MTD for Self Assessment: Is Digitisation Driving Sole Traders to Quit?

Context

Making Tax Digital for Self Assessment, which became mandatory in April 2024, requires sole traders and landlords with annual income above £10,000 to maintain digital records and submit quarterly updates to HMRC via compatible software. The policy aims to reduce errors, improve tax efficiency, and bring the UK's tax system into the digital age. However, two years into its implementation, concerns are emerging about its broader impact on self-employment.

The most immediate compliance challenge is the registration gap: as of July 2026, HMRC records show over 580,000 sole traders who should be registered under MTD for Self Assessment are not. This gap has been attributed to a mix of factors, including awareness issues, technical difficulties, and resistance to digital compliance.

Attrition Sentiment: An Unintended Consequence?

A recent headline from FF News introduced a novel angle to the MTD debate, citing survey data that claims 45% of UK sole traders are considering quitting self-employment. The article attributes this sentiment, at least in part, to rising administrative pressures under MTD.

Important caveats apply: the survey's methodology, sample size, and commissioning organisation are not disclosed in the FF News report. Thus, while the claim offers a provocative narrative—potentially linking MTD to structural shifts in self-employment—the data requires independent verification before it can be treated as established fact.

If verified, this attrition sentiment would provide a demand-side explanation for part of the registration gap. Sole traders who exit self-employment would logically discontinue MTD compliance, contributing to the 580,000+ unregistered figure. The survey's findings, if corroborated, would suggest that beyond awareness or technical barriers, MTD's administrative burden may be actively reshaping the self-employment landscape.

Implications for Compliance and Policy

The potential link between MTD and sole trader attrition raises questions about the policy's design and its unintended consequences. While HMRC has focused on addressing the registration gap through outreach campaigns, a possible exodus of sole traders would present a separate challenge.

For compliance professionals, the findings—if substantiated—suggest a need to consider broader advisory services. Sole traders struggling with MTD's requirements may benefit from guidance on managing administrative burdens, exploring alternative business structures, or even transitioning out of self-employment. However, without verified data on attrition trends, such interventions remain speculative.

From a policy perspective, the tension between digitisation goals and self-employment participation rates may require re-evaluation. If MTD is indeed contributing to a decline in self-employment, policymakers would need to weigh the benefits of digital compliance against its broader economic impact.

Outlook: What Data Is Needed Next?

To assess the validity of these concerns, several data points would be valuable:

1. Verification of the FF News survey: Identifying the commissioner, sample size, and methodology behind the 45% attrition claim would establish whether this is a credible concern or an outlier.
2. HMRC/ONS registration trends: Official data on the number of sole traders registering or de-registering post-MTD rollout could confirm whether attrition is increasing.
3. Qualitative research: Interviews or focus groups with sole traders could provide deeper insights into their experiences with MTD and whether administrative burdens are a significant factor in their business decisions.

Without these, the attrition narrative remains speculative—but if proven, it would mark a significant shift in how MTD for Self Assessment is perceived and managed.