Hundreds of thousands of income taxpayers have failed to sign up to MTD, so HMRC says it will do it for them. What could possibly go wrong?
Taxpayers with self-employment or property income in excess of £50,000 in the year to 5 April 2025 need to be signed up to Making Tax Digital for Income Tax Self-assessment (MTD) with effect from 6 April 2026. They need to make quarterly returns of income and expenses (on 7 August 2026, 7 November 2026, 7 February 2027 and 7 May 2027) and a tax return (by 31 January 2028), all on the MTD system.
The latest information we have suggests that 584,000 people have signed up so far, out of an estimated 864,000. So only 280,000 to go then.
HMRC has now decided that it will sign up the missing taxpayers itself, instead of waiting for them to get round to it. This will be based on information currently in HMRC’s hands – essentially the 2024-25 tax return but also the 2025-26 return if already submitted, which is important. Those with income over the £50,000 limit in 2024-25 but whose business has ceased altogether before 6 April 2026 do not need to sign up. They will of course account for a proportion of the 280,000 who have not yet signed up but HMRC will not know that they are not liable to join unless they have already submitted the 2025-26 tax return.
A number, then, will be signed up unnecessarily and will have to contact HMRC to extricate themselves from the system. We say good luck to them, especially if they don’t know they have been signed up.
HMRC says it will contact all those whom it has signed up – some by letter, some by placing a notification online. Both methods have their drawbacks:
- the hard-copy letter would appear to be the more effective means of communication but there will always be a cohort of taxpayers who know that they do not need to be in MTD and so assume that the letter is a mistake and the problem will go away of its own accord (there will also be a tranche of taxpayers who can’t face trying to contact HMRC in an effort to sort this out, or who have no luck in trying to contact HMRC); whereas
- the online method is great from HMRC’s point of view (cheap and on the record) but useless to those who don’t know they have been contacted, because they didn’t realise they had “opted” for online-only communication (by failing to untick a box on a form somewhere) and whose email notification from HMRC goes into their spam folder.
Then there are the relatively large number of taxpayers who:
- do not know about MTD (or are trying to ignore it);
- will receive an online communication telling them that they have been signed up; and
- either miss the notification, lose it in their spam, or choose to ignore it.
HMRC has issued useful guidance for those who wish to join MTD, or who reluctantly join in after being signed up. So far, however, we have seen nothing about what will happen to those who fail to engage with the project. Doubtless a penalty notice will appear at some time in the future but that won’t be much use to the people who don’t know HMRC is communicating with them exclusively online. If the numbers are large enough (and 280,000 is a big number to start from), this could turn into a very sticky problem years down the line.
Finally, and not to worry anyone unduly, those with income over £30,000 in 2025-26 will have to join MTD from 6 April 2027. The further down the income scale we go, the less likelihood that the taxpayer is professionally represented, and the greater the likelihood of ignorance of the system and/or reluctance to get involved in what may seem a costly exercise.
