HMRC announce that they will not provide an online tax return filing service for Making Tax Digital for Income Tax

The announcement of a full software journey 

Taxpayers within the scope of MTD will need to keep digital records and submit quarterly updates via compatible third party software or bridging products (‘MTD software’).  In addition to the quarterly submissions, taxpayers will still need to submit their year end tax return.  In relation to their year-end tax return, it was thought that a MTD taxpayer had two choices – 

1. They could use MTD software to submit the year end tax return; or 
2. They could use HMRC’s online filing service to submit their year-end tax return. 

Following today’s announcement, all MTD taxpayers will need to use MTD software to submit their year end tax return. There will be no HMRC online filing service for taxpayers within MTD. 

As part of our ongoing engagement with HMRC, the CIOT, LITRG and ATT had expressed concerns over HMRC’s proposed withdrawal of their online filing service for MTD customers.   ATT, CIOT and LITRG wrote to James Murray, Exchequer Secretary to the Treasury, to outline our main concerns. These included the likely additional costs for taxpayers, risks to compliance, availability of software, and the impacts on unrepresented taxpayers.

A copy of our letter and the Minister’s response can be seen here.

Letter to James Murray MP

James Murray MP Response

We welcome the Minister’s assurances within this letter to CIOT that the software market will develop the functionality required but await a further update on how the Minister will ensure this functionality to be introduced, and continuously provided, by third party software providers which is outside the direct control of HMRC. 

A press release issued today by the CIOT’s Low Incomes Tax Reform Group can be found here.  

Changes in scope

As part of today’s announcement, HMRC have also confirmed that additional groups of taxpayers will be exempt from MTD.  These include:

• Customers who have a Power of Attorney
• Non-UK resident foreign entertainers and sportspeople who have no other income sources that count as qualifying income for MTD
• customers for whom HMRC cannot provide a digital service

HMRC have also announced a number of ‘deferrals’.  Firstly, HMRC have confirmed that the following groups will not be required to join MTD over the course of this Parliament:

• ministers of religion
• Lloyd’s Underwriters
• recipients of the Married Couples’ Allowance
• recipients of the Blind Persons’ Allowance 

Whilst this ‘deferral’ until the end of Parliament is welcomed, we would have liked to have seen longer term certainty provided to these taxpayers.  

HMRC have also announced a one year MTD deferral for taxpayers who need to complete the SA109, the Residence and remittance basis pages of the Self Assessment tax return.  This is to provide HMRC additional time to work with key stakeholders to incorporate the UK government’s changes to the taxation of non-UK domiciled individuals.  

Conversely, HMRC also announced that MTD will now also be extended to sole traders and landlords with income over £20,000 from April 2028, bringing an additional 900,000 sole traders and landlords into the regime.

Next steps 

Although we welcome the expansion of MTD exemptions, we remain disappointed that a decision has been made to proceed with a full MTD software journey, especially given the concerns that have been raised by the CIOT, LITRG and ATT and other professional bodies. A full software journey will undoubtedly increase the complexity and cost of tax compliance for MTD taxpayers.  

HMRC are now working to improve their software choices tool and we have asked that this work is prioritised given this announcement, with our preference being that this is released before the summer.  HMRC will shortly be writing to those taxpayers likely to be brought into MTD from April 2026. It is crucial that this population can access clear and comprehensive information on available software if those affected are to be adequately prepared. 

We have also asked HMRC to identify possible gaps in the software market and work collaboratively with us to determine how best to deal with this.  

In the meantime, we would reiterate our recommendation that taxpayers and agents take care when choosing MTD software, to ensure they can comply with the full software journey (quarterly submissions and end of year tax return).  Please do contact your software provider to ensure that the MTD software has the functionality to submit year end tax returns, including all necessary types of income and gains before you sign up for software, or that it can link with other software which has that capability.