Accountants are sounding the alarm that thousands of self-employed individuals and property owners face potential penalties under a looming reform being implemented by HM Revenue & Customs (HMRC).
Analysts cite that many sole traders and samll businesses misunderstand their obligations under Making Tax Digital (MTD) for Income Tax, which becomes mandatory in April 2026.
The scheme requires those with combined annual income exceeding £50,000 from self-employment and property to submit quarterly digital tax returns.
Yet merely 2,400 users have enrolled in HMRC's testing programme - representing just 0.34 per cent of the 800,000 people who will be affected by the new requirements.
Businesses are at risk of being fined if they fail to adhere to HMRC rules
|GETTY
This minimal participation rate comes despite HMRC's repeated appeals for sole traders and their agents to join the beta testing phase whilst dedicated support remains available.
A critical misconception centres on how the £50,000 threshold is calculated, according to George Holmes, the managing director of Aurora Capital.
"What's often misunderstood is that this figure is calculated on gross income before expenses," Mr Holmes explained.
He illustrates with a practical example: "That means a self-employed builder who invoices £60,000 in a year but spends £25,000 on materials still falls within MTD, even if their taxable profit is closer to £35,000."
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Experts are reminding the British public of their tax liabilities
| PAProperty owners face the same confusion - rental income counts in full, regardless of deductions for mortgage payments or maintenance costs.
"The risk is that many small traders and landlords assume they are under the threshold because their profits are modest, when in reality their turnover makes them eligible next April," Holmes warns.
Many individuals overlook how different income streams combine to determine MTD eligibility.
"It's also important to remember that if you're self-employed and receive rental income, the two are added together," MrHolmes notes.
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He provides another scenario: "Someone with £45,000 in business turnover might assume they're under the threshold, but just £500 a month in rent would tip them over the £50,000 line.
"Those who qualify must adopt compatible software to maintain digital records, submit quarterly updates to HMRC, and file their annual tax return by January 31.
The Government plans legislation requiring all submissions through MTD-compliant software systems.
Notably. the accounting profession itself appears unprepared, with recent Accountex Manchester research revealing that one in three accountants aren't ready for the deadline.
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| GETTYSome 10 percent described themselves as "very unprepared" whilst another ten percent remained uncertain about their readiness.
Four in five accountants identified MTD as their primary challenge for the coming year, though an equal proportion also viewed it as their greatest opportunity.
Craig Ogilvie, HMRC's Director of Making Tax Digital, urged: "With April 2026 on the horizon, agents should now be reviewing if any of their clients have income over £50,000 from self-employment or property.
"With penalties for missed filings rising under the new system, it's essential that people check their gross income now and not wait until the last minute," Mrm Holmes emphasises.