Autumn Statement: Making Tax Digital for Income Tax

Government provides update on plans for Making Tax Digital for Income Tax Self-Assessment, a year after announcing delay to mandation dates

An update on the Government’s MTD ITSA plans

Alongside the Autumn Statement, the Government has provided an update on its plans for Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA). The update acknowledges some of the problems highlighted by professional bodies and agents and provides related solutions. As part of this update, the Government has reiterated its commitment to modernising the UK tax system by implementing MTD for ITSA and confirmed the current mandation dates of April 2026 and April 2027 (for those with self-employed and/or property income of over £50,000 and £30,000 respectively). This will, however, remain under review, as will any decision on further mandation of businesses and landlords with income below £30,000. The proposed changes are welcome and targeted at easing the burden on taxpayers. It is encouraging that HMRC have listened to concerns raised by the profession and software companies, but there remain challenges to the deliverability of this ambitious project.

The Government has announced a package of design changes intended to simplify and improve MTD for ITSA when it is introduced in April 2026, including:

  • Removing the requirement for End of Period Statements, to simplify the year end process and reduce unnecessary confusion and administration;
  • Changing the design of MTD for ITSA quarterly updates so that they work on a cumulative basis, making it simpler for taxpayers to submit corrections as part of their next update (if within the same tax year);
  • Enabling taxpayers to be represented by more than one tax agent, so that the agent dealing with the quarterly reporting of income and expenditure can be different from the agent dealing with the year-end tax submission (if required); and
  • Simplifying processes for landlords with jointly owned property, in recognition of a challenge in the initial design. To reduce the administrative burden, these landlords will be able to choose not to submit quarterly updates of their expenses and to keep less detailed digital records for jointly owned properties.

In addition, the update has introduced specific exemptions from MTD for ITSA, including for taxpayers without a National Insurance number as well as foster carers. There are other taxpayers for whom MTD for ITSA seems inappropriate and HMRC continue to consider potential further exclusions.

Separately, participants in the MTD for ITSA pilot will benefit from a modified, more lenient penalty regime, which is to be introduced for testing volunteers from April 2024. Under the new regime, when a taxpayer misses an annual submission deadline, they will incur a penalty point. A taxpayer becomes liable to a fixed financial penalty (of £200) only after they have reached the points threshold of two for late submission of their final declaration.

These are welcome changes which, if fully resolved and implemented, will improve the operation of MTD for ITSA. However, we await further detail of some of the proposals and will continue to review this as the plans develop and further announcements are made. Draft regulations are planned for consultation in December, with the final regulations to be introduced in February 2024.