A decade after then-Chancellor George Osborne vowed to eliminate tax returns through a sweeping digital overhaul, the UK government is finally set to roll out Making Tax Digital (MTD) for income tax in April 2026.
But with just over a year to go, the Institute of Chartered Accountants in England and Wales (ICAEW) is sounding alarms over rising compliance costs, software clarity, and the burden of quarterly tax reporting.
Under the government’s plan, approximately 795,000 self-employed individuals and landlords earning more than £50,000 annually will be required to keep digital records and submit tax data to HMRC every three months using commercial software.
The threshold will drop to £30,000 in 2027, bringing more than a million additional taxpayers into the system. Despite its support for digitisation, ICAEW continues to push back against mandatory quarterly reporting, arguing that it delivers little benefit while significantly increasing administrative costs.
A Missed Opportunity for Simplification
When Osborne introduced MTD in 2015, the vision was bold: a streamlined, real-time tax system that would replace cumbersome paperwork with automated digital records, reducing the average taxpayer’s administrative burden from 40 minutes to 10 minutes per year.
In reality, implementation has been repeatedly delayed—five times to date—leaving businesses and accountants grappling with shifting deadlines and evolving requirements.
“MTD income tax, as now being implemented, falls far short of the promises George Osborne made 10 years ago,” said Caroline Miskin, ICAEW’s senior technical manager for digital taxation. “The government has indicated its commitment, the legislation is in place, and preparations need to start now.”
But with limited public awareness and a lack of clear guidance on software selection, ICAEW warns that taxpayers could face substantial challenges adapting to the system in time.
Costs and Complexity for Taxpayers
While HMRC estimates the average transition cost at £320, with an ongoing annual cost of £110, ICAEW argues that these figures underestimate the true financial burden.
Many affected taxpayers do not currently use commercial accounting software and may need to either invest in a new system or hire an adviser for the first time. With software prices rising, the institute believes the real cost will be far higher.
“Careful research is needed before choosing a software product, as there are significant differences between products,” Miskin said. Some software solutions handle the full tax process, while others require separate tools for final filings, creating potential pitfalls for those unfamiliar with digital accounting.
Adding to the uncertainty is HMRC’s evolving list of approved software providers, which currently lacks comprehensive details on product functionality. With less than 18 months until implementation, taxpayers are expected to navigate a rapidly shifting software landscape with limited official guidance.
HMRC’s Readiness Under Scrutiny
Beyond the challenges for taxpayers, HMRC itself faces a considerable test in delivering and communicating MTD’s rollout effectively. The tax authority is expected to start contacting affected individuals in April 2025, urging them to sign up and test the system. ICAEW is encouraging accountants to trial MTD with at least one client before the mandatory deadline.
“For HMRC, the introduction of MTD represents a significant delivery and communication challenge, but it is currently on track with its plans,” Miskin noted.
Despite persistent industry objections, the government has held firm on the quarterly reporting requirement. In a pre-Budget submission last year, ICAEW cautioned that quarterly updates would impose “significant costs and additional administrative burden for taxpayers in return for limited benefit to HMRC.”
The Road Ahead
For now, taxpayers and advisers face a narrowing window to prepare. The government has hinted at extending MTD requirements to those earning over £20,000 later this decade but has yet to announce a timeline.
As the April 2026 deadline looms, ICAEW is urging taxpayers to begin evaluating software solutions, familiarising themselves with compliance requirements, and—despite ongoing reservations—preparing for what will be a seismic shift in the UK’s tax administration system.