Making Tax Digital

Lord Pitkeathley of Camden Town Excerpts

Wednesday 17th September 2025 Lords Chamber

Asked by

[Lord Pitkeathley of Camden Town]

To ask His Majesty’s Government what plans they have to use the rollout of Making Tax Digital as a strategic entry point to encourage wider adoption of digital tools among small businesses.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, from April 2026, Making Tax Digital for income tax will be phased in for unincorporated businesses, self-employed individuals and landlords, starting with those with income over £50,000. This will place small businesses on a more digital footing and should act as a catalyst for greater adoption of new digital technologies, unlocking the significant productivity benefits associated with digitalisation.

[Lord Pitkeathley of Camden Town (Lab)]

I thank my noble friend the Minister for the helpful Answer. Given that Making Tax Digital has significantly increased the cost of compliance for small businesses through mandatory software and subscriptions, what steps are the Government taking to mitigate those burdens? Might this rollout be the right moment to consider an accounting software switch service modelled on the banking version, and to require that such software includes prompts to highlight underused tax reliefs as a core feature, rather than an added cost?

[Lord Livermore (Lab)]

I am grateful to my noble friend for his question. HMRC has taken a range of steps to ensure that the adoption costs of Making Tax Digital are kept to a minimum, including working with industry to ensure that there is free and low-cost software available where necessary. The use of Making Tax Digital should bring significant benefits by increasing accuracy, reducing the time it takes to complete tax returns, and therefore increasing productivity. The rollout of Making Tax Digital encourages taxpayers to adopt digital solutions. For example, of those businesses already using Making Tax Digital for VAT, one-third have used the software for other business processes. More broadly, the Government are actively promoting digital technology adoption for small businesses, which is key to unlocking productivity and growth, and helping firms reduce administrative burdens. In our small business plan, we accepted all 10 recommendations from the industry-led Digital Adoption Taskforce.