Making Tax Digital "risks breaking the finances and spirit of so many small companies already on the brink"

DEBT experts have said Making Tax Digital will break the finances and spirit of many small businesses, while an AI expert has said the move is “bureaucracy dressed up as progress” and “a symbol of tone deaf transformation”

Making Tax Digital for Income Tax is a new way for sole traders and landlords to report their income and expenses to HMRC. 

From 6 April 2026, sole traders and landlords with a qualifying income over £50,000 will need to use Making Tax Digital for Income Tax.

Patricia McGirr, a debt expert and Founder of Burnley-based Repossession Rescue Network, said “making tax digital risks breaking the finances and spirit of so many small companies already on the brink”.

She questioned why HMRC are going after small businesses rather than larger ones: “Many small businesses and sole traders are fighting to cover the basics, with nothing left to set aside. Unlike big corporations, they have no place to hide profits and are easy pickings for a government desperate to prop up a failing economy.

“Faced with penalties and mounting interest, do we really want more people and businesses forced into bankruptcy when they’re simply trying to get back on their feet?”

Colette Mason, Founder & AI Systems Architect at London-based Clever Clogs AI, was equally scathing: “The Institute of Chartered Accountants in England and Wales (ICAEW) is right. Digital records make sense but quarterly reporting does not. This is bureaucracy dressed up as progress.

"Small businesses and accountants have been saying it for years yet Westminster keeps charging ahead, burning money and patience on a system that adds significant cost for no significant benefit.

"Like the current Digital ID fiasco, Making Tax Digital has become a symbol of tone deaf transformation. This is yet another project done to citizens, not for them. 

"When professionals have to launch petitions to fight to have their despair taken seriously because of these ill-considered policy changes, that’s not reform, that’s repression.”

Michelle Lawson, Director at Fareham-based Lawson Financial, has experienced firsthand how HMRC are picking on good people and not genuine tax evaders and tax avoiders: “I know someone with a small business who owes circa £40k to HMRC due to an accountant error and a spiralling problem as a result. They had agreed a payment plan with HMRC and have been co-operative and kept them in the loop at all times and not missed a payment.

"HMRC, out the blue, have now changed their mind and the goal posts and threatened to call in their Director Loan and take their home. They have been worried sick. They have now taken a business loan to pay off HMRC and get them off their back but the interest rate on the loan is vastly more than the HMRC option.

"There was never any courtesy or empathy and the staff they spoke to were always rude, condescending and patronising. The said they were made to feel completely unclean. These are the things that drive people over the edge.

"These are good people in a pickle and not tax-evaders or avoiders. HMRC appear overly eager to pick on smaller hard-working people rather than targeting big business and looking closer to home.”

Eamonn Prendergast, Chartered Financial Adviser at Bromley-based Palantir Financial Planning Ltd, said trust in the system is on the line: "HMRC’s push for efficiency risks losing all sense of proportionality. Small businesses and sole traders aren’t tax dodgers, many are just trying to stay afloat under rising costs, late payments and constant policy shifts.

"Digital systems have made it easier for HMRC to pursue debts, but not necessarily fairer for those in difficulty. When repayment plans feel like punishment rather than support, trust in the system collapses.

"We need a more human approach, one that recognises intent and circumstance, not just data."

Pete Mugleston, Managing Director at Derby-based onlinemortgageadvisor.co.uk, believes Making Tax Digital should make the system faster and easier in the long run, but the real pressure on small businesses is coming from rising costs".

He added: "The increase in National Insurance and the higher National Living Wage have both hit margins hard, and many firms are struggling to stay profitable. HMRC’s tougher stance only adds to the strain at a time when small businesses need support, not more pressure.”

Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, warned: “Increasingly, HMRC debt is pushing otherwise viable businesses over the edge. Time and again, there's a disconnect between enforcement action and human cost. The core question is cost-benefit: overly aggressive collection that forces salvageable businesses into insolvency loses future tax revenue, jobs and entrepreneurial capability.”