Introduction
Making tax digital for income tax self-assessment (MTD for ITSA) all started as a sprint in 2015 when George Osborne announced the abolition of annual tax returns in favour of “a revolutionary simplification of tax collection. Starting next year.”
Next Steps
Putting this vision into practice has become a marathon with more reporting, not less. Originally HMRC planned to impose digital record keeping and tax reporting on sole traders and landlords with annual turnover or rent exceeding £10,000 from April 2023. Tax practitioners – and software providers – were gearing up for this sea change in recording and reporting for many of their smaller clients.
Then the start date was put back to 6th April 2024. This was quite a welcome deferral because many tax practitioners were not ready. More to the point, nor was HMRC.
It then dawned on the government that they had bitten off far more than they could chew, even with an April 2024 start date. So on 19 December 2022 we had another announcement by the Treasury. In essence it was this:
- The start date has been deferred again, this time to 6th April 2026.
- The threshold of qualifying income (broadly annual turnover from self-employment and/or gross rent) will be set at £50,000.
- This threshold will drop to £30,000 from April2027.
- General partnerships, which had been due to be mandated into MTD ITSA from April 2025, will now join from a later date – to be announced.
Matters of Concern
HMRC’s Administrative Burdens Advisory Board has expressed deep concern about the programme. Although remaining fully supportive in principle, they highlighted the following:
- The pilot programme has not been fully tested.
- The programme was running into other substantive changes i.e. basis period reform and tax year reporting.
- The procedure for error correction was not clear.
- The treatment of jointly let property and other issues has not been satisfactorily determined.
MTD for ITSA is a vastly more complex undertaking than MTD for VAT. Consider the case of a self-employed, VAT registered individual with some property income. The number of returns a year would be:
VAT quarterly (4), MTD business quarterly plus annual summary (5), MTD property quarterly plus annual summary (5) and the annual tax return (1) - a total of 15.
There will be more if the individual has to correct errors.
Reflection
There is no doubt that digitalisation will continue to transform tax administration, with HMRC aspiring to make the UK tax system one of the most digitally advanced in the world. Whether quarterly reporting under MTD is the way to achieve this remains an open question. It looks as though it is a step that we will be forced to accept for a short time while a superior – and simpler – system of tax administration is developed.
C&H Stedman are here to advise on issues arising from MTD ITSA and other matters.
