Making Tax Digital sees potential 65 per cent non-compliance rate – What can help get compliance rates up?

By Craig Reid, Partner 

Despite being mandatory for sole traders, landlords and self-employed individuals with qualifying turnover over £50,000 to register for Making Tax Digital (MTD) for Income Tax since 6 April 2026, only 35 per cent have currently done so. 

This staggering 65 per cent non-compliance rate is set to be tested as the first quarterly update is due on 7 August 2026 and this is the first real test of MTD. 

HMRC used Accountex London 2026 to address the issue, directly countering some of the beliefs that surround the quarterly updates. 

However, in its attempt to calm concerned individuals, there is a risk that the new view of quarterly updates could pose its own compliance risk.  

Can MTD non-compliance be reduced? 

Ultimately, everyone affected by MTD will need to register or risk facing a continual battering of fines and penalties.  

2026 is a penalty amnesty zone, meaning that it will not be until 2027 that penalties can be obtained for missing MTD obligations.  

The aim of this is to get people used to the new way of operating without having the risk of fines adding to the stress of a big change. 

In reality, this lack of penalties seems to be causing people to not take their new obligations seriously, as they may view the new rules as an irritation to be ignored.  

Unfortunately, the true value of MTD seems to be lost on many people, so HMRC is now trying to show a different side to the new system. 

Speaking at Accountex, HMRC insisted that the quarterly updates should not be viewed as tax filings, nor do they need to be perfect. 

They are supposed to be snapshots of the data that exists at any one time and can be corrected or amended later on without issue. 

On the surface, this sounds positive and could get people to not see MTD as a big administrative burden. 

However, there is a compliance risk that this perspective introduces that cannot be ignored.  

Will quarterly updates make non-compliance worse? 

Generally, the more rules people need to follow, the greater the chance there is of them missing something or breaking a rule. 

Having a penalty system that is tied to the quarterly updates means that much of the compliance will centre on them, even if HMRC downplays this connection.  

The penalties are linked to meeting the deadline rather than the quality of the submission. 

There is a concern that some people may see it as advantageous to submit anything to meet the deadline and avoid the penalty. 

While some gaps in data can be forgiven, broadly inaccurate quarterly updates will make the annual tax return significantly harder to file, as it will be then that all the data must be accurate and complete.  

This goes against the spirit of MTD, which was positioned as a way of reducing the annual tax filing scramble. 

A clear re-evaluation of how quarterly updates are treated is needed to improve compliance and prevent new issues arising.  

Will MTD be helpful in the long run? 

For those who can see the value of MTD, the lack of compliance is difficult to witness. 

Sole traders, landlords and self-employed individuals stand to benefit greatly from having a clearer view of their finances.  

Quarterly updates are designed to give you a regular window into your finances, so having accurate data is vital for keeping you on the right track. 

Accounting software underpins this and should be able to keep more of a continuous vision of where you are financially.  

Budgeting should be easier if you have a clearer view of your finances and tax obligations, as you will not be surprised by tax bills when the year comes to an end.  

Ultimately, the best way to make the MTD work for you in the long-term is to get support from a trusted accounting team. 

We are on hand to support your transition to MTD, equipping you with the right software that meets your budget and needs.  

We can help review your current processes so that you are fully aware of how to make the change as painless as possible. 

Once set up, we can support you in making the most of your newfound grasp of data to strengthen your own financial position.  

Speak to us to take the stress out of Making Tax Digital compliance.