A survey of 1,000 sole traders earning over £50,000 in 2024–25 found that 39% correctly understand they must keep digital records from 6 April, and only a third know they must use HMRC-recognised software.

Misunderstandings are common: 36% incorrectly believe they will no longer need to file an annual tax return, 24% think they must submit returns quarterly, and 22% expect MTD will increase their tax bill.

These misconceptions and confusion are already influencing behaviour.

More than a quarter (28%) say MTD will make them more cautious about taking on additional work, while a similar number (27%) expect to spend more time on tax administration, adding to the pressure they already feel and taking time away from running their business.

For some, the changes could prove a tipping point. Nearly one in four (23%) say they are considering moving back into full-time employment as a result of Making Tax Digital.

The findings point to a major awareness gap just days before one of the biggest changes to the UK tax system in decades.

Oliver Harcourt, senior director at Taxfix, said: “Hundreds of thousands of sole traders are heading into Making Tax Digital without a clear understanding of what’s required of them. That only 39% of people think the largest reform to the tax system in decades will help them feel more in control of their finances is a huge missed opportunity and communication failure from HMRC.

“Getting your taxes right shouldn’t feel like a second job, but that’s exactly what many sole traders are already feeling and MTD risks adding to that pressure. When self-employed workers are fearful of taking on additional work or even considering moving back into full-time employment just to escape the stress of a new filing system, something has gone very wrong.

“If MTD is to succeed, it needs to work not just for HMRC, but for the people expected to use it every day.”

What Making Tax Digital actually means for sole traders

Myth 1: Annual tax returns have been scrapped 
Reality: Sole traders will still need to submit a final declaration each year. MTD introduces quarterly updates, but these are in addition to, not a replacement for, the annual submission.

Myth 2: Sole traders must now pay tax four times per year 
Reality: Quarterly updates are not full tax returns. They are simple summaries of income and expenses submitted digitally, designed to keep records up to date throughout the year.

Myth 3: Under Making Tax Digital sole traders will have to pay more tax  
Reality: MTD doesn’t change how much tax you pay. It changes how you record and report your income, with the aim of improving accuracy and reducing errors.

Myth 4: Sole traders can continue to manage their tax the same way as before as long as they submit quarterly updates 
Reality: From April, sole traders above the threshold will need to keep digital records and use HMRC-recognised software to submit updates.