HMRC pauses MTD for income tax pilot

Following the delay to the rollout of the extension of Making Tax Digital (MTD) for income tax, HMRC has stopped the pilot programme.

Sara White, Editor, Accountancy Daily

So far only 115 taxpayers have signed up to the trial and now that the digital reporting has been delayed until 2026, HMRC will review the most effective way to run a future trial.

According to a response to a Freedom of Information request filed by Saffery Champness, HMRC has paused its pilot of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA).

Originally scheduled to launch in April 2018, the government confirmed in December 2022 that it was delaying the phased implementation to April 2026.

The delay also saw the government increase the minimum reporting threshold to those earning over £50,000 in income. The original plan was to mandate the programme for anyone earning over £10,000 from non-PAYE income such as landlords and the self employed, which would have affected 4.2m taxpayers.

MTD for ITSA will replace the current requirement for certain taxpayers to complete an annual self-assessment tax return. From April 2026, self-employed individuals and landlords with an income of over £50,000 will be required to keep digital records and provide quarterly updates on income and expenses via suitable accounting software.

This will then be rolled out to those earning over £30,000 from April 2027.

In its announcement, HMRC noted that most customers will be able to join MTD voluntarily before the mandated implementation date.

HMRC began an expanded programme of recruitment of participants into the MTD for ITSA pilot scheme in July 2022. HMRC confirmed in its response to the FOI request that recruitment was paused in November ahead of the confirmation of the implementation delay.

The FOI response also confirmed that HMRC will soon launch a refreshed testing strategy to reflect the revised timetable.

Lucy Woodward, partner in the private wealth team at Saffery Champness, said: ‘With bills and interest rates rising, the government positioned the delay announced at the end of 2022 as a concession to affected taxpayers – giving them some breathing space as they navigate a challenging financial and broader economic environment.

‘However the decision may also partly be a reflection of HMRC’s own preparedness to manage the migration of the millions of taxpayers who were due to make the transition in 2024.

‘Clearly more time was needed to effectively test MTD for ITSA – with it coming across loud and clear that HMRC and the Treasury would use the time to road test the system robustly and, in their words, get it right and deliver it effectively.

‘So far this has been a mixed bag. Even though a push in the summer of 2022 saw more taxpayers enrolled into the pilot the numbers were still vanishingly small when set against those who will mandated to use the system in a couple of years.

‘There have already been a number of teething problems seen with the system, and others will only be identified, and addressed, when it is tested at scale.

‘Along with MTD for ITSA, wider consultations on tax administration and payment have raised the possibility of more real-time tax payments.

‘If the government were to move towards a real-time payment system, there are various possible options - it would be good to see them set out a detailed vision for tax administration and payment as soon as possible, which would make this clear and allow future work on MTD to develop in the right way.

‘In the meantime, even though the timeline has been extended, the best advice for taxpayers is to ensure that digital record-keeping is in place as soon as possible, to work through any bugs and prepare to hit the ground running in April 2026 and avoid any costly mistakes.

‘Using the right tech can provide efficiencies to the way the information is gathered and ultimately reported to HMRC which in turn can lead to time savings – and some of these can be realised before MTD is implemented.’