Rethinking Making Tax Digital for Income Tax: ICAEW Calls for Change

Personal Tax, Property Tax, Sole Trader,

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is supposed to be at the forefront of the digital transformation of the UK tax system. The programme has been delayed several times though, and the Institute of Chartered Accountants in England and Wales (ICAEW) has questioned the quarterly reporting requirements, a central component. 

ICAEW’s Concerns: Quarterly Reporting Burdens and Quality Assurance

The ICAEW has written to HMRC, urging them to review the requirement for sole traders and landlords to report earnings quarterly. They argue that quarterly reporting is going to add administrative costs and distraction without necessarily improving the quality of tax records.

According to the ICAEW, even with regular digital record-keeping, the additional work involved in meeting quarterly filing deadlines is excessive.

They highlight in particular that quarterly updates don’t confirm the quality of underlying digital records, raising concerns about the value of the reporting process.

ICAEW’s Proposed Solution: Annual Reporting and Focus on Digital Record-Keeping

The ICAEW suggests annual reporting as the initial mandatory requirement for MTD ITSA. They recommend introducing the shift to digital records and the direct submission of self-employment and property income details from software. Quarterly reporting could be considered in the future if the annual reporting system does not yield significant improvements in record-keeping.

It argues that doing away with the quarterly reporting aspect of MTD ITSA would change the narrative surrounding its implementation and allow HMRC to focus on the digital record-keeping requirements and software usage separately. This approach should ease implementation problems but also, in theory, show HMRC’s willingness to listen and adapt based on external input.

Embracing Fresh Thinking and Rebranding MTD ITSA

ICAEW’s comments highlight a need for MTD policy to be refreshed, and a return to its original core principle of making tax simpler. They say that MTD ITSA has become mired in controversy, undermining its credibility and the “MTD brand.” 

ICAEW believes that the project should now focus on delivering productivity benefits through software adoption, digital record-keeping, and simplifying tax compliance for all taxpayers. 

Taking Advantage of the Delay and Engaging Stakeholders

The two-year delay in the implementation of MTD ITSA gives an opportunity for HMRC to review the scheme’s requirements. ICAEW’s comments, alongside other parties, has influenced the direction of the project previously, so it may well do so again.

In summary…

The ICAEW’s call to review MTD ITSA by rethinking quarterly reporting and refocusing on digital record-keeping and filing from software dovetails with the scheme’s initial goal of simplifying tax regulation, and would definitely simplify its implementation. 

Annual reporting initially, followed by a potential future move to quarterly reporting, would reduce administrative burdens and allow for a smoother transition. 

As ever, as we draw closer to the new start date of April 2026, we’ll keep clients informed about any updates that may arise regarding MTD ITSA, so watch this space! If you have any particular questions in the meantime, please get in touch.

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