Making Tax Digital: Separating fact from fiction

Making Tax Digital (MTD) for Income Tax is one of the biggest changes to Self Assessment in a generation. From April 2026, it will fundamentally change how sole traders interact with the tax system.

At IPSE, we know members have real concerns about MTD – from software costs to additional administrative tasks. We’ve been working collaboratively with HMRC to ensure the rollout is fair and clearly communicated to all sole traders.

So in this article, we’re clearing up some of the most common myths about Making Tax Digital and setting out what it will actually mean in practice.

It doesn’t.

Quarterly updates are not tax returns. They’re basic summaries of income and expenses, generated by your software and sent to HMRC. There’s no final calculation and no tax due at this stage.

You’ll still submit one full Self Assessment tax return each year, as you do now and if you make a mistake in a quarterly update, it can be corrected in a later submission.

You won’t.

Tax will still be paid once a year, by 31 January. Quarterly updates do not trigger payments.

HMRC instead anticipates that these updates will give you (and them) a clearer picture of what you’re likely to owe, earlier in the year.

MTD introduces a points-based penalty system, rather than immediate fines for missed submissions.

Missing a deadline earns a point. Penalties only apply once a threshold is reached, which is intended to distinguish between occasional mistakes and repeated non-compliance.

For more information on the income thresholds and to understand when Making Tax Digital will apply to you, read our MTD guide.

There will be a mix of free and paid MTD-compatible software options, designed for different types of businesses.

We’re pleased to see that free software products will be available for sole traders with a single income source, and we continue to push other software providers to follow suit.

Making Tax Digital is a significant change, and it will take time for many sole traders to adjust. Some concerns at the start of this new process are understandable, and IPSE will continue to work with government, HMRC and software providers to ensure the system works well in practice for the self-employed.

But it’s also clear that some of the anxiety around MTD is being driven by misunderstandings about what’s actually required. Clearing those up now can make a real difference.

Knowing that you won’t be paying tax quarterly or automatically fined for an honest mistake should help bring some reassurance as April 2026 approaches.

IPSE will continue to keep members updated, share member feedback on the new process with government, HMRC and software providers, and provide clear, practical guidance as the rollout continues.

For more information, you can visit GOV.UK's Making Tax Digital campaign page.