Commentary: Making tax digital: simpler tax or more red tape?

“This week marks the first quarterly deadline under Making Tax Digital for Income Tax for sole traders and landlords earning more than £50,000 a year.

"Instead of simply filing an annual tax return, those affected must now submit four quarterly updates detailing their income and expenditure, with software pulling this information together for their annual return. The tax itself will still be paid at the usual time.

"The proposed benefits are fewer errors, less paperwork and helping users keep track of their tax liabilities. However, requiring five submissions across the year rather than one could arguably create more work, particularly for people with income from both property and other businesses.

"Traders must also decide whether to employ an accountant to deal with the additional administration or manage it themselves using accounting software. HMRC currently lists 122 compatible products, but finding the right one and learning to use it properly takes time and effort.

"This is not simply a Labour policy. Making Tax Digital dates back to 2015, when then-Chancellor George Osborne and HMRC first set out plans to simplify tax reporting. After several delays, it is now reaching people filing Income Tax Self Assessment returns.

"Its impact will grow considerably. The threshold falls to £30,000 in April 2027 and £20,000 in April 2028, bringing around two million more people into the scheme. That could include student entrepreneurs and people running relatively modest side businesses.

"The real question is whether the Government can ensure digital tax reporting remains accessible and affordable as it reaches people with smaller businesses and fewer resources. With HMRC also consulting on more timely income tax payments, critics will be watching closely"