Many UK sole traders unclear on Making Tax Digital rules

New survey data suggests many self-employed people in the UK remain unclear about how to comply with the next phase of Making Tax Digital (MTD), including software requirements and income thresholds.

Research commissioned by accounting software provider Coconut found that 42% of self-employed respondents said they did not understand what is required under MTD. A further 37% said they did not understand the threshold that determines who must comply.

The findings come as MTD for Income Tax approaches for sole traders and landlords who meet the income criteria. The rules require digital record keeping and submissions of income and expense summaries during the tax year.

Income Tax timeline

MTD for Income Tax becomes mandatory on 6 April 2026 for self-employed individuals and landlords with income over £50,000. Those in scope will need to keep digital records and provide quarterly updates.

Quarterly submission deadlines are 7 August, 7 November, 7 February and 7 May. The income threshold reduces to £30,000 in April 2027 and falls again to £20,000 in April 2028.

HM Revenue & Customs has positioned MTD as a move away from paper-based processes and manual reporting. For Income Tax, software plays a central role in record keeping and filing.

Software readiness

A key requirement is the use of HMRC-compliant accounting software or bridging software to send quarterly income and expense summaries.

However, 35% of respondents said they did not have HMRC-compliant accounting or bridging software and did not plan to obtain it. The result points to a potential gap between the policy timetable and the steps some self-employed workers expect to take.

The survey was carried out by Censuswide among 500 self-employed respondents aged 18 and over in the UK. Fieldwork took place in December 2025.

Coconut sells record-keeping software that it says is approved for MTD. It also published an online quiz designed to test self-employed people's understanding of the incoming requirements.

Mike Parkes, Technical Director at Coconut, linked the findings to the faster reporting cycle and the shift from annual to more frequent submissions.

"With quarterly reporting becoming the norm and each Making Tax Digital deadline coming round quicker than you think, now's the time to get your business set up properly. At its core, MTD is HMRC's push to move tax reporting fully online. If you're still juggling spreadsheets, paper receipts and invoices, this is the moment to change that. MTD requires digital income and expense records, a clear audit trail and software that links directly to HMRC."

He added that preparation and routine could reduce the burden of meeting the new timetable.

"MTD isn't going anywhere, but that doesn't mean it has to take over your life. With the right setup, clear processes and a bit of forward planning, quarterly reporting becomes just another small task, not a looming threat," Parkes said.

The next stage of MTD follows earlier reforms that introduced digital VAT submissions for many businesses. The Income Tax expansion extends the digital approach to a much larger group of sole traders and private landlords, many of whom manage their finances without an accountant or dedicated bookkeeping tools.

For those within scope, the changes affect both record-keeping expectations and the pace of reporting during the year. They also increase the emphasis on maintaining an audit trail through digital records and using software that can connect to HMRC systems.

As the thresholds step down over the next two years, more self-employed people and landlords will fall into scope, increasing the number of taxpayers who need to adopt compliant software and meet quarterly submission deadlines.