Around 400,000 self-employed people and landlords are on course to miss the Making Tax Digital (MTD) deadline on 7 August, the Association of Chartered Certified Accountants (ACCA) said.
HMRC figures show that just over 400,000 of the 850,000 taxpayers mandated to join the scheme have registered so far.
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This leaves more than half still outside the system ahead of what is being described as the biggest reform of the UK tax regime in a generation.
ACCA senior technical advisory manager Yogesh Dhanak said: “While HMRC has confirmed a 12-month soft-landing period where late filing points won’t be issued for these initial quarterly updates, taxpayers must not treat this as a free pass.
“HMRC can still penalise businesses for failing to keep digital records or for deliberately withholding information.
“Crucially, submitting ‘nil’ placeholder returns with the intention of fixing the numbers at the end of the year is completely unacceptable. These updates must be fully reconciled transactional submissions tied directly to bank feeds.
“ACCA believes HMRC must provide urgent clarity on these requirements before any penalties are leveraged.”
The accounting body also highlighted what it sees as “critical gaps” in HMRC’s communication strategy around MTD.
It said that the awareness drive has not reached enough affected taxpayers.
Dhanak added: “The fact that less than half of mandated taxpayers have registered highlights a clear deficiency in HMRC’s awareness campaign, exacerbated by delays in getting official systems and guidance ready.
“While digital record-keeping should ultimately help small businesses reduce errors and better understand their performance, the immediate future looks incredibly challenging.
“If HMRC cannot successfully onboard higher earners now, the problem will severely compound when lower-earning sole traders are dragged into the scheme in 2027/28.
“Taxpayers – backed by qualified accountants – are currently the only ones positioned to navigate these changes successfully.”
It also identified rising costs as a major barrier for those trying to comply with the new rules.
Dhanak said: “The government has acknowledged that MTD will drive up set-up fees and ongoing costs.
“Many individuals will need to engage a qualified accountant for the first time just to remain compliant.
“Because qualified professionals adhere to strict ethical rules to ensure data validity, these rigorous checks will inevitably reflect in additional costs for clients.
“Navigating the market of nearly 90 HMRC-approved software options is also proving to be a minefield.
“Furthermore, many free or cheaper software options feature limited functionality, often blocking professional agents from accessing the system to verify data before it is submitted.”
