Making Tax Digital (MTD) is now live, but with relatively low registration numbers, many sole traders and landlords are still considering how best to comply.
For most people, now the focus will be on meeting Making Tax Digital (MTD) requirements while keeping administrative effort to a minimum. For many, this means looking for simple, cost-effective solutions, including inexpensive or free software.
Low sign-up
At the start of April, nearly 80% of those required to register for Making Tax Digital (MTD) had not done so.
A key reason is that many do not see a clear benefit to the changes. Instead, Making Tax Digital (MTD) is often viewed as an additional administrative burden.
- Some individuals already find it challenging to prepare records for their annual self-assessment tax return, and quarterly reporting deadlines may feel like added pressure
- The Making Tax Digital (MTD) threshold is based on income rather than profit, meaning some will need to comply even if they have no tax liability
- This can make additional agent costs for MTD compliance difficult to justify
Software
HMRC has introduced a software finder tool to help taxpayers choose software that supports Making Tax Digital (MTD), including a number of free options.
However, there are a few points to consider:
- Some available software is still in development
- Not all solutions will be suitable for every individual
For example:
- Software that imports data directly from a bank account may work well for some sole traders and landlords
- However, it may not be suitable for those who use a personal bank account for both business and letting income and expenditure
Exit options
The £50,000 MTD threshold from 6 April 2026 is based on income for 2024/25. There will be some individuals whose income has since fallen to below £50,000, and HMRC has now clarified when it is possible to apply to opt out of MTD.
Unfortunately, opting out is only possible where all sources of qualifying income have ceased; not the case if, for example, self-employment ceases, but there is still property income. Opting out of MTD can be done via HMRC’s webchat, by telephone or by writing to HMRC.
The start point for finding software that works with MTD for income tax can be found here.
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