Making Tax Digital (MTD) for Income Tax is one of the most significant changes to the UK tax system in recent years, yet awareness among those affected remains surprisingly low. Despite the scale of the shift, many sole traders and landlords are still unclear on whether it applies to them, how it works, or what they need to do next. Even despite our numerous communications to clients who it affects, the same question keeps surfacing, have HMRC really done enough to make people aware?
That’s the warning from Rachael Chadwick-Harrison, who recently described the rollout as a “hidden cost nobody asked for” in a discussion on FFS, For Finance’s Sake. Speaking alongside colleague Tara, she highlighted a growing gap between HMRC’s messaging and what business owners actually understand in practice.
On the ground, that gap is becoming increasingly obvious. Tara notes that even now, with implementation imminent, people are still walking through the door asking if the rules apply to them. The result is a mixture of panic and confusion, often at a point where there is very little time left to prepare. Unlike previous changes to the tax system, MTD does not always arrive with a clear warning, leaving many to discover their obligations only when they are already behind.
A large part of the problem stems from a fundamental misunderstanding about what brings someone into MTD in the first place. As Rachael explains, many assume it is based on profit, when in reality it is based on turnover. That distinction is catching people out. It means a business owner can feel like they are not making much money, or even operating on very tight margins, and still be pulled into the regime purely because their income crosses the threshold.
This is particularly problematic for landlords. In a climate of rising costs, higher interest rates, and increased regulation, many are seeing their profits reduced significantly. However, MTD does not take profitability into account. A landlord with high rental income but minimal or no profit can still be required to comply, creating additional administrative pressure at a time when margins are already under strain. As Rachael points out, while MTD may not technically increase tax, it often behaves like one. The cost of software, the additional administrative burden, and the increased reliance on professional support all contribute to a higher overall cost of staying compliant.
The shift in reporting requirements only adds to that pressure. What was once a single annual tax return is replaced by a system of ongoing digital record keeping and multiple submissions throughout the year. For many, this represents not just a procedural change, but a complete rethink of how they manage their finances. It introduces more deadlines, more opportunities for error, and a greater need for consistent, accurate bookkeeping.
It is no surprise, then, that some business owners are beginning to look at alternative structures. The conversation around incorporation is becoming more common, particularly as limited companies are not currently within the scope of MTD for Income Tax. However, as Rachael is quick to emphasise, this is not a one-size-fits-all solution. Operating as a limited company brings its own set of responsibilities, tax considerations, and compliance requirements. For some, it may be beneficial, but it is not simply a way to sidestep MTD.
What matters most at this stage is preparation. Understanding whether you are affected, getting your records in order, and seeking advice early can make the difference between a smooth transition and a stressful scramble. As Tara warns, many people assume they will be notified or given plenty of notice, but in reality, a significant number only realise their obligations when it is already too late.
The overall message is clear. MTD is not a distant change on the horizon; it is happening now, and its impact will only grow as thresholds reduce and more people are brought into scope. Waiting until a deadline is missed or a penalty is issued is the worst possible way to engage with it.
As Rachael puts it, the worst place to be with anything tax-related is on the back foot. Acting early, understanding the rules, and putting the right systems in place is no longer optional, it is essential.
For those who are unsure where they stand or what steps to take next, the full discussion in FFS, For Finance’s Sake, “MTD: What It Really Means for Sole Traders and Landlords,” offers a practical and accessible look at what MTD really means in the real world.
