UK sole traders unready for Making Tax Digital shift

Sage and the self-employed membership body IPSE have warned that most UK sole traders remain unprepared for Making Tax Digital for Income Tax, with research indicating that 70% still do not know the change is due.

The study points to a low level of awareness across a group expected to face new digital record-keeping and reporting rules. The first phase of Making Tax Digital for Income Tax affects sole traders with annual income above GBP £50,000 from April 2026. It then extends to those earning above GBP £30,000 from April 2027, and above GBP £20,000 from April 2028.

Making Tax Digital for Income Tax requires eligible taxpayers to keep digital records and send quarterly updates to HM Revenue and Customs through approved accounting software. The changes mark the largest shift to self-assessment in almost 20 years, according to the research summary.

The findings suggest a gap between the scope of the reform and the readiness of those affected. Sage and IPSE estimate 1.8 million sole traders fall within scope. The research states that 90% are not yet on digital platforms.

Low awareness

The report describes "true awareness" as having heard of Making Tax Digital, understanding what it involves, and knowing that it requires digital records and compatible software. On that basis, only 30% of sole traders meet the threshold, the research found.

Among the group with "true awareness", 39% had taken no steps to prepare. The findings also show many sole traders express confidence in their current approach. Some 77% said they felt comfortable with their existing method of tax reporting.

Sage said software cost and complexity remain barriers to change. The research found that 45% cited software cost as a concern, while 55% identified extra administration as a worry. The risk of mistakes also appeared among the top concerns.

Manual processes

The survey suggests many sole traders still rely on spreadsheets and paper-based tracking. It found that 66% use spreadsheets, 56% rely on bank statements, and 33% track income and expenses with pen and paper. Only 10% reported using cloud-based accounting software.

The study also points to the time burden of current processes. It found that 77% of sole traders spend more than two hours completing their annual tax return, while 24% spend more than six hours.

The research indicates that some elements of the reform have support among sole traders. Despite concerns about administration and software, 74% said they welcome quarterly tax estimates. The same proportion said receiving quarterly tax bill estimates would help them plan ahead.

Industry response

Sage positioned Making Tax Digital as a significant moment for sole traders and for the small business economy. It linked the change to a need for wider readiness activity across the market.

"Making Tax Digital is a pivotal moment for the millions of sole traders who power the UK economy, yet our research shows awareness remains low. These entrepreneurs already juggle every part of their business, so new requirements can feel overwhelming - but MTD doesn't need to be another burden," said Lisa Ewens, Senior Vice President for Small Business, Sage.

Ewens also set out Sage's approach to the transition and pricing. "Handled well, it gives sole traders clearer financial visibility, fewer tax-time surprises and more time back for the work that matters. That's why software providers and business networks must help raise readiness. At Sage, we're committed to ensuring no one is priced out of compliance, offering free digital tools designed for sole traders to make tax management simpler and support them confidently into a digital-first future," said Ewens.

IPSE raised concerns about the proximity of the first threshold and the possibility that some sole traders will only learn of the requirements at the point of filing. It called for a stronger public campaign from government and HMRC.

"Less than six months out, too many sole traders don't understand what these changes will mean. Making Tax Digital will be transformative for self-assessment taxpayers, but hundreds of thousands of business owners may only find out when they go to file their next return, by which time it may be too late to prepare. We are calling on the Government to ramp up its Making Tax Digital campaign. HMRC's outreach simply hasn't registered with taxpayers," said Vicks Rodwell, Managing Director at IPSE.

Preparation steps

The report sets out recommendations across HMRC, software providers, and business networks. It calls for HMRC to maximise its awareness campaign and to outline what sole traders must do and when. It also calls on software providers to make digital tools simpler and more affordable.

The report also highlights a role for business networks and accountants in providing sector-specific guidance and training. The next phase of the policy rollout expands the range of taxpayers in scope over the following two years, subject to the income thresholds set out by government.

The research surveyed 1,000 UK sole traders who are not registered for VAT. IPSE conducted the study on behalf of Sage, and the sample design aimed to reflect HMRC's Making Tax Digital for Income Tax business population statistics.