From April 2026, it will become mandatory for sole traders and landlords to file tax returns through Making Tax Digital (MTD) if they earn more than £50,000 a year.
The annual income threshold for moving to MTD will then drop to £30,000 in April 2027 and £20,000 in April 2028, by which time most sole traders must use suitable MTD software.
Despite the introduction of quarterly filing with MTD being less than a year away for those over the £50,000 income threshold, a recent survey of sole traders (excluding landlords) revealed that nearly a third were still unaware of the requirements to join the digital tax platform.
Even amongst the sole traders who did know about the upcoming changes, many of them were yet to make any preparations. Considering there are an estimated 3 million sole traders in the UK, this means a worrying number of self-employed people aren’t ready for MTD.
Sole trader attitudes to Making Tax Digital
In recent years, the number of self-employed people in the UK fell considerably, but it’s now rising again. This is mostly due to people continuing to work beyond retirement age, as nearly a quarter of self-employed traders are 60 years old or above.
It’s these older sole traders who may struggle with the new digital system the most, as the aforementioned survey found that 25–34 year olds were more likely to be prepared for MTD. In fact, a majority of this age group believed MTD will positively impact their tax filing approach.
Meanwhile, some sole traders have deliberately been keeping their income below the £90,000 threshold for VAT registration – but anyone who does this is unlikely to welcome the additional administrative requirements of the three-line account approach.
Are you prepared for MTD as a sole trader?
The impact of being unprepared for MTD can’t be overstated, as the deadlines for quarterly submissions are tighter than the 10-month deadline for self-assessment tax returns.
This leaves just over a month to file each quarterly submission, but if you fail to meet the new deadlines, late submissions and late payments will lead to penalties and interest charges.
To avoid being caught out, sole traders of all ages and income levels should read HMRC’s online guidance to learn if and when they’ll be required to register for and use MTD for Income Tax.
It’s better to get to grips with MTDbefore it becomes mandatory – so if you need help setting up MTD for your small business, why not speak to our accountants in Barnsley?
Here at gbac, we can provide a range of tailored financial services to ensure your tax accounts are always up to date and compliant with the latest regulations and systems.
Simply call us on 01226 298 298 or send an email to info@gbac.co.uk to discuss our services.