MTD: back again so soon?
It is only a few weeks since we last gave an update on Making Tax Digital for Income Tax Self-assessment but so much has been happening that another look is unavoidable.
Regular visitors to this blog might have expected a more reflective take on the 26 November Budget, after our immediate reaction. In the event, that will have to wait until the white noise dies down, which may take some time.
Instead, here are five significant MTD developments.
The ABAB report
The Administrative Burdens Advisory Board represents small business to government, pointing out burdensome red tape. Following its latest annual survey the board reports that nearly 70% of respondents see no benefits in MTD; and just over 70% expect MTD to lead to higher costs.
Ready Steady File, Issue 1
Ready Steady File is the MTD “testing newsletter”. Issue 1 was released on 7 November. It begins by noting that MTD starts in “less than 9 months” and, indeed, 5 months is less than 9 months. It goes on to note that those on the pilot programme “can start submitting your first quarterly update from the end of July 2025”. And later it explains what it will be doing between July and September 2025. There’s probably a good reason why this newsletter was published in November, not June, but it doesn’t create a very good impression.
Late filing penalties
On Budget Day HMRC announced that it will not be issuing penalty points to taxpayers who fail to submit quarterly submissions on time after MTD has gone live next year. Unsurprisingly, this has led many commentators to note that there is now no incentive for taxpayers to engage with MTD. Other conclusions that might be drawn are:
that this is HMRC’s way of saying it’s not ready to go live in April 2026; and
that effectively the whole project has been deferred for a year (without any embarrassing official announcement to that effect).
The sign-up logjam
The pilot programme has attracted just a few thousand guinea pigs, whereas there are hundreds of thousands of taxpayers who ought to be registering for MTD in April 2026. HMRC is pleading with taxpayers to register early, because it wants to avoid a log-jam in April but a log-jam was inevitable as soon as HMRC decided to make taxpayers register themselves, instead of HMRC transferring them by some automated process to the new system. In view of the effective deferral noted at point 3. above, the log-jam may be averted in 2026 but will be twice as bad in 2027, of course.
HMRC letter to taxpayers
HMRC has been writing to MTD-eligible taxpayers that have made a return for 2024/25 demonstrating that their turnover is above the MTD threshold for compulsory inclusion in 2026. Not all taxpayers use the Internet regularly, so HMRC’s online publicity about MTD needed this supplementary reminder. It might be assumed that this letter would have been especially useful to the “digitally excluded”, few of whom can be assumed to have been aware of HMRC’s online campaign.
The letter explains that the recipient “needs” to register for MTD and offers links to online resources for finding out more. What about the “digitally excluded”? The letter merely says that “If we’ve already confirmed that you’re digitally excluded for Making Tax Digital for Income Tax, please ignore this letter.” Is this supposed to mislead the digitally excluded into thinking that if they haven’t had their excluded status confirmed by HMRC, they’ve already missed the boat? Where is the advice on how (offline) to apply for excluded status? (Clue: there isn’t any.)
Given that this letter is (one hopes) aimed more at the digitally excluded than everyone else, this is a shocking omission.