HMRC Update on Making Tax Digital: The ‘Biggest Change’ to Income Tax in 30 Years

The UK government is preparing to roll out Making Tax Digital (MTD), a transformative update to the country’s tax system. Starting next year, certain taxpayers will be required to use this digital platform to record and submit their tax information. This change will affect businesses, self-employed individuals, and landlords, fundamentally altering the way they interact with HMRC. Currently, thousands of volunteers are trialling the system, and in response to their feedback, the HMRC Update on Making Tax Digital has been released, outlining key adjustments designed to make the transition smoother for all involved.

These Making Tax Digital changes aim to ensure a more accurate, efficient, and user-friendly system for everyone who engages with the UK tax process.

Why is MTD a Game-Changer?

The shift to Making Tax Digital for Income Tax (MTD for ITSA) represents the most significant change to the UK income tax system in over 30 years. Under MTD, taxpayers will no longer rely solely on submitting a single annual self-assessment tax return in the traditional format. Instead, they will provide quarterly digital updates on their income and expenses through HMRC-approved software, helping to streamline the tax process, reduce errors, and ensure more timely reporting.

However, taxpayers must still submit an annual final declaration after the quarterly updates, which reconciles and confirms all income, expenses, allowances, and tax liabilities for the year. This final digital submission replaces the traditional annual tax return and completes the tax reporting cycle under the new MTD regime, effective from April 2026.

Key Updates from Testers’ Feedback

HMRC has been conducting trials of the MTD system, with a focus on improving its functionality and addressing user concerns. Participants’ feedback has led to the implementation of several important changes:

Improved Communication:

Testers requested better communication from HMRC about their submissions. In response, HMRC has now introduced a quarterly newsletter for participants. Throughout the trial period, testers will receive updates, guidance, and answers to frequently asked questions through this newsletter.

Confirmation of Submissions:

Another concern raised by testers was the lack of confirmation receipts after submitting their quarterly updates. Currently, no confirmation emails are sent to acknowledge receipt of the submission. HMRC acknowledged this issue and responded by saying that, although some software products may already provide these confirmations, taxpayers and agents can check the status of their submissions at any time via their digital tax accounts. HMRC has also committed to updating its guidance to make this process clearer.

Expanded Customer Support:

Testers pointed out that there are more diverse support options as the number of participants grows. In response, HMRC has introduced a comprehensive support model for participants. This includes a dedicated customer support team to assist testers with any issues they may encounter during the trial phase. This support will continue once the system becomes fully operational.

Multiple Agents for Different Submissions:

Participants also pointed out the need for functionality that allows multiple agents to manage different aspects of their tax submissions, such as one agent for quarterly updates and another for end-of-year filings. HMRC has been trialling this feature and will refine it before the system’s official rollout.

What’s Happening During the Testing Phase?

The testing phase, which began in April 2025, focuses on fine-tuning the platform’s capacity to handle high user volumes. HMRC has been trialling the sign-up process to ensure that the system can accommodate a large number of participants, and since August 2025, users have been able to submit their first quarterly updates using MTD software.

During the testing phase, HMRC has been checking that estimated payments are correct and making sure the system can perform certain actions in the digital tax account, like adding or stopping an income source and choosing to join or leave the service.

Key Features of MTD for ITSA

Once fully operational, Making Tax Digital for Income Tax (MTD for ITSA) will enable businesses, self-employed individuals, and landlords to:

Maintain Digital Records: Users will be required to maintain digital records of their income, expenses, and other financial details.
Submit Tax Returns via Software: Tax returns will be submitted through MTD-compatible software, which will eliminate the need for paper-based recordkeeping.
Access Digital Tax Accounts: Taxpayers will manage their accounts and submissions through a secure digital tax account, offering more transparency and ease of use.

What Does This Mean for the Future of Tax Reporting?

The HMRC’s push for digital tax reporting reflects a broader effort to modernise the UK’s tax system. The move to MTD will simplify and streamline processes for many taxpayers, although there are concerns about the impact on smaller businesses and those less familiar with digital tools. However, HMRC is confident that these changes will provide long-term benefits, including:

Fewer Errors: Digital submissions and more frequent updates reduce the risk of errors that often occur during the annual self-assessment process.
Faster Processing: Real-time data collection allows HMRC to process returns more quickly and respond to issues faster.
Better Engagement: Taxpayers will engage with their tax records more regularly, making it easier to manage their financial obligations.

What Should Taxpayers Do Now?

The official rollout of MTD for ITSA is scheduled for April 2026. However, taxpayers who meet the required criteria have been using the system voluntarily since 2024. To prepare for the transition:

Check Eligibility: Ensure you meet the thresholds for MTD compliance (e.g., self-employed or earning over £10,000 annually from property income).
Select MTD-Compatible Software: Research and choose software that will enable you to record income and submit quarterly updates digitally.
Start Digital Record-Keeping: Begin maintaining digital records of your income and expenses if you haven’t already.

Why Apex Accountants is the Right Choice Following the HMRC Update on Making Tax Digital

With the HMRC update on MTD, businesses and self-employed individuals must adapt to new tax reporting rules. At Apex Accountants, we specialise in helping clients navigate these Making Tax Digital changes smoothly:

Expert MTD Knowledge: Stay ahead with our in-depth understanding of MTD requirements and HMRC compliance.
Tailored Solutions: We offer personalised MTD services, from selecting the right software to submitting quarterly updates.
Seamless Digital Transition: Let us handle the shift to digital tax reporting, ensuring your records are compliant.
Proactive Tax Planning: Maximise tax reliefs and minimise liabilities while staying compliant with MTD.
Ongoing Support: We provide continuous guidance to ensure smooth MTD compliance and updates from HMRC.