More than 100,000 people in the UK have yet to sign up for HMRC's Making Tax Digital (MTD) scheme, which became a legal requirement in April 2026. The policy, described as "ill-thought-out" by critics, requires workers and businesses filing self-assessment returns to submit quarterly updates instead of a single annual return.
Low Registration Among Unrepresented Taxpayers
An analysis by the Low Incomes Tax Reform Group (LITRG) reveals that just over half of the 216,000 unrepresented taxpayers obligated to participate in MTD have not registered, more than two months after the launch. This amounts to approximately 111,000 individuals, or 52% of the unrepresented taxpayer population. HMRC expects 216,000 unrepresented taxpayers to fall within scope this year.
Harvey Dhillon, founder and CEO of accountants Zmartly, said he was not surprised the message had not reached many small business owners. He added: "The 100,000 who still haven't signed up are the unrepresented taxpayers, the people with no accountant to nudge them, so it is little wonder the message hasn't reached them. It is worth being clear that Making Tax Digital is an administrative change, not a new tax."
Quarterly Reporting Requirements
Under MTD, taxpayers must maintain digital records and submit quarterly updates of income and expenditure, alongside an annual tax return. The threshold for mandatory participation is gross income exceeding £50,000 from self-employment or rental income from April 2026, falling to £30,000 from April 2027 and £20,000 from April 2028.
HMRC says the new system will simplify tax processes and offer individuals greater insight into their business performance. However, small business owners and accountants warn that many have yet to register due to a bewildering sign-up process or lack of awareness. Dr Marianne Trent, clinical psychologist at Good Thinking Psychology, said: "Honestly, as a business owner who is registered for MTD, I'd say it's all been pretty confusing. I have an accountant and so even though I received a letter from the HMRC telling me about it, I wrongly assumed my registration would be handled by my accountant."
Concerns Over Communication and Support
Matthew Knight, chief freelance officer at Freelancing.Support, warned that the changes had not received sufficient publicity. He said: "New policies need to come with better communication, education and support. This is the biggest change in over 20 years in how tax is reported, yet awareness, action and readiness is painfully low for those who don't have accountants."
Bob Singh, founder of Chess Mortgages, warned that landlords would be severely impacted. He said: "MTD is yet another ill-thought-out policy designed to put off small businesses from expanding to higher levels of turnover because they will be forced to spend more time filing returns. The inclusion of rents in this £50,000 per annum limit makes no sense. Anyone with two or three properties will now have to file their returns four times a year."
HMRC's Reassurance on Penalties
HMRC has stated it will not charge late-update penalties in the first year. Dhillon noted: "The reporting itself is lighter than many fear, the real hurdle is getting compatible software in place and building the habit. HMRC has sensibly said it won't charge late-update penalties in the first year and that reassurance deserves to be front and centre."
Colette Mason, AI ethics consultant at Clever Clogs AI, suggested the government was targeting smaller enterprises rather than larger corporations. She said: "What gets measured gets managed and quarterly reporting should at least stop the annual panic and nasty tax shock a few of my fellow business owners seem to end up with."
HMRC said: "With Making Tax Digital for Income Tax, you'll use your digital records to send quarterly updates to HMRC. Sending quarterly updates will give you a better view of the health of your business and help you estimate your tax bill."
