HMRC tax warning many don’t understand new April 2026 rules

New rules under Making Tax Digital for Income Tax come into force from April 6, requiring many self-employed workers and landlords to keep digital records and submit updates to HMRC throughout the year.

But research suggests a large number are unprepared and increasingly anxious.

A study by FreeAgent found:

• Less than half feel confident they will be ready
• Only 39 percent say they fully understand the rules
• One in five do not know what is required
• More than one in ten have lost sleep over the changes

The reforms will initially affect more than 850,000 sole traders and landlords earning over £50,000, with millions more set to follow in the coming years.

Concerns go beyond understanding the rules, with many worried about the consequences of getting it wrong.

• 47 percent fear being fined or penalised
• 17 percent admit avoiding letters or emails about the changes
• Nearly half say they feel confused or anxious about the system

Some are even reconsidering their future:

• 23 percent are thinking about leaving self-employment
• 28 percent say they may take on less work

According to Oliver Harcourt from Taxfix, the scale of confusion is a major concern.

He said hundreds of thousands are heading into the changes without a clear understanding, adding that the reforms risk making tax feel like a second job for many.

Dominic Littlewood has teamed up with accountancy software company, Free Agent to help small businesses and landlords prepare for Making Tax Digital, as new data shows one in seven have considered retiring ahead of the April roll out. (Image: Free Agent)

What the new tax rules actually mean

Despite widespread confusion, the changes are about how tax is reported, not how much is paid.

Key points include:

• You will still need to submit an annual tax return
• Quarterly updates are summaries, not full tax returns
• The rules do not mean you will pay more tax
• Digital record keeping and approved software will be required

However, fewer than four in ten correctly understand the need for digital records, and only a third know they must use HMRC-recognised software.

Dominic Littlewood, working with FreeAgent, said the scale of the change explains why so many are worried.

He described Making Tax Digital as the biggest shake-up to tax submissions in two decades but stressed it does not have to be overwhelming.

He said many sole traders are asking the same questions about bookkeeping and potential fines, and need clear, simple guidance to stay compliant.

The rollout begins next week for higher earners but will expand:

• Over £50,000 income from April 2026
• Over £30,000 from April 2027
• Over £20,000 from April 2028

In total, around 2.9 million people are expected to be affected.

Experts warn that without better awareness and preparation, confusion could lead to mistakes, penalties and added pressure on small businesses already dealing with rising costs.