How the framing of the original consultation constrained what could emerge
This page examines the 2017 consultation on Making Tax Digital (MTD) and explains how the scope, framing, and assumptions of that consultation shaped the policy outcomes that followed.
The consultation process was extensive and conducted in good faith. The problem was not a lack of engagement or expertise, but that certain questions were never put on the table, and certain categories of taxpayer were never central to the discussion.
As a result, some of the unintended and “bonkers” outcomes seen today were not debated, refined, or rejected — because they were never fully surfaced.
Formal consultation on Making Tax Digital began in 2017, several years before MTD for Income Tax Self Assessment (MTD ITSA) was scheduled for implementation. At the time, HMRC’s stated objectives were clear and broadly supported:
modernise the tax system
reduce error
improve accuracy
encourage digital record-keeping
move towards more timely reporting
The consultation attracted detailed responses from:
professional bodies
accountants and agents
software providers
representative organisations
By any normal measure, it was a substantial and serious policy exercise.
The consultation material concentrated heavily on mechanics and implementation, including:
digital record-keeping requirements
the frequency and nature of updates
thresholds and mandation
sanctions and penalties
transitional arrangements
software availability and readiness
These were all legitimate and important issues. They were also issues that affected ongoing businesses, and mattered immediately to professional advisers and firms. However, this focus had consequences.
The consultation implicitly assumed that businesses entering MTD would:
remain economically active, and
continue to generate income at a meaningful level.
Income volatility was recognised, but long-term irrelevance was not. There was little exploration of scenarios where:
a previously significant business ceased, leaving only residual income, or
economic activity continued at a very small scale indefinitely.
Much attention was paid to businesses moving in and out of thresholds, and the administrative disruption that might cause. This concern shaped later design decisions, including multi-year entry and exit rules.
What was largely absent was consideration of marginality — situations where:
income exists, but
the tax at stake is very small, and
compliance costs may exceed any revenue benefit.
Consultations are shaped as much by the questions asked as by the answers received.
The 2017 consultation did not meaningfully ask:
how very small or residual income should be treated once a taxpayer is within MTD
whether there should be a de-minimis or relevance-based exit
how long-tail, low-revenue activities should be handled
whether increased compliance friction affects participation in small-scale economic activity
Without those questions being posed, there was little opportunity for respondents to challenge the underlying assumptions.
Where examples were used, they typically involved:
ongoing sole traders
stable or moderately fluctuating income
businesses that remained economically significant
These examples aligned naturally with the concerns of advisers and HMRC operational teams.
The consultation did not meaningfully explore scenarios such as:
a formerly large business followed by years of small residual income
multiple small activities, each generating modest amounts
long-term, low-level trading or property income
taxpayers who deliberately remain small and self-sufficient
Without such examples, it was difficult to see how design choices might play out at the margins.
Consider this entirely ordinary situation:
A taxpayer had a sole trade with turnover of £60,000 in 2024/25
That business later ceased
The taxpayer continues with a separate small activity earning around £2,000 per year
This type of scenario is unremarkable in practice. Many taxpayers experience periods of higher activity followed by long-term, small-scale or residual income. The consultation did not fully test how the system would behave when economic relevance had largely disappeared.
But, under the rules set out in legislation the taxpayer with an income of £2000 must remain within the scope of MTD ITSA for 3 years.
Two broad groups of taxpayers were present only at the edges of the consultation.
Many taxpayers have trading or property income measured in hundreds or a few thousand pounds, often generating little or no tax revenue. Because such income presents limited revenue risk; and sits close to long-standing allowances,it has historically attracted less policy attention, even though the number of people affected may be large.
The consultation did not treat these taxpayers as a central design consideration.
The consultation process naturally engaged with professional bodies, agents and representative organisations.
Taxpayers who are self-sufficient, digitally capable, and operating at a very small scale were largely absent from that dialogue. Their experience of increased compliance friction was therefore under-represented.
The responses received in 2017 were detailed, thoughtful, and professional. Respondents raised concerns about:
administrative burden
proportionality
software readiness
transition costs
quarterly reporting mechanics
What they did not generally do was challenge the treatment of very small or residual income — not because the issue was unimportant, but because it was not exposed by the consultation itself.
In that sense, the responses reflected the structure of the exercise.
With the benefit of hindsight, it is now easier to see that:
design choices made to address volatility can trap marginal activity
exit rules designed for stability do not respond well to irrelevance
allowances and MTD operate on different conceptual tracks
guidance lacks examples because those scenarios were never designed in
These outcomes were not hidden during consultation; they were simply not visible within the frame that was used.
Consultation is not only about listening. It is about what the system is asked to listen for.
The 2017 MTD consultation did not fail because stakeholders were inattentive or because HMRC acted in bad faith. It failed to surface certain problems because overlooked taxpayers were not central to the questions being asked.
That omission shaped everything that followed.
The next page examines how the ongoing dialogue between HMRC and the accounting profession further narrowed the focus of MTD ITSA — particularly around quarterly reporting — and why longer-term economic effects continued to receive little attention.