- Almost half (45%) of UK sole traders are at risk of failing to comply with new tax legislation.
- Three quarters (76%) say that they feel they should be more aware of the changes.
- Awareness and preparedness declines with age, while younger generations are more likely to manage their finances using technology like third-party software.
LONDON, May 13, 2025 /PRNewswire/ -- Nearly half (45%) of UK sole traders - representing approximately 1.4 million businesses* - report feeling unprepared for upcoming tax reporting changes, putting them at risk of non-compliance. That's according to new research from IRIS Software Group**, who surveyed 1,000 UK sole traders.
Under the new Making Tax Digital rules, which mandate digital record-keeping and quarterly income tax updates starting April 2026, non-compliance can lead to significant penalties. These will likely match existing penalties for VAT non-compliance, which include fines of up to £400 for not using compatible software and £200 penalties for repeated late submissions, along with accruing interest charges for late payments.
Alarmingly, the study found that almost one in three (31%) sole traders have never heard of MTD, underscoring the urgent need for increased awareness and preparation to avoid potential financial repercussions.
MTD for Income Tax Self Assessment (ITSA) will require self-employed individuals, landlords and small businesses earning over £50,000 to keep digital financial records and submit quarterly updates using compatible software like IRIS Elements from April 2026. The threshold drops to £30,000 in 2027 and to £20,000 in 2028.
The changes could place a significant burden on business owners, who will be required to submit at least five updates to HMRC each year. IRIS' study suggested an anxiousness from sole traders, with three quarters (76%) of respondents telling IRIS they wished they were more aware of the requirements. Many sole traders pointed to a lack of awareness around the changes, with a third (34%) believing HMRC could have done more to proactively inform them. Almost three quarters (74%) of respondents told IRIS they would welcome more support and guidance from HMRC to help them navigate the changes.
Others were more relaxed, with nearly a third (32%) believing they should be more aware but plan on researching it in their own time, and 7% trusting their accountants to advise them at the appropriate time.
With less than a year to go, only 23% of sole traders believed they were very prepared for the requirements.
Mark Chambers, Managing Director at IRIS Accountancy, said: "These findings highlight an important moment of opportunity for the UK's sole traders. With MTD just around the corner, there's a real chance for businesses to modernise their financial processes, unlock efficiencies, and gain better visibility of their income and expenses.
"It's encouraging to see that nearly a quarter feel ready to meet the requirements, but that leaves a significant portion not experiencing the benefits of digitalised tax reporting that compliance will bring."
Generations divided over digital accounting
Younger sole traders were more likely to feel very prepared for the forthcoming requirements and expressed greater optimism about the changes compared to older respondents. This generational divide may reflect broader attitudes toward digitalisation - with MTD representing just the first step in the government's wider push to modernise and digitise tax and accounting processes in the years ahead.
Nearly two in five (37%) of 25-34-year-olds felt they were very prepared for April 2026, compared to 23% of those aged 35-44, and only 10% of 45-54-year-olds. Following the trend, nearly two thirds (64%) of those aged 25-34 felt the changes would have a positive impact on their approach to filing taxes, compared to 48% of those 35-44 and only 30% of respondents aged 45-54.
Younger generations were the most likely to be using third party software for managing their taxes, and the least likely to be using paper-based filing systems, highlighting the link between technology and compliance.
Overall, more than half (56%) agreed that MTD will support their budgeting and help them to avoid surprises when paying their tax bill, with younger sole traders even more likely to agree. Respondents overall were also more likely to agree than disagree that MTD changes would have a positive impact on their costs.
Mark Chambers continued: "It's particularly promising to see younger sole traders already embracing digital tools. That trend signals real momentum for a wider transition to more efficient, tech-enabled ways of working. The next step is making sure everyone, regardless of age or experience, has access to the knowledge and resources they need to move confidently towards compliance.
"As an HMRC-recognised software provider for Making Tax Digital, IRIS is well-positioned to support both sole traders and accountants on their journey to compliance. With intuitive tools and expert guidance, we're here to help users not only meet regulatory requirements but also embrace the wider benefits of digital bookkeeping - from improved accuracy to greater efficiency."
For more information, visit IRIS' MTD hub.
*Based on 3.1 million sole traders operating in the UK
**A poll of 1000 UK sole traders aged 18+ completed independently by Censuswide, commissioned by IRIS, between the 9thApril 2025 and 15thApril 2025.
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