Many are "simply unprepared" for Making Tax Digital (MTD), experts warn: "Awareness is still incredibly low"

MANY are "simply unprepared" for Making Tax Digital (MTD), experts have warned.

In just two months, MTD will go live – a new way for sole traders and landlords to report income and expenses to HMRC. 

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.

This requires businesses and landlords with qualifying income to maintain digital records and update HMRC each quarter using compatible software.

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.

Matthew Knight, Chief Freelance Officer at The Independency Co., warned that many people are simply unprepared for what's coming. 

He said: "Awareness around Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is still incredibly low amongst many of the freelancing communities we work with, and where people do know about it, it's clear that most are putting it off, unclear on what they need to do.

"There are definitely some frustrating additional burdens for freelancers, especially for those who have been using spreadsheets to manage their business - and potentially additional costs in terms of software and time. However, there are likely some mental health benefits in doing your accounts quarterly, rather than leaving it until the last minute, and letting stress build up. 

“This year saw 475,722 people submitting their returns on deadline day – with no room for mistakes or questions. We're encouraging all freelancers to get ready for MTD now, rather than waiting for April, and to understand what it means in terms of additional work, reporting and reporting. There are useful free resources on what you need to know at freelancing support.”

Stephen Perkins, Managing Director at Norwich-based Yellow Brick Mortgages, said small businesses will struggle with the “difficult and expensive transition”.

He added: "Making Tax Digital will likely not be a major problem for most medium businesses, many of whom will already use accounting software for invoicing and reconciliation. For those firms it should be easier than paper-based returns and better for HMRC.

"However sole traders, landlords, small businesses and in particular community groups and charities will find this a difficult and expensive transition.

"The cost of the software needed to make the returns compliantly is higher than the government advises and is an extra cost to bear at a point where many businesses are already feeling the pinch.

So switching from an excel spreadsheet or cash book to this software could be the last straw on the camel's back for many micro-businesses."

Colette Mason, Author & AI Consultant at London-based Clever Clogs AI, said she is surprised business owners aren't digital already.

She continued: "For years, no accountant would touch my books without digitisation, so I've done this for a decade plus. The surprise isn't about Making Tax Digital, it's that anyone's still filing on paper in 2026. The positives are real: cleaner records, fewer errors, and an end to the annual shoebox-of-receipts panic. If you're using decent software already, this changes very little day to day. 

"The negatives are real too. Not everyone's digitally confident, not everyone can afford subscriptions, data centralisation fears, and HMRC's own system failings. This has been signalled for years informally and now formally. If you're caught off guard, the problem probably isn't the deadline, it's that bookkeeping was already being neglected and MTD forces the issue. 

“It's uncomfortable, but ultimately better for sole traders who'll finally see their numbers timely and clearly enough to make proper decisions. Set it up now. It's less painful than you think, and far less painful should there be an inquiry."

Kate Allen, Owner at Kingsbridge-based Finest Stays, said adapting early is key to small businesses.

She added: "For many of our holiday homeowners, the shift to Making Tax Digital feels a bit like the move to HD TVs years ago; most are far more ready for digital reporting than those poor televisions ever were for HD signals. Most holiday let landlords today are commercially switched on. 

"They either have accountants in place or understand their numbers well enough to manage this themselves, so for many it won’t feel like a huge leap. That said, alongside requirements like DAC7 reporting, it does start to feel like compliance overload. 

"Each policy in isolation makes sense, but together they add real admin weight to small property businesses. Ultimately, this is clearly the direction of travel from the government. Digital, real time reporting is coming whether businesses like it or not, so adapting early is key."

Kundan Bhaduri, Landlord at London-based The Kushman Group, said it was a “pointless exercise”.

He continued: “As we stare down the barrel of the April 2026 implementation date for those earning over £50,000, the reality of what is being asked of us is staggering. Landlords like us are moving from a system of one annual tax return, a painful but manageable yearly ritual to a regime of four quarterly updates plus a final declaration. 

"HMRC seems to labour under the delusion that landlords are sitting on mounds of real-time data, desperate to share it with the Revenue every three months. In the real world, property investment is a long-term game. 

"We are not day traders. Forcing us to submit quarterly snapshots of income and expenditure is a pointless exercise in data harvesting that tells the taxman nothing meaningful about the annual profit, but costs us a fortune in time and stress.”