With less than a month remaining before the roll-out of Making Tax Digital (MTD), figures suggest a significant proportion of taxpayers are yet to register for the new regime.
HM Revenue and Customs (HMRC) requires approximately 864,000 landlords and self-employed individuals with annual income above £50,000 to sign up by 6 April. However, as of early March, only around 50,000 have completed registration, raising concerns among accountancy professionals and the tax authority about the potential for last-minute surges and compliance difficulties.
The policy, which aims to modernise the UK tax system, introduces quarterly reporting requirements and is set to be expanded further over the coming years.
Registration Numbers and Requirements
The latest figures from HMRC indicate that just under five per cent of those required to register for Making Tax Digital have done so. This translates to more than 27,000 sign-ups needed per day in the run-up to the April deadline if full compliance is to be achieved.
Under MTD, those affected must submit quarterly financial updates, followed by a year-end adjustment and a final declaration of income via HMRC-approved third-party software.
The policy specifically targets individuals earning above £50,000 per year, but the scope is set to broaden significantly. Nearly three million taxpayers could eventually be included as the government lowers the income thresholds in future phases of the programme.
Expansion Plans and Thresholds
The government plans to extend Making Tax Digital to a wider pool of UK taxpayers over the next three years by reducing the income threshold. As a result, millions more will be required to adhere to quarterly reporting and digital recordkeeping, which HMRC states will improve accuracy and reduce errors in tax submissions.
The ultimate aim, according to officials, is to close the tax gap, which currently stands at an estimated £47 billion. Nimesh Shah, partner at accountancy firm Blick Rothenberg, said,
The Government believes that MTD will help to reduce the tax gap, with the expectation that more regular reporting will increase accuracy and reduce errors.' However, industry analysts question whether this will offset additional administrative burdens placed on taxpayers and professionals.
Industry Concerns and Reactions
Tax specialists and accountancy organisations have raised several concerns about readiness for the new reporting requirements. Rachael Griffin, tax and financial planning expert at Quilter, observed that the low uptake suggests many remain unclear on how quarterly reporting will impact their tax affairs.
The low signup figures show that many people still do not understand what quarterly reporting will mean for them, and that gap in understanding risks becoming a pinch-point as we approach implementation,
Griffin warned. Mike Warburton, tax expert, noted that while HMRC describes early registrations as a success, this does not guarantee all stakeholders view the new system as an efficient improvement. He said many accountancy firms are dedicating considerable resources to ensure clients will meet the new compliance standards in time.
Implementation Timeline and Delays
The Making Tax Digital programme was first announced in the Budget in 2015, with initial plans to complete implementation by 2020. Since then, the project has experienced several postponements, impacting taxpayer confidence and increasing administrative costs.
VAT-registered businesses were brought into the system in 2022, three years later than originally envisioned. A June 2023 report by the National Audit Office found that these repeated delays undermined confidence in the scheme and led to greater expenditure than originally budgeted.
Financial and Administrative Implications
Industry experts estimate that the software necessary for compliance will cost each taxpayer at least £150. Total government expenditure on MTD now exceeds £850 million, substantially surpassing the original budget outlined at the programme's inception.
Approximately three-quarters of taxpayers expected to be affected by MTD currently rely on professional advisers. These tax agents are generally better equipped to comply with new digital requirements, but the increase in annual reporting from one to five submissions may heighten the risk of unintentional errors and missed deadlines.
The penalty system will use a points-based structure, similar to driving licence endorsements, but HMRC has announced no late submission penalties will be issued during the first year of mandatory operation.
Final Summary
As the Making Tax Digital deadline approaches, the majority of those required to register are yet to comply, raising the possibility of significant administrative challenges in the coming weeks.
The expansion of MTD marks a fundamental change in tax reporting for individuals and businesses, aiming to modernise the system and reduce errors. However, concerns persist about awareness, software costs, and the risk of administrative difficulties, especially as more taxpayers are gradually included.
Taxpayers are advised to familiarise themselves with digital reporting requirements to avoid last-minute disruptions. For further updates and guidance, the Pie app remains a helpful resource for timely financial news and developments.
