Draft legislation: Making Tax Digital for Income Tax and penalty reform

The ATT has submitted comments on the draft legislation regarding Making Tax Digital for Income Tax (MTD) and penalty reform, which was published on 21 July 2025. The documents published consist of draft legislation on MTD and penalty reform, and updated draft Income Tax (Digital Obligations) Regulations.

In the ATT's response, we highlighted concerns that proposed revisions to existing legislation appear to theoretically bring all non-resident sole traders and landlords within the scope of MTD, even where their sole trade or property letting activities do not give rise to any UK tax liability.  Whilst many would be protected by the MTD income thresholds,  this would nevertheless present an unnecessary and unfair administrative burden in some cases. 

The draft regulations appear to complicate the position in respect of MTD obligations for individuals without a National Insurance number (NINO). Under existing regulations, individuals who do not have a NINO at 31 January before their expected MTD start date would be automatically exempt. The draft regulations are unclear both in respect of when the absence of NINO is assessed, and whether any resulting exemption from MTD applies automatically, or needs to be applied for. 

We have also expressed disappointment that the 28 day time limit imposed on HMRC by existing regulations for them to accept or reject an application for MTD exemption on grounds of digital exclusion has been removed from the draft regulations. This could give rise to uncertainty for taxpayers, creating a potentially open-ended period for them to await a response to such an exemption application. 

Further details on these points and more are available in our full submission to the draft legislation.