A SEISMIC shift in the way sole traders and self-employed individuals handle their tax affairs has the potential to cause widespread confusion, JF Hornby MD, Paul Hornby has warned.
Making Tax Digital (MTD) for Income Tax will be rolled out from April 2026, requiring anyone earning over £50,000 from self-employment or property rental to keep digital records and submit quarterly income updates to HMRC.
But Paul fears the changes will lead to thousands falling foul of the new rules and ending up on the wrong side of the taxman.
He said: “We are big advocates of embracing digital technology to make the filing of tax returns more efficient and streamlined – but the more granular HMRC regimes become, the more likely they are to cause chaos.
“This is one of the biggest shake-ups to the tax system in decades, but awareness is shockingly low. Too many people are sleepwalking into a situation that could leave them facing fines, stress and spiralling costs.
“It’s not just a case of switching to a spreadsheet. This is about investing in the right software, understanding the new filing process and, in some cases, completely rethinking how you manage your accounts.
“We’re talking here about sole traders who, in many cases, are used to taking a box of paperwork to their accountant once a year for processing.
“The sudden expectation that they will either find the time or the capability to do this themselves once a quarter – or the funds to pay their accountant to do it quarterly instead of annually – does not sit well with me.”
Despite the scale of the change, a recent study found nearly one in three sole traders had never even heard of MTD – and almost half admitted they didn’t feel prepared to comply.
The rules will require at least five separate updates to HMRC each year – four quarterly reports and a final year-end statement. Those who fail to comply could face penalties.
A sliding scale will see the threshold drop to £30,000 in 2027, and again to £20,000 in 2028, pulling tens of thousands more people into the MTD regime.
Paul, whose firm supports hundreds of sole traders and small businesses, said the scale of the change has been underestimated by many.
He added: “There’s a perception that this will be a simple digital tweak – it’s not. For someone who currently does their accounts once a year, this is a fundamental shift. They will need real-time records, a regular rhythm of reporting, and the discipline to keep on top of it all year round.
“If you’re earning close to the thresholds, don’t assume this won’t affect you. You could be swept in earlier than you think – and with HMRC planning to go fully digital in the years ahead, this is just the beginning.”
“My advice is simple: these changes go live in April 2026, so get ahead of the curve. Talk to your accountant, find the right software and start laying the groundwork now. The worst thing you can do is ignore it and hope it goes away – because it won’t.”
