tax relief.
Professional advisers stress the importance of making an informed choice when selecting software, as switching providers later could add complexity and cost. The learning curve is expected to be steep for many, increasing the potential for unintentional mistakes.
Final Summary
The approaching introduction of Making Tax Digital signals a major change in the relationship between affected taxpayers and HMRC, aiming for real-time accuracy and streamlined compliance. While the policy seeks to close the tax gap and bring greater efficiency, surveys indicate many individuals and small businesses remain unprepared and face financial as well as administrative hurdles.
Transitioning to digital accounting and quarterly reporting will require adjustment, particularly among those new to such processes. As the roll-out continues and thresholds lower, ongoing communication and support will be essential to ensure compliance and reduce disruption.
For those looking to manage their tax records digitally, using a trusted app or platform may help ensure smoother navigation of the new requirements.
