Hi

Next month, in April 2026, according to HMRC around 864,000 self-employed business owners and landlords will incur both significant time and expense to comply with the government’s Making Tax Digital for Income Tax initiative. By April 2028, when the income threshold drops to £20,000, that number will reach nearly three million. If you run a business as a sole trader or receive rental income, this will almost certainly affect you. Is this cost and disruption justified?

In its current form, I think the answer is no.

Not because digital records are a bad idea. They are not. Most decent businesses should keep proper digital records anyway. The problem is that HMRC has taken a sensible idea and wrapped it in a clumsy, expensive reporting regime that looks far more useful to HMRC’s internal processes than to the taxpayer who has to fund it.

From April 2026, sole traders and landlords with over £50,000 of qualifying income must keep digital records and send quarterly updates through compatible software, with those over £30,000 following from April 2027 and over £20,000 from April 2028. 

This is not simply “keep better books”. It is an ongoing compliance regime requiring digital records, quarterly updates, tax adjustments, loss claims and a final declaration. That is not simplification. That is a more elaborate filing architecture.

So what does this actually mean for you as a busy business owner? HMRC estimates the first-year cost at up to £465 per business – around £280 to £350 in one-off set-up costs plus £110 to £115 a year in ongoing software and admin. It says you will need an average of six hours to familiarise yourself with the new system. Those are HMRC’s numbers, and I think they are optimistic. 

If you do not already use cloud accounting software, the real cost of choosing, setting up and learning a new system – while still running your business – will be considerably higher. And that is before you count the ongoing time cost of keeping records up to date quarterly rather than once a year.

Instead of one annual tax return, you will have four quarterly submissions and a year-end final declaration – five filing deadlines a year instead of one. Each quarter you will need your records to be complete and current. If you currently hand your shoebox of receipts to your accountant once a year, that approach is finished. 

The government’s own Administrative Burdens Advisory Board surveyed small businesses and found that more than 40% expect both quarterly updates and digital record-keeping to significantly increase costs, around a third expect them to increase time pressure, and almost two-thirds said they did not expect the changes to have any benefits for their business at all.

And for what benefit, exactly? HMRC says MTD for Income Tax will generate £1.95 billion in additional tax revenue by 2029–30. But that claim is largely extrapolated from the VAT experience, and VAT is a very different tax. The Public Accounts Committee’s 2025 report on the cost of the tax system found no strong evidence of productivity improvements or other benefits for most VAT traders from MTD. If the flagship phase cannot demonstrate clear benefits, the case for extending it to income tax looks thin.

Here is the point HMRC seems not to grasp. If you ask most practising accountants what better bookkeeping actually changes in the self-employed world, they will not say “it makes clients declare more sales”. They will say it makes clients capture more costs. A self-employed person with poor records often misses expenses – not because they are dishonest, but because they are busy, disorganised and human. They lose fuel receipts. They forget software subscriptions. They fail to post the Amazon purchase for office kit. They do not claim mileage properly. They miss bank charges, use of home, repairs and replacements, small tools, stationery, postage and the hundred other bits that leak out of a business year unnoticed.

Move that same person onto a decent digital system with a bank feed and receipt capture, and what happens? In many cases, reported profits go down, not up. Not because the business got worse, but because the accounts got truer. That would not mean the system failed. It would mean the accounts became more accurate – and the tax bill became fairer. That is why HMRC’s assumption about extra tax revenue is open to real doubt.

And what exactly is HMRC getting every quarter? Not a final tax result. Just rolling summary data. Capital allowance claims, trading allowances and key adjustments are not processed until the year-end return. The quarterly update is not the finished tax computation.

And HMRC itself says formal evaluation of MTD for Income Tax will take until at least 2029, when enough data becomes available. So taxpayers are absorbing software costs, admin costs and process disruption now, while the real verdict on whether the policy worked will not arrive for years. That is policy-making back to front.

Digital record-keeping is one thing. Forced quarterly transmission to HMRC is another. If the real gain comes from better books, then encourage better books – support software adoption, improve education, build decent tools. But do not force millions of taxpayers into a quarterly reporting loop unless you can show that the loop itself creates value. I do not think HMRC has shown that. 

None of this means you can ignore it. MTD is happening whether we like it or not, and the penalties for non-compliance are real. But as a matter of policy, I think HMRC has got this badly wrong.

Is there a better way? Yes. Start with better books, not more bureaucracy.

What do you think? Please share your view with me at noel@guilfordaccounting.co.uk.

Noel Guilford