Many Making Tax Digital software packages cannot file returns

Many Making Tax Digital software packages cannot file returns

One in three software products listed for Making Tax Digital (MTD) for Income Tax cannot file the full tax return, affecting landlords required to comply with MTD rules from April 2026.

HMRC’s Making Tax Digital for Income Tax initiative now requires landlords with qualifying income over £50,000 to submit quarterly updates and an annual tax return digitally. However, a significant number of software products approved for MTD are not yet capable of completing the full tax return submission, raising concerns for landlords and letting agents about compliance and software choice.

According to software company LetAlliance, based on an analysis by LetCompliance, HMRC’s official list includes 128 software products designed to handle UK property income for individual landlords. Yet only 84 of these products can currently submit the full tax return that finalises the reporting year. The remaining products either have the tax return functionality “in development” or do not support it at all.

Details of software readiness for MTD tax returns

Making Tax Digital for Income Tax (MTD IT) started in April 2026 for landlords and sole traders with income over £50,000, with the threshold lowering to £30,000 from April 2027. Landlords must send four quarterly updates and then the annual tax return digitally through HMRC-compatible software. For the 2026-2027 tax year, the return deadline is January 31, 2028.

LetCompliance’s review of HMRC’s software finder shows that out of 165 MTD IT products listed, 128 are ready to handle UK property income. Among those 128, only 84 can currently file the tax return, 32 are still developing this feature, and 12 do not offer it. Additionally, just 11 products focus solely on UK property income without mixing in other income types like sole trader or foreign property income, and only 4 of these have tax return filing ready.

Furthermore, only 11 of the 84 products ready to file returns support all 16 other income types HMRC lists, such as dividends, bank interest, and pensions. This limited scope means landlords with multiple income streams must carefully check software capabilities before committing.

Context on Making Tax Digital and its impact on landlords

Making Tax Digital is a government initiative aimed at modernising tax administration by requiring digital record-keeping and submissions. For landlords, this means moving away from paper returns or manual online submissions to fully integrated software solutions that communicate directly with HMRC.

The phased rollout starting with landlords and sole traders with higher income thresholds reflects the government’s intent to gradually expand MTD coverage. However, the complexity of rental income, often involving multiple properties and income types, makes selecting appropriate software critical.

Many landlords, especially those with smaller portfolios or mixed income sources, face challenges in finding software that fully meets their reporting needs. The fact that a third of the products listed cannot yet file the full tax return adds to the risk of non-compliance or administrative delays.

Practical implications for landlords and agents

Landlords required to use MTD must ensure their chosen software can handle both quarterly updates and the final tax return submission. Failure to do so could result in missed deadlines and potential penalties. LetCompliance advises landlords to use HMRC’s official software finder and verify the “tax return ready now” status for the specific income types they need to report.

Given the ongoing development of many products, landlords should ask software providers for clear timelines on when full tax return functionality will be available. This is particularly important for those with diverse income streams beyond UK property income.

Letting agents managing accounts on behalf of landlords should also review software capabilities to avoid compliance risks and ensure smooth reporting. The administrative burden of MTD requires careful planning to integrate software solutions into existing accounting and property management workflows.

Remaining uncertainties and what to watch

The software market for MTD IT is still evolving, with many providers working to complete tax return filing features. There is uncertainty over how quickly these developments will be completed and how well products will handle complex landlord income scenarios.

Landlords should monitor updates from HMRC and software vendors, as well as any changes to MTD thresholds or requirements. The government’s enforcement approach, including penalties for non-compliance, may also evolve as the scheme matures.

It remains unclear how smaller landlords below the current income thresholds will be supported or encouraged to adopt MTD in the future. The impact on landlords with mixed income types or overseas properties also requires close attention.

What landlords should consider now

• Use HMRC’s official software finder to identify products compatible with MTD for Income Tax and check their tax return filing status carefully.
• Confirm with software providers when full tax return submission functionality will be available if it is currently “in development.”
• Review the types of income the software supports to ensure it matches your rental income and any additional income streams.
• Plan for the administrative impact of quarterly updates and the final tax return deadline in January 2028.
• Keep abreast of HMRC guidance and any changes to MTD requirements or thresholds.

Supporting landlords with Making Tax Digital compliance

The Landlord Association (TLA) membership offers practical compliance resources and information to help landlords manage their Making Tax Digital obligations. Through TLA’s developing ORBIT platform, currently available in BETA testing, members can organise property records, monitor regulatory updates, and keep evidence of compliance activities together in one place.

ORBIT is designed to assist landlords and letting agents with property management and compliance documentation, including recording repairs, inspections, and communications relevant to MTD reporting. While still in testing, ORBIT aims to simplify the administrative workload associated with new digital tax requirements.

Exploring TLA membership and accessing member compliance support can provide landlords with timely guidance on software choices and MTD procedures, helping to reduce the risk of errors or missed deadlines.

Landlords with smaller portfolios or those new to MTD may find these resources especially valuable as they adapt to the new digital tax landscape.

Looking ahead, landlords should remain vigilant about software developments and regulatory changes to ensure ongoing compliance and smooth tax reporting under Making Tax Digital.

Sources: Landlord Today