Over 400,000 Small Businesses Miss First Making Tax Digital for Income Tax Deadline

Quick Summary

HMRC figures reveal that over 400,000 small businesses and landlords missed the first Making Tax Digital for Income Tax deadline on August 7th. While a soft landing period currently waives penalty points for late quarterly updates, mandatory fines will be introduced starting April 2027.

How does Making Tax Digital for Income Tax affect small businesses?

Making Tax Digital for Income Tax represents a significant shift in how sole traders and landlords manage their tax obligations. Currently, individuals with a qualifying income of more than £50,000 in the 2024/25 tax year are legally required to follow these new rules. The system mandates digital record-keeping and quarterly tax submissions, moving away from the traditional annual filing process. According to HMRC, out of 864,000 people due to submit their first update, only 436,000 met the August 7th deadline.

• Qualifying income threshold: £50,000 for 2024/25
• Next quarterly deadline: November 7th
• Penalty introduction: April 2027

What should businesses do if they missed the first MTD deadline?

Businesses that missed the initial deadline should take immediate steps to achieve compliance. Emily Coltman FCA, Chief Accountant at FreeAgent, advises that taxpayers should register for the scheme, select HMRC-compatible software, and complete their first submission as soon as possible. While HMRC has implemented a soft landing period for the 2026/27 tax year where penalty points for late quarterly updates are waived, there is no such grace period for late annual final declarations.

“This is a legal requirement, and those 400,000 people cannot ignore the new Making Tax Digital for Income Tax system, however much they may wish they could,” said Emily Coltman FCA, Chief Accountant at FreeAgent. The scope of the mandate is set to expand next year to include those earning £30,000 or more, making early adoption critical for long-term compliance.

FF NEWS TAKE:

The fact that nearly half of the eligible population missed the first Making Tax Digital for Income Tax deadline is a wake-up call for the UK's digital transformation agenda. While the soft landing period provides a necessary buffer, the sheer volume of non-compliance suggests that many sole traders and landlords remain unprepared for the transition to quarterly reporting. This move definitely moves the needle by forcing a massive shift toward real-time accounting software, but the friction of adoption remains high.