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1 in 5 sole traders have still never heard of MTD ITSA

12th Jul 2022
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Coconut’s simple bookkeeping and tax app is specifically designed for sole traders, helping them...
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Despite having been announced all the way back in 2015, the government’s Making Tax Digital programme is still poorly understood, with hundreds of thousands of sole traders having never heard of changes that will soon completely change the way they manage and submit their tax returns. HMRC really needs to do more to collaborate with accountants and fintechs to build awareness, but what’s going to do the trick?

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Making Tax Digital is set to be introduced for Income Tax Self Assessment from 6th April 2024, completely changing the way sole traders manage and submit their tax returns. 

Based on existing plans, the scheme will affect any sole trader earning over £10,000 gross income each year from self-employment or property. Considering that there are currently 3.2 million sole traders operating in the UK, with this figure expected to rise even further as the way we work shifts in the aftermath of the pandemic, these changes will transform the tax requirements of millions of people in the UK. 

But, despite the fact MTD has now been discussed for years, our research has revealed that the majority of the UK’s growing population of self-employed workers remains unaware or unprepared for these upcoming changes. The MTD programme is still poorly understood, with many sole traders having never even heard of it.

Hundreds of thousands have potentially never even heard of MTD

In April 2022, we surveyed 500 UK sole traders to understand their views on Making Tax Digital for Income Tax, how prepared they are for the changes and what action they expect to take to become compliant with the rules. 

We found that a staggering one in five (21%) of the sole traders we surveyed had never heard of MTD for ITSA—despite the government having announced it seven years ago. 

When applied across the whole community, this equates to 670,000 of the UK’s 3.2 million sole traders having potentially never heard of some of the biggest changes to tax filing in a generation.

Three years on, and very little progress has been made

Perhaps more concerning is the fact that there has been such a limited increase in awareness over recent years: in a survey that we conducted all the way back in 2019, we found that 23% of sole traders had never heard of MTD. The fact that, three years later, this has only reduced by two percentage points to 21% shows there has been very little progress in improving understanding among the sole trader community.

What’s more, on top of the 21% of sole traders who have never heard of the scheme at all in 2022, it’s worth pointing out that an additional 29% said that they had heard of MTD ITSA but know nothing about it, and a further 41% said they have heard of it and know only a little about it.

This leaves only 9% of the whole sole trader population who have currently heard of Making Tax Digital for Income Tax and feel that they know a decent amount about it.

Building on rocky foundations

It is clear there is a pressing need for further educational pieces from HMRC about MTD, and sole traders will need additional support to help cope with the extra demands that will be placed upon them.

Whilst HMRC’s aim is to become one of the most digitally advanced tax authorities in the world through Making Tax Digital, these changes risk making things worse for the self-employed community if built on rocky foundations. The sentiment amongst sole traders is that taxes are already a source of confusion and stress: 

  • 41% of sole traders already say that they feel uneasy when they think about their taxes, 
  • 50% would rather do the household chores than do their taxes, and 
  • 52% still don’t fully comprehend all the different tax do’s and don’ts.

MTD ITSA represents a major shift in process, and as with any source of change, the scheme risks creating even more uncertainty among the community if not accompanied by sufficient education and guidance. 

So, where do we go from here?

With less than two years to go before MTD for ITSA is rolled out, it’s clear that there needs to be much greater collaboration between the government, the accountancy and fintech industries to raise awareness of the challenges and the solutions that are available to aid compliance with the new rules.

What HMRC must do

The onus is on HMRC to lead the way. HMRC needs to start marketing the changes to the people affected across mainstream media channels, and soon. Two years may sound like a long time, but in the world of business and tax, it’s not—and the earlier that sole traders comprehend and recognise the changes they’ll be facing, the easier the transition will be.

It’s also time for HMRC to give a lot more clarity around the changes and what will happen when, so that accountants and bookkeepers can prepare in good time. Decisions around specifications should also be fast-tracked, to enable software providers to get ahead of the changes and start testing.

What accountants can do

As Carly Liston from Coconut Partner Fortus East said: "Accountants and bookkeepers were pivotal in ensuring that the Making Tax Digital for VAT rollout went to plan, and it looks like it’ll be just the same for MTD ITSA."

Whilst managing the rollout of MTD ITSA is not the sole responsibility of accountants—far from it—there are things that you can do to make yours and your sole traders’ lives easier as the changes get nearer.

The simplest place to start is to build client awareness. Most sole traders are so focused on their day-to-day work that they rarely have the time nor inclination to do their own financial research in their limited spare time. Proactively launching your own information campaign to ensure that clients are aware of MTD and the impact it will have on them gives you the chance to field any questions in good time, as well as giving your customers the opportunity to get into good habits before the changes even come into effect.

This doesn’t have to be overly complicated or time-consuming—it can be as simple as sharing a summary article about Making Tax Digital for Income Tax and offering your clients a call to talk through their questions, or hosting a webinar for all of your sole traders in which you run them all through the basics in one fell swoop.

The added benefit of running an education campaign like this is that you can create new opportunities to connect with your clients and reaffirm the value you offer them, or even give you the chance to offer new services. 

Read the full report

For more exclusive data and insights around Making Tax Digital for Income Tax and the impact it will have both sole traders and the accounting industry, download our full MTD and sole traders: the £360 million opportunity for the accounting industry report for free at the link below:

Download for Free