When the government announced in December 2022 that the legal requirement for Making Tax Digital (MTD) for Income Tax would be postponed, it was seen by many as a welcome Christmas present. It’s widely accepted that neither HMRC nor the taxpayers affected (nor their agents) would have been ready for the original April 2024 timescale for self-employed taxpayers and landlords with gross income above £10,000. Indeed, the 2022 ICAS practice survey found that 70% of practices did not feel fully prepared for April 2024 and only 53% had MTD ITSA software ready. So, the postponement was a welcome move.

Since then, the MTD regulations have been updated and it’s now clear that HMRC is focused on ensuring that MTD for Income Tax goes ahead for the revised timescale (April 2026 for self-employed taxpayers and landlords with gross income above £50,000, or April 2027 for those with gross income above £30,000). A small business review was carried out for smaller self-employed taxpayers and landlords in 2023, but in last month’s Budget, the government announced MTD for Income Tax will be extended to sole traders and landlords with gross income over £20,000 by the end of this Parliament, with the exact timing to be announced at a later date.

Preparing for MTD mandation

We recently hosted Craig Ogilvie, HMRC’s MTD Director, and Lenny Barry, from its MTD programme support team, at our Making Tax Digital for Income Tax: Get your practice ready webinar to explore the issues to consider when preparing your practice for April 2026.

It’s important to understand your client base and how MTD for Income Tax will affect both you and their business. Having conversations about respective responsibilities at an early stage will help them plan ahead. For some, this will require a change in mindset – especially for those clients who may be used to calling into their accountant’s office with a bag of receipts ahead of the 31 January tax return deadline. Some clients may seek to rely on their accountant to support them with their quarterly updates, and this will undoubtedly need to have an impact on their fees.

As part of our dialogue with HMRC on MTD, ICAS has worked closely on problem issues, such as the importance of being able to authorise multiple agents – this means that it should be possible to have both main and secondary agents to avoid issues with authorisation being revoked. Being clear about who is responsible for what will be important.

Having compatible software will also be essential – HMRC updates its list on a regular basis. For some taxpayers, bridging software may be an appropriate option. At our recent webinar, HMRC also confirmed it is having dialogue with developers regarding the provision of free software which may be suitable for smaller self-employed taxpayers and landlords.

Volunteering for the HMRC trial

In April, HMRC launched the private beta phase of the MTD for Income Tax trial. This new phase enables a larger (but still restricted) pool of self-employed taxpayers and landlords to test HMRC’s systems, as well as their own readiness. The testing will expand to a wider range of taxpayers in the public beta phase from April 2025.

While we recognise our members are dealing with the challenges of basis period reform and its impact on their clients, we encourage you to register some of your clients for the private beta. Doing so will allow your practice to properly prepare and test the compatibility of your own systems (and those of your clients) ahead of implementation. If every tax agent volunteered to put a handful of clients into the trial, this would give HMRC a broad spectrum of self-employed taxpayers and landlords to ensure thorough testing during the period where a more lenient penalty system is in place.

Taking part in the private beta will also give you access to HMRC’s dedicated MTD support team, which will be able to provide the taxpayers involved in the trial with full self-assessment support, as well as guidance on MTD matters. This support will, however, only be available to taxpayers who register in the 2024/25 tax year.

Who can volunteer in the 2024/25 tax year?

HMRC has confirmed the pilot will only be open to taxpayers who are UK resident, have a national insurance number and have submitted at least one tax return under self-assessment. It will also be necessary for the taxpayer’s personal details to be up to date and for them to have no outstanding tax liabilities.

Those who have a high-income child benefit charge will not be able to take part. Nor will those who hold a payment plan with HMRC; are a partner in a partnership; claim married couple’s allowance or blind person’s allowance; are bankrupt or insolvent; are an MP, minister of religion or Lloyds underwriter; have income from being a foster carer or gain income from being in a shared lives scheme; have income from a trust; have income from a jointly owned property; have income from a furnished holiday let; are subject to a compliance enquiry; use farmers’ averaging relief or averaging for creators of literary or artistic works; or are signing up on behalf of someone else (unless an agent).

Private beta will also be unavailable for those who wish to carry back losses or change their accounting period or method.

Previously, the pilot was only open to taxpayers with 5 April accounting year ends. However, it is now possible for taxpayers with a 31 March accounting year end to take part, if the chosen software package can support this. Taxpayers with other accounting year ends are unable to take part.

Watch the Making Tax Digital for Income Tax webinar

Susan Cattell, Head of Tax Technical Policy, outlines recent changes from HMRC

HMRC has made various changes to the Agent Dedicated Line (ADL) in the past year. We have fed back members’ comments on the changes, including the split approach to dealing with PAYE and self-assessment (SA) queries.

Changes to the ADL

Having listened to agent representative bodies, HMRC announced the following changes, which took effect from 7 October 2024:

• One, combined helpline for agents’ queries relating to SA and/or PAYE.
• To ensure a fair service, an agent can discuss a maximum of five customers on a call or webchat.
• A webchat service solely for agents, covering both SA and PAYE (not repayment claims) – a link to webchat will be available on gov.uk.
• Agents calling the ADL will be presented with a new telephony option for progress-chasing SA repayments (the route for PAYE repayments will continue as is).

This is a positive set of changes from HMRC. They have listened to professional bodies’ feedback and recognised that although they encourage agents to use digital services wherever possible, sometimes there isn’t a digital option, and agents will need to contact them. Read the article on icas.com for full details of the changes.

New process for claiming employment expenses

Employees can claim income tax relief for allowable expenses, where their employer does not reimburse them. The relief can be claimed through PAYE if the amount is up to £2,500. However, HMRC has found that increasing numbers of ineligible claims are being submitted, so it has changed the process for making claims.

From 14 October, anyone who wants to claim PAYE employment expenses must use a P87 form and provide supporting evidence to prove their eligibility before HMRC processes their claim.

Despite HMRC’s attempts to expand usage of its digital channels, from 14 October it will no longer be possible to submit a PAYE employment expense claim using the digital form (or make a new claim over the phone). Taxpayers will still be able to use gov.uk to check their eligibility to claim employment expenses, and to find the P87 form.

The printed P87 form and supporting evidence will have to be submitted by post. HMRC recognises that while agents regularly submit paper claims, it may be more convenient for individuals to submit online, so it is working to reinstate the digital process as soon as possible. According to HMRC’s briefing paper about the changes, it should be possible to claim online for “uniform, work clothing and tool” expenses (flat rate expenses), from 31 October 2024. For all other expenses, HMRC expects a digital claim route to be available by April 2025.

Taxpayers will have to tell HMRC which employment they incurred the expense for – as well as whether their employer reimbursed any of the cost (if they did, evidence of how much was reimbursed will need to be provided). HMRC has given examples, in the briefing paper, of some of the types of evidence it will expect to see for different expenses.

 

Read the article on icas.com for more information

Update on basis period reform

Chris Campbell CA, Head of Tax (Tax Practice and Owner Managed Business Taxes), recaps the new rules for unincorporated businesses and the actions you may need to take ahead of 31 January 2025. For more information, read the recent Basis period reform – time to act article.