More challenges with MTD ITSA

15 May 2024 - Ryan Pearcy

As HMRC gear up for the initial testing phase of Making Tax Digital for Income Tax Self Assessment (MTD ITSA), due to start on 22 April 2024, they appear to be adding hurdles that disincentivise people from getting involved. This probably doesn’t bode well for an effective testing period.

Ryan Pearcy, Associate Partner and head of the SB Digital Team, looks into this further.

A plethora of vendors

Unlike Making Tax Digital for VAT (MTD for VAT), which saw a large number of IT vendors sign up for testing, there are only 5 products that will be available to use for testing from that date (  This includes two pure bridging solutions, SE reports and self assessment direct, a simple record-keeping solution, 123 Sheets Ltd, and two full accounting tools, Sage and QuickBooks Online. Major players such as Xero and Freeagent are not present, with Xero stating they have not taken part as they expect delaying until 2025 will mean that the HMRC experience “will be closer to the real experience offered to users in 2026”. From this we can speculate that the MTD for VAT experience has disincentivised software vendors to engage early. This limits choice for tax papers and will surely reduce the number of individuals involved in testing.

New penalty regime

HMRC have also decided to create a new penalty regime for those involved in the testing. It appears that anyone taking part must confirm they will adopt this new regime, but cannot sign up to testing without having done so, making it mandatory.

The new regime will be points based with a penalty point awarded each time an annual filing is submitted late. 2 points will deliver a £200 penalty and a further £200 will be suffered if another annual return is late. Points are only removed if no filings are late over a 24 month period. There will also be no points assigned for late filing of quarterly returns. A penalty charge will be issued for late payment at 2% of the tax outstanding after 15 days, with a further 2% after 30 days.

Overall the scheme is less harsh than the current one as it allows for one late filing before a penalty is issued, but will adding more complexity at this stage encourage anyone to take part. I guess we shall have to see.

To get in touch with our SB Digital Team to see how we can help you on MTD, please call 0330 058 6559 or emailing

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