As another million taxpayers are about to be dragged into Making Tax Digital, 39% of HMRC approved MTD software cannot file vital year end report.

Analysis of HMRC’s Making Tax Digital for Income Tax (MTD) software finder tool by LetCompliance, a landlord specialist, found that 65 of the 165 listed products cannot currently file year-end reports, equivalent to 39% of the market.

Of the 165 software products on the HMRC list, 46 (28%) are described as ‘in development’ while 19 (12%) do not plan to include year-end report functionality at all.

Under MTD, taxpayers must submit quarterly updates during the year and then complete a year-end report through compatible software. While all products on HMRC's software finder can send quarterly updates, not all can currently submit the year-end report that completes the reporting cycle.

HMRC defines ‘in development’ as software providers being ‘committed to building this in time for the 2026 to 2027 tax return’ but have not completed the necessary work to ensure this happens, although the filing deadline is only months away.

From 6 April 2027, MTD will be extended to taxpayers with qualifying income above £30,000, bringing 1,077,000 more landlords, self employed and sole traders into HMRC’s mandatory digital reporting regime.

With tens of thousands of landlords now facing MTD for the first time, LetCompliance analysis of HMRC’s list reported 128 products can be used for UK property income. Two thirds of these software developers - 84 products say their year-end report functionality is 'ready now', but 25% - 32 companies – are still developing year-end report functionality. It is also worth noting one in 10 will not offer year-end report functionality.

This makes it vital for taxpayers falling under MTD to be careful when selecting software, as early adopters in the MTD pilot reported problems with some suppliers when completing the year-end report stage of the process.

Erdem Volkan, founder of LetCompliance, said: ‘Landlords are being told to pick software from HMRC’s list, and most will look at whether it sends the quarterly updates. The tax return line matters just as much.

‘A third of the products on the list cannot yet finish the year, so a landlord choosing today should check that line, and the other income they need to report, before they sign up.’

While HMRC is not issuing penalty points for late quarterly updates during the first year of MTD, in other words until 5 April 2027, taxpayers are still required by law to submit quarterly updates and complete an end-of-year report. As soon as the new tax year starts on 6 April, penalties will imposed.

The problem with the software has also seen HMRC stop new accreditation requests from potential MTD software providers, with HMRC putting the process on hold during a review of its approval process due to problems with some small suppliers which cannot do the whole process.

The next quarterly filing deadline for MTD for the £50,000 cohort who are already required to file digitally is less than four weeks away on Saturday 7 November. Meantime, all taxpayers who failed to sign up by the first quarterly filing deadline in August are now being automatically enrolled into MTD by HMRC.

Jonathan Athow, HMRC's director general for strategy and policy, acknowledged that end-of-year filing remains a challenge for the MTD software market and HMRC.

Speaking at the Digital Accounting Show in London, Athow said HMRC had ‘deliberately created a very flexible model’ that allows taxpayers to use different software products.

‘That end of year journey is going to be a test’, Athow said, adding that HMRC wanted ‘a good variety of products’ offering year-end report functionality.

The Low Incomes Tax Reform Group (LITRG) has warned that unrepresented taxpayers face a ‘minefield’ when choosing software for MTD.

LITRG conducts regular testing of HMRC’s software finder and said although the tool was better than when it launched it wanted to see further improvements to help users identify products that were suitable for their needs.

Some taxpayers described the process as ‘overwhelming’, with LITRG warning users need clearer information on software costs, customer support and data backup options.