How’s HMRC’s Making Tax Digital going?

Last Updated on 8 September 2026

For higher earning sole traders who’ve been going for a few years, this has been an interesting month.

The first ‘quarterly reporting deadline’ for the new Making Tax Digital process was on 7th August.

By that date affected sole traders had to press a button on their software to report total of turnover (business income) and total of business running costs between 6 April and 5th July 2026.

So how did it go?

A game of two halves

HMRC knew that there were over 800,000 sole traders and landlords who should have fallen into this reporting scheme. This was because they had filed tax returns for 2024-25 showing more than £50,000 of income.

In fact by 7th August only half that number had filed!

Many people hadn’t even started the sign-up process for Making Tax Digital, which you have to do before you can press the button on any record-keeping software.

HMRC is now automatically signing up some sole traders who it believes should be using MTD.
This will probably come as shock to some. They’ll still have to choose software, keep the records etc etc themselves.
And it’s just possible that HMRC is signing up some sole traders who are not required to be using MTD.
More here on gov.uk > (opens in new window)

Teething problems?

It was always going to be a bumpy first year. HMRC itself has admitted this, and is waiving all the late filing penalties until April 2027.

But why are so many people not engaging with a system which has been in the planning for more than ten years?

I’ve been reading up on the experiences of some accountants, and talking to sole traders who should be engaging with MTD.

Here are some observations:

• Some sole traders don’t have a business mindset, even though a sole trader is a one-person business in the eyes of HMRC.
• This means they see tax as a annual event, and haven’t realised that HMRC has turned sole trader tax reporting into an ongoing process.
• This also leads to people seeing their self-employed income as ‘extra income’, perhaps on top of a PAYE job. They don’t realise it’s treated as separate.
• People are not distinguishing between PAYE and sole trader income, even though MTD is ONLY to do with the sole trader side of their lives.
• As a result people don’t have a separate bank account for their sole trader income, which prevents them from automating the making tax digital reporting.
• Many sole traders zone out of tax stuff if they have an account, not realising that they now have a duty to report every three months.

Engaging with the process

It remains to be seen if HMRC will be changing anything as a result of this first quarter’s experience. Probably not.

So if you’re about to engage with MTD from April 2027 or April 2028 what have we learnt that might be useful advice?

1/ Start treating record keeping and tax reporting as a process throughout the year. Do a little and often. 10 minutes every Friday is how I’ve always done my record keeping.

2/ Get a separate bank account for your sole trader income and costs.

3/ Look for software that makes record keeping and admin easier for YOU, not just to fit in with HMRC. Hooking up software to your sole trader bank account can automate all the boring bits. HMRC never get to access your bank account, as the software just reports the totals of the information you put into it.

4/ Don’t forget that the compulsory thresholds for doing MTD are related to turnover, which means sole trader income BEFORE expenses. If the total of all your sole trader/landlord income is £20,000 or more this tax year (2026-27), you’ll have to be using MTD from 6th April 2028.

5/ This does NOT include any PAYE income or benefits from the state, because HMRC doesn’t see those as business income.

6/ Read my special Making Tax Digital section. It gets updated all the time.

Do let me know of your own experiences with MTD if you’ve been in the first group to use it. You can comment at the bottom of this page.
It will be helpful for those who come after you!

Posted on 08 September 2026