Bold headline: The biggest tax change in 30 years is arriving, and almost half of those affected still don’t know about it.
But here’s where it gets controversial: Making Tax Digital for income tax is about to overhaul how hundreds of thousands of self-employed workers and landlords report their finances, and the rollout is only just beginning. From April 6, nearly 900,000 people earning above £50,000 from self-employment or property income in 2024/25 will must use approved software to keep digital records and file quarterly updates to HMRC. Over the next few years, the net widens: those earning over £30,000 will join from April 2027, followed by those earning more than £20,000 from April 2028.
What’s happening, why it matters, and what to expect
- The plan has been in the works for more than a decade, but awareness remains low. A survey by the Association of Independent Professionals and the Self Employed (IPSE) and Sage found about 40% of sole traders had "never heard of" Making Tax Digital, and only around a third felt fully informed.
- Very few taxpayers currently use cloud-based accounting software; the IPSE study found only about 10% do so today. This raises questions about readiness when quarterly digital updates become the norm.
- The reporting shift will require many to file quarterly summaries of income and expenses by specific dates: August 7, November 7, February 7, and May 7, with a final annual declaration due January 31 replacing the traditional self-assessment return.
- Software costs are a major concern for many. About 45% of those aware of the changes cited software prices as a key worry, and there’s uncertainty over whether these costs will be tax-deductible.
Key voices and concerns
- IPSE’s Josh Toovey warns that hundreds of thousands of sole traders could discover the change only when they submit their annual return, risking gaps in understanding and compliance. He emphasizes that those who file without help are most at risk of missing updates.
- Stephen Relf of ICAEW notes that raising awareness has been a long-standing challenge and fears some taxpayers may not receive notification letters until the new digital record-keeping starts in April.
- Tax professionals worry about a steep learning curve and the potential for errors, advising taxpayers to choose software carefully to avoid later complications.
- Critics argue the quarterly reporting requirement adds administrative burden at a time when landlords and small businesses are already navigating a tightening regulatory landscape.
Points of support and skepticism
- HMRC contends that digital record-keeping will improve accuracy and help taxpayers manage obligations more effectively, with digital updates reducing the tax gap by improving visibility of income and expenses.
- Yet industry voices caution that extending digital requirements to lower earners and smaller turnovers may yield limited benefits and high costs, potentially outweighing the gains for some taxpayers.
A balanced view and practical takeaways
- If you’re a higher-earning self-employed individual or landlord, start exploring approved software options now and consider consulting a tax professional to map out quarterly filing routines.
- Expect to engage with digital records more regularly rather than just at year-end. Building a robust bookkeeping habit early can reduce last-minute stress and errors.
- Watch for official notices, as some taxpayers may not receive reminders until the transition period begins; proactive preparation can prevent last-minute scrambles.
Do you think Making Tax Digital will meaningfully close the tax gap and simplify compliance, or will it simply shift the burden onto small businesses with higher upfront costs? Share your view in the comments: is this reform a necessary modernization or an overreach for everyday taxpayers?
