HMRC to extend Making Tax Digital to 1m landlords and sole traders… and expert warns it could cause big delays

HMRC is extending its Making Tax Digital programme to landlords and sole traders with income over £30,000 from 2027.

The tax office announced plans for Making Tax Digital (MTD) in 2016 but has faced numerous delays over the years.

The initiative, which among other things aims to encourage businesses and accountants to use online chatbots, has faced wide criticism.

Further delays: Changes to self-assessment tax returns could cause chaos, expert warns

Now there are concerns that the extension of MTD for the self-employed will only exacerbate delays.

Since 2019, MTD for VAT has been mandatory for all VAT-registered businesses, above the £85,000 threshold and those that have voluntarily registered.

These businesses need to keep digital records of all business transactions and submit statements quarterly using approved software.

HMRC is also in the process of moving all self-assessment returns online. MTD for Income Tax Self Assessment (Itsa) is set to replace the current system, so landlords and the self-employed will need to submit statements quarterly too.

They will also need to file a final declaration at the end of the year, which replaces the current self-assessment tax return in January.

Today HMRC confirmed that all businesses and landlords earning over £50,000 will have to join MTD for Itsa from April 2026. This threshold will then fall to £30,000 the following April.

It says it will ‘make it easier for everyone to get tax right… Errors in handling tax affairs contribute to the tax gap – the amount of tax that is due but goes unpaid. The tax gap for Self Assessment businesses is around 18.5 per cent, or £5 billion.’

HMRC expects that around 780,000 people with business or property income over £50,000 will join MTD for Itsa from April 2026, with a further 970,000 joining from April 2027.

It is expected to cost businesses earning between £30,000 and £50,000 an estimated £350 and an average yearly additional cost of £110.

A ‘culture of fear’ and too much micromanagement is leading to HMRC delays, claim insiders 

The closure of the VAT registration helpline in May and summer closure of the self-assessment helpline has further infuriated those trying to get through to HMRC.

Headcount cuts have likely done little to help matters, but insiders have told This Is Money that it is staff retention and lack of training at the root of HMRC’s issues.

Read more here.

For those earning over £50,000, the cost of transition is expected to be an average £285 with an additional average yearly cost of £115.

‘Costs invariably will differ from business to business and are influenced by factors including size and complexity of the business, degree of digital capability and cost and functionality of the software solution employed.’

The MTD initiative has drawn criticism from accountants and business owners who have struggled with the transition.

Last summer the tax office announced it was closing its self-assessment helpline for three months to trial directing queries from the helpline to the department’s digital services.

It said it was piloting a ‘seasonal model’ because the helpline receives fewer calls over the summer, but gave taxpayers just two days notice.

In December, the tax office shut its phones again ahead of the 31 January self-assessment deadline.

This Is Money has written extensively about HMRC delays and the impact of the closure of both the self-assessment and VAT registration helpline.

Now there are concerns that the introduction of quarterly returns will only worsen these issues.

Lee Murphy, managing director of the Accountancy Partnership said: ‘The Making Tax Digital revamp to self-assessment submissions means that instead of providing tax information once a year, the self-employed will be required to use compatible software and report their financial activity four times a year, with a Final Declaration replacing the yearly tax return.

‘HMRC hopes the switch to digital will be more efficient for them and the self-employed and plug the tax gap, but almost one million people being required to go through self-assessment in a new way, there are bound to be issues.

‘It is likely only calls HMRC determines to be a priority will be answered and this will cause problems for those who may have difficulty with the new reporting method at each quarter.

‘It is up to HMRC to ensure the MTD service is comprehensive and easy to use, if there is now human a phone call away to resolve any issues with the technology.’