OVER two million Brits face being forced to file more than 10 financial updates a year under new Making Tax Digital (MTD) rules that are “yet another administrative weight added to an already heavy load”.
In just two months, MTD will go live – a new way for sole traders and landlords to report income and expenses to HMRC.
Many are “simply unprepared” for MTD and “awareness is still incredibly low” among individuals affected, experts have warned.
The new system is a UK government initiative aimed at modernising the tax system by requiring businesses and landlords to keep digital records and submit quarterly tax updates to HMRC using compatible software.
It replaces manual, annual, or paper-based reporting with a digital, real-time process, with MTD for VAT already mandatory and MTD for Income Tax (MTD for ITSA) rolling out from April 2026.
For individuals, MTD for ITSA will be introduced in two phases: from April 2026, for those with qualifying income over £50,000, and from April 2027, for those with qualifying income over £30,000.
But experts have warned that it could mean the number of financial updates needed to be sent by small business owners is over 10.
Someone who is a self-employed plumber will have to file five times a year, four quarterly updates plus the tax return, and if they are a landlord too then that doubles the amount of financial updates needed to be filed. And that doesn’t even take into account VAT returns.
Yet another administrative weight added to an already heavy load
Taryn Lee Johnston, Owner at Lincoln-based The FCM Group, said it feels like yet another hit for small businesses.
She added: “For many self-employed people and small business owners, this feels like yet another administrative weight added to an already heavy load. Quarterly reporting under Making Tax Digital was sold as a way to modernise the system. The concern is not just frequency, but cost, time and mental bandwidth. Many small business owners do not have in-house finance teams.
“They will either need to pay accountants more or spend more hours on compliance rather than growing their businesses. At a time when the UK says it wants to encourage entrepreneurship and economic growth, increasing administrative burden sends a conflicting message.
“Small businesses are already facing rising costs, higher taxes and tighter margins. Adding more reporting requirements risks pushing some to question whether it is worth staying self employed at all. Modernisation is not the problem, the scale and pace of the burden is.”
Gwion Thomas, founder of LITT, the sole trader and freelancer accounting app, warned those affected to not leave it to the last minute.
He added: “Making Tax Digital represents a landmark shift in UK tax, moving millions of sole traders from annual, manual filings to digital record-keeping and quarterly reporting.
“While HMRC’s goal of improving accuracy is positive, the priority now is preparation and I would advise people to get ready now before it’s too late. Don’t leave it to a last-minute scramble and understand what you need way ahead of April’s rollout.”
Steven Greenall, Mortgage and Protection Advisor at Rayleigh-based Protect & Lend, said preparation is key.
He continued: “There is no doubt Making Tax Digital will feel onerous at first, especially for sole traders and landlords used to filing once a year.
“The shift to quarterly reporting and digital systems will bring a learning curve and possibly extra costs. However, after the first few quarters, it should become routine. Those who prepare early and put the right systems in place will find the transition far more manageable.”
Prepare early
Colette Mason, Author & AI Consultant at London-based Clever Clogs AI, said over two million will be affected.
She added: “The numbers are staggering. HMRC estimates 780,000 people will be drawn in from April 2026, with a further 970,000 from April 2027. By 2028, when the threshold drops to £20,000, over one million more will be added, pushing the total well past two million.
“The government has also openly said it wants to eventually pull in the four million sole traders and landlords earning below £20,000. That’s people earning less than minimum wage being forced into quarterly digital reporting. For someone with a small side-hustle business and, say, a rental property, that’s at least eight filings a year.
“Add more income sources and yes, you could hit double figures. The real question is proportionality: what does HMRC gain from quarterly chasing someone earning less than a full time worker on minimum wage? The compliance cost on the nation’s mood, the software and admin overhead for people already stretched thin will easily dwarf any tax recovered.”
This hits landlords
Patricia Ogunfeibo, Founder & non-practicing Solicitor at London-based tenant2owner, said the penalties for not filing the returns could get expensive.
She continued: “This also hits landlords on top of all the other recent reforms. What worries many is that if they miss a deadline, they’ll get a penalty point. Four points and a £200 fine is triggered, with another £200 for every next late filing. Late payment penalties also apply: 3% if tax is unpaid after 15 days, a further 3% after 30 days, then 10% per annum accruing daily – on top of HMRC interest.
“Once the penalty threshold is hit, the resetting to zero might prove difficult, requiring 12 months of perfect filing plus all returns from the previous 24 months up to date.
“What many ‘key persons’ aren’t appreciating, is that if they are incapacitated, due to illness or an accident, say, these penalties may accrue, and not putting a process in place to ensure compliance if incapacitated, may kill any chance of raising a reasonable excuse argument to quash the penalties.”
