Clock ticking on Making Tax Digital as HMRC struggles to win over SMEs
With six months until nearly 800,000 self-employed people and landlords join Making Tax Digital (MTD) for income tax, HMRC is intensifying efforts to get more taxpayers to test the system.
But the numbers so far paint a sobering picture of the challenge ahead for the agency.
Data revealed that 2,400 users have joined HMRC’s beta testing scheme, with just 0.34 per cent of those expected to be in scope from April 2026.
While the tax authority insisted these early participants offer “diverse circumstances” to help fine-tune the system, the figure highlighted how little traction the scheme has gained.
Craig Ogilvie, HMRC’s director of MTD, has urged accountants to act now: “With April 2026 on the horizon, agents should be reviewing if any of their clients have income over £50,000”.
“We urge those who meet the criteria to join our testing programme on GOV.UK now to help shape the final service”.
A mix of anxiety and opportunity
However, the scale of the shift is daunting, as an Accountex Manchester survey found one in three accountants admitted they were not prepared for MTD, with one in 10 “very unprepared”.
Four in five (82 per cent) said MTD would be their single most significant challenge over the next year.
Yet almost the same proportion also called it their biggest opportunity.
Caroline Hobden, portfolio event director of Accountex, argued that the transition could still be positive if firms act early.
“As we have seen with MTD for VAT, preparation is key… Whether that’s in person or online, adapting to a new way of working will be a smoother process by learning from and sharing insights with others,” she added.
Industry groups remain cautious. The Federation of Small Businesses (FSB), a body representing SMEs, warned of a “sizeable minority” of firms still relying on paper records.
Its policy chair, Tina McKenzie, has also raised concerns about rising compliance costs, arguing that regulation may be needed if software providers use the mandate to push up prices.
HMRC’s own projections suggest that costs will continue to mount.
The Treasury initially estimated MTD compliance at £222m back in 2016; however, the Public Accounts Committee (PAC) has since warned that total costs could exceed £1.3bn for VAT and self-assessment, with MPs citing HMRC’s “poor track record of repeated delays” as a risk to successful delivery.
HMRC digitalisation under pressure
The UK government expects nearly 3m taxpayers to join MTD by 2028, phasing those with lower income brackets over time.
The bulk, around 2.3m, are self-employed individuals, while roughly 563,000 are landlords.
According to HMRC figures, 83 per cent of unrepresented taxpayers do not currently use digital software, and many landlords are only just becoming aware of the rules.
At the same time, HMRC’s response times have worsened, with call handling times nearly doubling in recent months, fuelling scepticism about its capacity to support millions of new digital filers.
This comes against a wider backdrop of pressure on small businesses.
FreeAgent, the accountancy software group, found earlier this year that 21 per cent of business owners did not fully understand the new rules, while a third worried about the financial burden.
The FSB estimates that tax compliance already costs the average small firm £4,500 annually, a figure that has risen 10 per cent since 2021.
There is also a question of timing, as the roll-out coincides with global economic uncertainty, fresh US tariffs hitting UK exporters, and ongoing reforms to R&D tax credits.
For some, the MTD reforms risk becoming another layer of complexity at a time when small businesses are already under strain.
Balancing ambition with delivery
The supporters of MTD argue that the long-term benefits remain compelling: more accurate reporting, fewer errors, and improved compliance.
Proponents say digitisation could ultimately reduce the burden of the annual return and modernise HMRC’s infrastructure for the future.
But with only months to go and testing participation still vanishingly small, doubts remain.
Industry insiders suggest the real challenge is less about software than about cultural change, moving taxpayers away from long-established habits of paper returns and once-a-year filing.
Whether April 2026 marks the beginning of a new era of streamlined tax, or simply the latest in a long list of HMRC implementation headaches, will depend on how quickly confidence and participation can grow over the coming year.