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Review the roll-out of MTD, says ICAEW

Author: ICAEW Insights

Published: 01 Oct 2026

In its budget submission, ICAEW has urged the government to conduct a full review of the first reporting cycle under Making Tax Digital (MTD) for income tax before proceeding with the planned roll-out to more taxpayers from April 2027.

Key takeaways 

  • Budget submission: ICAEW has called on the government to assess and strengthen the foundations of MTD income tax in its submission to the government ahead of the Autumn Budget 2026, due to be delivered on 28 October 2026.  
  • Concerns: Data suggests that awareness of MTD income tax is low, and ICAEW members have reported issues with the technology and errors in taxpayers’ records.  
  • Recommendations: A full review is needed before MTD income tax is rolled out to more taxpayers and, should MTD income tax be rolled out further, the late filing penalty soft landing should be extended.  

MTD income tax is in the process of being phased in. ICAEW members are playing a key role in the rollout of MTD for income tax and therefore have a unique insight into how systems and software are performing and how taxpayers are adapting.

The first cohort of taxpayers came within scope from April 2026 (ie, for 2026/27), with the second cohort to join from April 2027 (2027/28) and the third cohort from April 2028 (2028/29). The cohorts are determined by reference to the person’s combined gross income from any sole trade and property businesses they carry on, as follows:

Total gross income Estimated number of taxpayers*
First cohort £50,000 for 2024/25 864,000
Second cohort £30,000 for 2025/26 1,077,000
Third cohort £20,000 for 2026/27 975,000

*source: Making Tax Digital for Income Tax business population statistics - GOV.UK

Based on initial experiences with the first cohort, ICAEW is concerned that: 

  • Awareness of MTD income tax is low. As reported in an earlier article, only 436,000 taxpayers, approximately 50% of the total, met the first deadline for submitting quarterly updates for 2026/27 on 7 August 2026. 
  • The technology is proving to be challenging. Many taxpayers have struggled to adapt to more frequent reporting, and the additional administrative burden has led to higher costs, even for those with relatively straightforward tax affairs.
  • Errors are being made in taxpayers’ records. Although the policy objective is for MTD income tax “to make it easier for everyone to get tax right”, ICAEW members have reported seeing bookkeeping errors as taxpayers are required to computerise their records or change accounting systems.  

Further, these problems could be exacerbated when the second cohort comes within scope of MTD income tax as: 

  • fewer taxpayers in the second cohort are supported by agents (63%, compared with 75% for the first cohort) and less than half currently use tax software;
  • the ‘soft landing’ for quarterly update late filing penalties is for 2026/27 only, so will not apply for the second and third cohorts; and
  • time is limited for HMRC to learn from the experiences of the first cohort before the second cohort joins MTD income tax. For example, the year-end process has yet to be fully tested and the reporting cycle for the first cohort will end after the reporting cycle for the second cohort begins.  

Therefore, in its budget submission (ICAEW Representation 75/26), ICAEW has called on the government to take action in the Autumn Budget 2026 to assess and strengthen the foundations of MTD income tax before it is rolled out further. 

ICAEW’s recommendations 

ICAEW recommends that the government considers: 

  • providing a soft landing for late filing penalties for each cohort; 
  • carrying out a post-implementation review of the first cohort’s experience in adopting MTD income tax to assess whether the policy objectives are being met and whether the impact of costs and increased reporting burdens on taxpayers are proportionate; and 
  • delaying the rollout of the £30,000 cohort pending the conclusion of that review. 

Further information 

ICAEW on the budget

Access all of ICAEW's reaction and expert analysis of the Autumn budget announcements, including articles, podcasts and a webinar from the Tax Faculty.
Read our analysis Join the webinar
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ICAEW's Tax Faculty is recognised internationally as a leading authority and source of expertise on taxation. The faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.

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