Concerns about Making Tax Digital for Income Tax

If you’re a regular reader of this blog, you’ll know that Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) becomes compulsory for some taxpayers from April 2026.

Recently, the Administrative Burdens Advisory Board (ABAB) published its annual report. While generally positive about the way Making Tax Digital for Income Tax is being introduced, it does have some concerns. You may find these particularly useful if you are considering signing up for the MTD ITSA pilot programme.

What is ABAB?

ABAB is an independent board with members coming from a range of different business backgrounds and professions. It aims to represent small businesses by acting as a ‘critical friend’ to HMRC. It gathers small business feedback via an annual ‘Tell ABAB’ survey. In 2024, over 10,000 people responded to it. ABAB also publishes a yearly report to highlight concerns small businesses have about engaging with the tax system. In this year’s report, one of the main topics covers concerns about Making Tax Digital for Income Tax.

What is Making Tax Digital for Income Tax?

You can find full details about MTD ITSA in our special guide to Making Tax Digital. Broadly speaking, Making Tax Digital for Income Tax will mean you’ll have to submit Self-Assessment Tax Returns electronically. You’ll also need to make quarterly submissions, along with an ‘End of Period Statement’ that will due by 31st January each year. The latter will let you make adjustments, such as to capital allowances. You will also be able to declare other income or gains via a ‘Finalisation Statement’, which will be due on the same date.

MTD ITSA becomes compulsory for self-employed people and landlords with an income of £50,000+ in April 2026. Those with incomes of £30,000+ will need to join in April 2027. There is currently a pilot scheme, which some people have signed up for.

What does ABAB say about Making Tax Digital for Income Tax?

In its annual report, ABAB has some positive things to say about HMRC and Making Tax Digital for Income Tax. These include:

• The excellent quality of engagement between HMRC and ABAB
• The work HMRC is doing to allow multi-agent access. This is important because people will be making multiple submissions in any given year. For example, a self-employed person may ask a bookkeeper to make the quarterly submissions, then get an accountant or tax advisor to file the End of Period Statement and Finalisation Statement. Therefore, the system needs to allow multiple agents to access a taxpayer’s MTD account.

ABAB concerns

ABAB also raises some concerns about the progress of Making Tax Digital for Income Tax. These are:

• The quality of in-year tax calculations. Accuracy issues can arise, particularly when taxpayers have non MTD ITSA sources of income. These include things like dividends, interest, gift aid payments and relief due on pension contributions. While calculations will improve as the system matures, HMRC has agreed to issue clear ‘health warnings’ with in-year calculations to help manage taxpayer expectations.
• The beta-testing programme. ABAB is worried that the number of people taking part in the Making Tax Digital for Income Tax pilot programme is low. This is partly because, until recently, there were relative few compatible software packages. There have also been various restrictions on who can join the programme. ABAB believes it is ‘mission critical’ that HMRC significantly expands participation in the pilot programme from April 2025. The more thoroughly MTD ITSA is tested and refined, the more confident taxpayers will be when it becomes mandatory.
• The roll-out of MTD ITSA. In the Autumn 2024 Budget, the Chancellor announced that the Making Tax Digital for Income Tax would become compulsory by the end of this parliament for those earning £20,000 or more. ABAB urges that the system proves it delivers the expected benefits at the first two mandation levels before being expanded to include lower earners.
• A lack of awareness about MTD ITSA. The ‘Tell ABAB’ survey revealed that many people (21%) are unaware of MTD ITSA. Significant numbers are also unaware of the next stage in the programme. Over 64% didn’t believe Making Tax Digital for Income Tax would deliver any benefits. ABAB wants HMRC to improve awareness of the programme and address taxpayers’ concerns.

Summary

ABAB’s annual report, despite the concerns it raises, is actually positive. Any programme like Making Tax Digital for Income Tax will have teething problems. It’s reassuring that HMRC is working with an organisation like ABAB to resolve them. Hopefully, most major issues will be resolved by the time MTD ITSA becomes compulsory. Certainly, it would help recruit more people to the pilot programme if issues about in-year tax calculations are ironed out.