A new survey suggests that there is widespread confusion about Making Tax Digital for Income Tax - despite the fact that it is due to come into effect in less than a year.
While the vast majority of self assessment tax payers (91%) have heard of Making Tax Digital for Income Tax, a new study reveals that many freelancers, business owners and landlords still don't understand what it means for them.
According to the findings of a poll of 2,000 self assessment tax payers, conducted by Censuswide for Intuit Quickbooks, there is "a critical gap between awareness and readiness" for Making Tax Digital for Income Tax self assessment - known as MTD for ITSA.
In fact, one in five taxpayers (21%) with incomes over £50,000 don't believe they're affected by MTD, despite being required to comply by HMRC. The study suggests that confusion over MTD for Income Tax, which comes into force in April 2026, is "widespread".
Making Tax Digital for Income Tax
From April 2026, Making Tax Digital for Income Tax requires all unincorporated business owners, sole traders, freelancers and landlords with annual business and/or rental income over £50,000 to keep digital records and file quarterly updates with HMRC using MTD-compatible software.
Businesses with an income between £30,000-£50,000 will have to comply from April 2027. The new system is likely to affect around 2.8 million UK tax payers.
However, the findings of the Intuit Quickbooks survey show that:
- One in four tax payers aren't sure if MTD applies to them.
- Only 59% say they understand their compliance obligations.
- 41% of those earning over £50,000 wrongly believe that MTD for Income Tax is already mandatory.
- 47% say they plan to file manually, despite HMRC's digital requirement.
- Among those who expect to be affected, only 36% are "somewhat aware" of what they actually need to do.
The uncertainty around MTD for ITSA is fuelling rising anxiety according to the findings of the survey:
- 35% of those polled are concerned about submitting tax returns correctly and keeping digital records.
- 33% don't know if they have the right software.
- 30% aren't clear about what MTD for Income Tax actually means for their business.
- Only 3% say they have no concerns at all.
Early adopters show the way
Some businesses have taken advantage of the opportunity to use MTD for ITSA early as part of a government pilot scheme that is open to any self-employed individual or landlord. Many others are already benefitting from using an accounting app in their business to keep financial records. However, around 50% of small businesses still don't have an appropriate software system in place.
"Adopting Making Tax Digital for income tax early was a game-changer for me. As a one-man business, staying organised is crucial, and MTD has given me the peace of mind to focus on my craft. I participated in the QuickBooks testing phase scheme, which has helped me get ahead of the changes. It has simplified my finances, reduced stress, and has been invaluable as I move towards planning for my retirement." Rob Smith, founder and sole operator of Amber Electrical Services NE.
Anyone running their own business or renting out property is being urged by the government to get ready for Making Tax Digital for Income Tax as the deadline fast approaches.
Written by Rachel Miller.