Almost half of the taxpayers eligible for Making Tax Digital (MTD) for Income Tax missed the first filing deadline, according to an analysis from accountancy and business advisory group Azets.
Figures from HMRC showed 436,000 taxpayers filed their first MTD for Income Tax quarterly update on time on August 7 – 50.5% of those who should have. With more than 864,000 people in scope of the initiative, an estimated 428,000 self-employed, sole traders and landlords had missed the first quarterly deadline.
Legal requirement and penalty waiver
It is a legal requirement and not optional, although HMRC has said that there will not be any penalties for missing deadlines in the first year.
Fraser Campbell, UK head of accountancy and business advisory services at Azets, said: “The number of people who missed the first MTD for Income Tax deadline is greater than the combined populations of Westminster and York. This is partly due to the fact that learning curve for taxpayers and their accountants has been very steep in the lead up to the first quarter submission, with HMRC system downtime, registration glitches, managing exemptions and deferrals and coming to terms with limitations and requirements of the digital submission process for taxpayers with more complex affairs contributing to a number of late submissions across the UK.”
Advice for those who missed the deadline
Campbell said: “HMRC have waived fines for the first year of this initiative and that is definitely needed given this learning curve and the process will get smoother for those now in the system next time around. However, those that have left it late to engage in the requirements are setting themselves up for pain in the future, so it’s worth getting the next quarter’s submission in as quickly as possible and starting to prepare for the November filing deadline as quickly as possible.”
He added: “While HMRC has said it won’t fine those who file their submissions late, anyone who leaves their first filing until the 2027 deadline will need to catch up with four filings from this year at the same time as next year’s quarterly filings become due, as well as their annual declaration, so they’ll have to potentially file nine returns over the same 12-month period.”
Biggest change in personal tax system
The introduction of MTD for Income Tax in April 2026 was the biggest change in the personal tax system in more than 30 years and brought it closer to real-time. Expected to affect 2.9 million people by 2028, MTD for Income Tax introduced quarterly digital record keeping and reporting obligations for hundreds of thousands of landlords, sole traders and the self-employed, who previously only had to submit one tax return a year.
Campbell said: “This is a major change for some of the smallest businesses in the UK. They’ve had to familiarise themselves and work with new processes and MTD compliant software at a time when many are struggling through difficult economic headwinds.”
He also highlighted the positives of the new regime: “The introduction of MTD should also make forward tax planning and forecasting and the year-end process a lot smoother. It will give people real-time digital information about their business performance and projected tax bills, which will be hugely helpful for any discussions they have with their tax adviser, and give them the information they need to better manage their savings and tax payments.”
Campbell advised: “My advice for anyone who thinks they are in scope of MTD is to check whether they fall in line with the new reporting obligations, ensure the software you or your accountant is using is HMRC compliant and start using HMRC compliant software now if it isn’t, and check whether you’re exempt from the new regime – you might be, so it’s worth looking at HMRC’s website or speaking to an accountant.”
Earlier this month, Craig Ogilvie, HMRC’s director of Making Tax Digital, said: “It’s fantastic to see so many sole traders and landlords successfully sending their first quarterly updates. This marks an important milestone in the move to a more modern tax system, with many customers telling us that the process is straightforward and works well through their chosen software.”
He added: “If you haven’t yet signed up, now is the time to do so. Taking action now means you stay in control, can make sure your Making Tax Digital for Income Tax details are correct from the start, and have time to choose the software that works best for you, rather than waiting for HMRC to sign you up from September.”
