Three quarters of businesses have ignored Rachel Reeves’ new rule (Image: Getty)
Three-quarters of sole traders and landlords have not yet signed up to Rachel Reeves’ new mandatory tax system, which came into effect this month. As of April 6, anyone who earned more than £50,000 in the 2024/25 tax year from property or self-employment was required to sign up to the Government’s Making Tax Digital scheme.
It requires earners to file quarterly digital records of income and expenses with HMRC, which the Government says will make the year-end tax return easier; failure to do so can result in fines. Josh Toovey, senior research and policy officer at the Association of Independent Professionals and the Self-Employed, said the uptake was concerning.
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“We’re concerned but not surprised at how many are yet to register. There’s a significant awareness gap around these requirements, particularly among those who do not have the support of an accountant,” reports CityAM.
Impacted Brits must supply their first quarterly update by August, and Toovey expects “another wave” of registrations ahead of that deadline, but he said more needs to be done to raise awareness.
HMRC has been sending emails and letters to impacted parties and using paid advertising in the run-up to the tiered roll-out. This year, sole traders and landlords earning more than £50,000 through self-employment and property will have to sign up.
In April 2027, the threshold will drop to £30,000 for the 2025/26 tax year, and in April 2028, it will drop to £20,000, subject to legislative approval.
HMRC said: “We are encouraging all customers who were required to sign up by April 6 to do so as soon as possible and expect sign-ups to rise through the first quarter in advance of the first quarterly update deadline on August 7.
“The pace of sign-ups is following an expected trajectory informed by our experience of successfully launching MTD for VAT.”
The Government said the scheme will make it easier to file year-end taxes because the software will have stored information from the quarterly updates, so there’s no last-minute hunt for records or receipts.
A £200 penalty will be issued for repeated late submissions in the future, but HMRC said that to support the transition, it will not issue penalty points for the first 12 months for customers joining MTD for Income Tax in April 2026.
Penalty points will then be issued for every late submission, and the fine is triggered once a person receives four. HMRC said this will prevent immediate fines for occasional slip-ups.
Those joining MTD in April 2026 will still file their tax return for the 2025 to 2026 tax year in the usual way by January 31, 2027, as this covers the period before MTD begins.
The first MTD tax return, covering the 2026 to 2027 tax year, will be due by January 31, 2028.
