Fewer Than 10% of Taxpayers Are Ready for Making Tax Digital – What It Means for Business Owners

Making Tax Digital for Income Tax is no longer a distant change. From 6 April 2026, sole traders and landlords with qualifying income over £50,000 will be required to comply, and from 6 April 2027, that threshold drops to £30,000. HMRC has also set out plans to bring in those with qualifying income over £20,000 at a later stage.

At the same time, industry reporting suggests that fewer than 10% of the first group expected to join the regime have signed up so far. That should be a warning sign, not reassurance. A slow take-up does not mean the rules are going away. It usually means many people are leaving preparation too late.

For business owners, self-employed professionals and property landlords, this is a significant shift in how income is recorded, reported and managed. If you are affected, the right time to prepare is now.

What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax is HMRC’s new digital reporting system for sole traders and landlords. Instead of relying solely on a traditional once-a-year Self Assessment process, affected taxpayers will need to keep digital records, use compatible software and send regular updates to HMRC.

Under the new rules, compatible software must be used to:

• create, store and correct digital records
• send quarterly updates to HMRC
• submit the final end-of-year information
• help complete the tax return process and support payment of tax due

HMRC’s guidance is clear that this is not optional for those who fall within the qualifying thresholds.

Who needs to comply first?

The first mandatory group starts from 6 April 2026. You will need to use Making Tax Digital for Income Tax from that date if your qualifying income is over £50,000 for the 2024/25 tax year.

The second group starts from 6 April 2027. You will need to use the regime from that date if your qualifying income is over £30,000 for the 2025/26 tax year. The government has also published that it intends to legislate to reduce the threshold to £20,000 based on the 2026/27 tax year.

Qualifying income here means income from:

• self-employment
• UK property
• or a combination of the two

That means many sole traders, consultants, landlords and side-hustle business owners are now firmly within scope.

Why low sign-up numbers should concern taxpayers

Reports that fewer than 10% of the first wave have signed up should not be read as evidence that the regime is being ignored safely. It is more likely a sign that many taxpayers have still not dealt with the practical work involved.

The usual reasons are fairly predictable:

• some taxpayers still do not realise they are in scope
• some are waiting to choose software
• some still rely on spreadsheets or incomplete manual records
• some assume they can sort it out close to the deadline

That last approach is where problems start. MTD is not just a filing change. It is an operational change.

What actually changes under MTD?

For many taxpayers, the real issue is not the concept of digital filing. It is the frequency and discipline it requires.

Instead of focusing mainly on year-end records, affected taxpayers will need to maintain digital records throughout the year and submit quarterly updates using MTD-compatible software. They will then need to complete the end-of-year process through that same digital framework.

In plain English, that means:

• less room for disorganised bookkeeping
• more regular review of income and expenses
• greater reliance on proper software and processes
• more need for timely communication with your accountant

Is there a soft landing?

HMRC has confirmed that for taxpayers mandated into Making Tax Digital for Income Tax from 6 April 2026, it will not apply penalty points for late quarterly updates during the first tax year (2026/27). However, penalties can still apply for late tax returns and late payment of tax.

So this is a limited soft landing, not a free pass. It is there to help with transition, not to justify delaying preparation.

How business owners and landlords should prepare now

If you are likely to fall within the first or second wave, the practical response is simple:

• check whether your qualifying income puts you in scope
• review how you currently keep records
• move away from messy manual processes where needed
• choose suitable MTD-compatible software
• make sure your accountant is involved early

Waiting until the deadline approaches is rarely the best strategy. Preparing early allows time to implement proper systems and avoid unnecessary stress.

Frequently Asked Questions

When does Making Tax Digital for Income Tax start?

It starts from 6 April 2026 for sole traders and landlords with qualifying income over £50,000. From 6 April 2027 it expands to those with income over £30,000.

What income counts towards the threshold?

The threshold is based on income from self-employment and UK property. If you have both, the figures are combined to determine whether you fall within the regime.

Do I still need to submit a Self Assessment return?

Before joining Making Tax Digital you must still submit your normal Self Assessment return for the tax year before your MTD start date.

Do I need software for Making Tax Digital?

Yes. HMRC requires taxpayers to use compatible software to keep digital records and submit updates.

Will penalties apply immediately?

HMRC has confirmed that penalty points will not apply for late quarterly submissions during the first year of mandatory MTD (2026/27), although other penalties can still apply.