With less than a week to go for Making Tax Digital (MTD) to be implemented for income tax, research from AI tax platform TaxFix shows confusion is rampant among the UK self-employed, including those working in the property sector.
A survey of 1,000 sole traders earning more than £50,000 in 2024-25 found that 39% correctly understand they must keep digital records from April 6, and only a third know they must use HMRC-accredited software.
Misconceptions are common: 36% wrongly believe they will no longer be required to file annual tax returns, 24% think they will have to file quarterly returns, and 22% expect the MTD will increase their tax bill.
These misconceptions and illusions are already influencing behavior.
More than a quarter (28%) say MTD will make them more cautious about taking on additional work, while a similar number (27%) expect to spend more time on tax administration, increasing the pressure they already feel and taking time away from running their business.
For some people, the changes may prove to be a tipping point. Nearly one in four (23%) say they are considering returning to full-time employment as a result of digitalizing taxes.
These findings point to a huge awareness gap just days before one of the biggest changes to the UK tax system in decades.
Oliver Harcourt, senior director at TaxFix, said: “Hundreds of thousands of sole traders are moving towards making tax digital without a clear understanding of what is required of them. Only 39% of people think that the biggest reform to the tax system in decades will help them feel more in control of their finances, this is a huge missed opportunity and communication failure on the part of HMRC.
“Getting your taxes right shouldn’t feel like a second job, but that’s what many sole traders are already feeling and MTD risks adding to that pressure. When self-employed workers are afraid to take on extra work or are even considering going back to full-time employment to avoid the stress of the new filing system, something has gone very wrong.
“If MTD is to be successful, it needs to work not only for HMRC, but also for the people who want to use it every day.”
What making tax digital actually means for sole traders
Myth 1: Annual tax returns have been abolished
Reality: Sole traders will still need to submit a final declaration each year. MTD offers quarterly updates, but these are in addition to, not a replacement for, the annual submission.
Myth 2: Sole traders now have to pay tax four times per year
Reality: Quarterly updates are not complete tax returns. They are simple summaries of income and expenses presented digitally, designed to keep records updated throughout the year.
Myth 3: Sole traders will have to pay more tax under digitalisation of tax
Reality: MTD does not change how much tax you pay. Aimed at improving accuracy and reducing errors, it changes the way you record and report your income.
Myth 4: As long as sole traders submit quarterly updates, they can continue managing their taxes as before
Reality: From April, sole traders above the threshold will need to use HMRC-accredited software to keep digital records and submit updates.