On 18 March 2015 George Osborne promised to introduce “a revolutionary simplification of tax collection” in an announcement of what would become making tax digital (MTD). It is now a year until MTD income tax becomes mandatory for the first group of taxpayers. 

The previous government’s plan to introduce MTD income tax, which is due to be phased in from April 2026, was confirmed by the government at the Autumn Budget 2024. [1] 

Approximately 795,000 taxpayers will need to comply from 2026, and 1.015 million from 2027, keeping digital records and submitting information using commercial software to HMRC quarterly rather than annually. 

ICAEW continues to have concerns about the implementation of MTD income tax, it said. The Institute supports the digitalisation of accounting records and HMRC services but opposes the quarterly update element of MTD income tax as it adds significant cost for no significant benefit. 

The Institute has consistently argued that the familiar annual reporting cycle for income tax should be retained, but with the MTD income tax digital record keeping requirements. However, the government has confirmed that the quarterly update requirement will be retained and affected taxpayers need to start planning for what is a major change from the current self assessment tax return reporting cycle.  

Caroline Miskin, ICAEW Senior Technical Manager, Digital Taxation, said: 

“MTD income tax as now being implemented falls far short of the promises George Osborne made 10 years ago and remains controversial with many accountants and tax advisers, while many taxpayers are unaware of the requirements. However, the government has indicated its commitment, the legislation is in place and preparations need to start now. Preparation includes understanding the new requirements, choosing suitable software and signing up. The system is already available to test and despite ICAEW’s concerns, it is encouraging members to test the system with at least one client in 2025/26. 

“For HMRC the introduction of MTD represents a significant delivery and communication challenge but it is currently on track with its plans. In April it will contact taxpayers who are likely to need to comply from 2026.” 

The Institute highlighted that choosing the right software is critical, but there is a lack of clarity over what functionality is offered by the different products and what might be developed in time for April 2026.  

Additionally, ICAEW is concerned about the cost to taxpayers. HMRC estimates the average transitional cost to be £320 and the average annual additional cost of £110, but since these estimates were made there have been significant increases in the cost of many software products. The cost is likely to be very much higher for taxpayers who do not currently use commercial accounting software or who need to engage an adviser for the first time as a result of the changes or ask them to take on more work. 

Caroline Miskin added: 

“Careful research is needed before choosing a software product, as there are significant differences between products. Some products cover the whole process from digital records through to the final tax return and offer additional functionality to help you get things right. Others do not.  

“Self-employment and property income need to be reported using commercial software and that may also be case for the rest of your final tax return. Make sure that you choose a product that meets your needs and will allow you to report everything you need to. It is possible to use spreadsheets to keep your accounting records in combination with a commercial submission product.” 

For more information, visit ICAEW’s MTD hub here or an explainer on what MTD is here. 

ENDS 

Notes to editors:

1. MTD income tax for sole traders and landlords will be phased in from: 

• 6 April 2026, where their annual turnover exceeds £50,000; and 
• 6 April 2027, where their annual turnover exceeds £30,000.  

The government announced that it would extend MTD income tax to sole traders and landlords with turnover of more than £20,000 by the end of this parliament, but no specific date has been announced.