What is the Making Tax Digital for Income Tax private beta testing phase?

Digitalisation of tax is a huge focus for the UK government.

Making Tax Digital (MTD) for VAT is already running and demonstrating the benefits of digital working for many businesses.

The next milestone is the rollout of Making Tax Digital for Income Tax, for self-employed individuals and landlords, from April 2026.

In this article, we highlight all the updates you need to know about as well as who can get involved in the private beta testing phase.

Here’s what we cover:

What is Making Tax Digital for Income Tax?

Making Tax Digital (MTD) for Income Tax is a new initiative designed to replace Self Assessment returns for sole traders and landlords.

It will require the taxpayer or their agent to:

• Use functional compatible software for reporting income tax with MTD
• Keep digital records of business transactions
• Send quarterly updates to HMRC that summarise those business transactions. Separate quarterly updates will be required for UK property, foreign property, and each of your self-employments
• Provide details of any tax and accounting adjustments and reliefs to finalise your taxable income from property and self-employment
• Provide details of other income sources and other information such as tax allowances and reliefs you wish to utilise that would have previously been included on your Self Assessment tax return
• Confirm the information you have provided is complete by making a final declaration by 31 January the following year.

Where are we now with MTD for Income Tax?

HMRC is taking a phased approach:

• Self-employed businesses and landlords with an income more than £50,000 will be required to comply with MTD for Income Tax from 6 April 2026
• Those with an income that’s more than £30,000 must comply from 6 April 2027
• And those with an income that’s more than £20,000 must comply from 6 April 2028.

The inclusion of general partnerships has been postponed with a commitment to introduce MTD at a later date.

The aim is to provide more time for businesses, particularly those with the smallest incomes, to adapt to the new ways of working while also allowing HMRC more time to thoroughly test the process for all users.

Victoria Atkins, former financial secretary to the treasury, now shadow secretary of state for environment, food and rural affairs, commented:

“It is right to take the time to work together to maximise the benefits of Making Tax Digital for small businesses by implementing the change gradually. It is important to ensure this works for everyone: taxpayers, tax agents, software developers, as well as HMRC.”

What else has changed with MTD for Income Tax?

The 2024 Autumn Budget and new Labour Government have upheld the current thresholds and start date.

Here are the other changes announced at the update:

• The period covered by each quarterly update within a tax year will move from standalone to cumulative. If you realise there’s an error in your digital records, you need to correct this on the next quarterly update.
• End of Period Statements (EOPS) for each source of income will no longer be required. EOPS was an additional submission between the quarterly updates and the finalisation of the return, in order to confirm the completeness of the self-employment and rental income. HMRC has removed it to help simplify the process.
• There will be relief for landlords of jointly owned property. They can opt to keep less detailed digital records and opt out of submitting expenses within quarterly updates.
• HMRC will develop a solution to allow multiple agents to engage in the process for a single taxpayer. Essentially, the move to quarterly reporting AND end of year reporting for multiple income streams could result in taxpayers wanting to use more than one authorised agent—something HMRC’s backend systems currently can’t support. But it has committed to implementing a solution ahead of mandating that will support this.
• Specific exemptions will be introduced for foster carers and individuals without a National Insurance number.
• The Furnished Holiday Lettings Tax Regime will be abolished from 6 April 2025. This will help to again simplify reporting and bring holiday rental landlords into the scope of MTD.

Together, these changes address many of the unknowns and concerns around the MTD for Income Tax design and policy that lead to the delay.

HMRC now believes it’s in a much better position to move the programme forward to a testing phase.

What is the private beta testing phase and how does it work?

HMRC had previously paused its pilot testing of the programme prior to the MTD for Income Tax delay announcement in December 2022 but relaunched private beta testing in April 2024 for the 2024/25 tax year.

It’s still encouraging agents and individual taxpayers to sign up voluntarily.

Craig Ogilvie, director of Making Tax Digital, told attendees at the Festival of Accounting and Bookkeeping that HMRC is focusing on “quality not quantity” for tax year 2024/25.

It’s also worth noting that while HMRC has addressed many of the key issues around the policy and design of the programme, the functionality will be implemented iteratively.

This means that while all the required functionality to support all taxpayers will be in place for April 2026, it’s  still being rolled out for beta testing.

Therefore, not all taxpayers are eligible to sign up for the 2024/25 private beta testing.

To be eligible for private beta, you (or your client) must:

• Have a tax year that runs from 6 April to 5 April (or 1 April to 31 March if your software can support this)
• Ensure personal details are up to date with HMRC
• Be a UK resident
• Have a National Insurance number
• Have submitted at least one Self Assessment tax return
• Be up to date with tax records and payments.

You can’t sign up voluntarily if you:

• Have a High Income Child Benefit Charge (HICBC)
• Have a payment plan with HMRC
• Are a partner in a partnership
• Claim Married Couple’s Allowance
• Claim Blind Person’s Allowance
• Are bankrupt or insolvent
• Are a Lloyds underwriter, a minister of religion or an MP
• Receive income as a foster carer or are in a shared lives scheme
• Receive income from a trust
• Receive income from a jointly owned property
• Receive income from a furnished holiday let
• Are subject to a compliance enquiry
• Use “averaging” arrangements because your profits vary between years (for example you are an artist, farmer, or writer).

Private beta considerations

There are a few important things to consider for anyone thinking about voluntarily taking part in the 2024/25 private beta testing:

• You won’t be able to claim carry back losses, change accounting period, or change accounting method during the period of testing.
• You can join part way through the tax year but will have to retrospectively submit quarterly updates from the beginning of the year. So, if you’re not quite ready to join now you can still sign up later in the year.
• If you change your mind and no longer want to take part in the beta testing, you can leave and return to the usual Self Assessment process (but you’ll still need to join MTD from April 2026 if you are mandated).
• HMRC has confirmed that those taxpayers participating in the beta will be subject to the new MTD for Income Tax penalty regime, which is a points-based system similar to the regime for MTD for VAT with penalties for both late filing and late payment.
• However, HMRC has confirmed you won’t incur any filing penalties for late submission of quarterly updates during the testing period, but this exemption doesn’t apply to the final declaration due by 31 January. This means you can still accumulate points under the new penalty system for submitting your final declaration late.
• You’ll still be subject to late-payment penalties while taking part in the beta, and these will be calculated using the new MTD method. This method calculates late-payment penalties as a percentage of outstanding tax and will apply if your payment is more than 15 days overdue (the current regime begins after 30 days). So, depending on the amount you owe, this could result in significantly higher penalties.
• You’ll have the benefit of extra support from HMRC, who in a letter to agents said, “By joining the testing programme, you will have access to the dedicated MTD Customer Support Team to help you successfully transition to MTD for Income Tax and handle any issues. For those who join testing in 2024 to 2025, the team can also support the individual, or their agent, with some of the individual’s wider personal tax affairs (individual PAYE and Self Assessment matters) for the 2024 to 2025 financial year.”

The other key element to a successful beta is the availability of third-party software. Without this, you can’t make submissions.

The providers and their products that are currently participating and have been through the recognition process are listed on the HMRC software choices pages.

What happens after the private beta phase?

If the current criteria rules you or your clients out from taking part in the private beta, make sure to check back later in the year as many restrictions will be dropped to expand testing further from April 2025.

Testing will ramp up after 6 April 2025 to a larger scale public pilot testing programme. This is in advance of mandated participation from April 2026 for sole traders and landlords with income above £50,000.

HMRC hopes to encourage voluntary early adoption of MTD. It will continue to collaborate with users and address challenges throughout public pilot testing.

What accountants need to do now

First, you need to discuss these changes with every client who will be impacted by MTD for Income Tax.

If you think a client would make a good candidate for the 2024/25 private beta testing, make sure to step them through the process and explain the implications of joining the voluntary programme.

Once you’ve talked them through it, get their consent. You need this before you move forward with the registration process below.

All agents need an Agent Services Account (ASA) to be able to access MTD services and make submissions on behalf of their clients. Think of this as similar to the Government Gateway login.

You only need one ASA for your practice. Once you have one, you can set up your staff with administrator or assistant logins to use the account.

Your practice may already have signed up for an ASA when you registered to submit MTD for VAT returns or Trust Registration Service returns.

The next step is to ensure you have compatible accounting software to be able to submit quarterly updates on behalf of your clients.

Once you have MTD compatible software, you can sign up eligible clients for MTD for Income Tax.

Here’s the information you’ll need for the sign-up process:

• Client’s full name
• Date of birth
• National Insurance number
• Business start date or the date your client started receiving income
• Accounting method (cash or accrual basis)
• The tax year your client would like to start using MTD for Income Tax.

Once completed, you need to provide the client’s authorisation.

You can do this either by signing in to the Agent Services Account and following the steps, or you can copy over the client’s existing authorisation for Self Assessment from your HMRC online services for agents account to the ASA.

What businesses need to do now

The service is currently voluntary. HMRC is focusing on using private beta testing with agents.

If you’re a sole trader or landlord, you can also register directly for the service if you meet the eligibility criteria mentioned above.

Otherwise, continue sending annual Self Assessment returns as normal until MTD for Income Tax becomes mandatory for you based on your qualifying income.

If you have an accountant acting as your agent, they can sign up to MTD for Income Tax on your behalf.

HMRC will write to you and confirm you must start using MTD for Income Tax from 6 April 2026 if you meet all the following criteria:

• You are an individual
• You are registered for Self Assessment
• You were a sole trader or landlord before 6 April 2025
• You have qualifying income of more than £50,000 in the 2024/25 tax year.

If you’re responsible for your own bookkeeping, you’ll also need to make sure you move to software that works with Making Tax Digital.

To find out your software options, check HMRC’s list of MTD compatible software.

If you’re looking to sign up voluntarily, you should speak to your software provider before signing up to the private beta.

Final thoughts

The government will continue to work with all stakeholders involved to get the design of MTD for Income Tax right.

HMRC believes a thorough testing programme will iron out any issues and provide HMRC with clarity on the final design.

Whether you’re an agent or a taxpayer, you can contribute to the ongoing testing by signing up voluntarily and help to ensure when the final services are rolled out, they address the needs of all users.

If you’re not eligible to sign up for the services just yet, you can still prepare for the upcoming MTD changes by moving to HMRC recognised accounting software that works with Making Tax Digital.

Editor’s note: This article was first published in June 2024 and has been updated for relevance.

The post What is the Making Tax Digital for Income Tax private beta testing phase? appeared first on Sage Advice United Kingdom.