This September, the CPAA hosted a webinar covering the ins and outs of Making Tax Digital for Income Tax – with HMRC’s Lenny Barry at the helm, sharing a huge amount of information and fielding members’ questions. Essential listening, we cover some of the session’s salient points here, but urge you to head to the Members' Area to catch up on the recording.
Moderated by industry expert Ros Martin, there was no shortage of questions for Lenny, who brought his distinctive engaging and candid style to deliver a really useful session, which some 400 members attended. A truly interactive webinar, a live chat and Q&A function enabled plenty of participants to communicate their thoughts and queries to shape the discussion.
The underlying message from HMRC was that Making Tax Digital for Income Tax is coming. As Lenny said, “there have been five delays on MTD for Income Tax - but we’re absolutely on track now.” He went on to explain that “of the 172 work packages that need to be finished before the 2026 mandation, we have completed 107 of them so far, which is ahead of schedule. Concessions and changes have been made for the benefit of agents and their clients. It is going to happen and you need to start getting ready.”
The need for MTD
“Our premise in HMRC is ‘right tax at the right time’, so all we’re looking for is for people to pay the right amount of tax that they owe at the appropriate time,” Lenny commented in the webinar, before explaining the scale of the tax gap that has spurred on the next phase of the programme.
The tax gap is the difference between what HMRC is being paid and what it estimates it should have been paid. For self-assessment, the hole for the 2022-23 tax year is £5.9 billion. Lenny speculates that “this isn’t down to largescale fraud, but rather down to hundreds of thousands of smalls errors that accumulate. MTD is not an anti-fraud tool but an anti-error tool.”
With some 80,000 firms and 1.75 million taxpayers coming into this next phase of MTD, the purpose of the webinar was for HMRC to explain more about the process, to make it easier for agents and clients to navigate the transition ahead.
What to expect
Lenny explained what MTD will mean for members and their clients after the implementation date in 2026. He said, “taxpayers have to keep records and submit information to HMRC using compatible software and that came in relatively painlessly for MTD for VAT. Making Tax Digital for Income Tax is far more complex. In comparison to MTD for VAT, which is pretty straightforward with nine boxes on the tax return, MTD for Income Tax has just under 200 for self-assessment.”
The session provided a behind-the-scenes glimpse into the new process. Lenny explained that HMRC has made a tool available for software providers to build into the software, and by using that tool, agents and clients will be able to get tailored messaging, nudges and prompts. HMRC can also revert on obvious errors or patterns based on previous tax returns to propose changes. Lenny added, “it will allow corrections to be made, which will make the filing a lot more accurate than it would have otherwise been. This wasn’t available for MTD for VAT, so this will hopefully help more taxpayers get it right, first time.”
Lenny was also able to confirm some industry rumours and put an end to myths. He confirmed that there will still be a final tax return within the MTD software at the end of the year, in addition to the new quarterly returns. There is not requirement to pay quarterly – the payment date will remain as it is now, January 31st. As Lenny said, “hand on heart, I can say having been on the programme for five years, we have never been asked to build in quarterly payment functionality. We’ve not built it; it’s not there.”
He was also able to guide practitioners on how the thresholds will work, so they can establish now which clients will be impacted. The threshold test is based on income from self-employment and property income – it doesn’t include other income, such as PAYE income, dividends or bank interest (these can still reported annually). £50,000 is the 2026 threshold, £30,000 will be the 2027 threshold, so the number taxpayers it will impact will increase. There is an ambition to bring partnerships in – but as Lenny put it “this is an aspiration. HMRC has its hands full at the moment.”
Service and communication boost
A huge gripe for so many accountants – and one on which the CPAA has campaigned about, is service improvements. Lenny said these are coming, thanks to £51 million given to HMRC by the Government in the spring to enhance service levels – but it is a work in progress. Recruiting and training advisers, increasing the number of staff on helplines, and bringing HMRC back to where it should be in terms of reasonable service levels are all measures that take time.
There was a useful hint for those wanting to skip the queue and avoid service helpline waits. If agents get involved in the testing programme, there is a separate dedicated MTD helpline. Lenny expects extremely fast helpline responses from this specific helpline, which only deals with clients and agents involved in the testing programme. Not only will they help with MTD, but they can help with any personal tax enquiry for the client in the testing programme.
Prompted by questions asked by members, there was a discussion around what HMRC would do to publicise the requirements for businesses relating to MTD for Income Tax. Lenny responded that HMRC would be looking at those submitting self-assessment returns this January, and anyone declaring over £50,000 and/or income from property, and HMRC will write to them in April 2025 to provide a heads-up to let them know that they would be included in MTD for Income Tax in 2026.
Find out more
Lenny was keen for questions from members and eager to understand both what practitioners do or don’t know, and what they would like HMRC do to communicate the changes ahead. There were a host of insightful questions from the webinar participants, including:
If there’s no requirement to make the submissions accurate, do you think there’s scope for fictitious returns?
How will the process include digitally excluded taxpayers – at what point will there be the ability to apply for an exemption?
How do I get clients into the system I’m going to use for MTD?
Are there any plans to change the process at the point of access for agents to communicate with HRMC about MTD?
Find out how Lenny responded to these queries on behalf of HMRC by listening to the webinar for yourself – it will be an hour well spent, packed with useful content. CPAA members still have the opportunity to catch up with this session through the Members Area.
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