Victoria Atkins, Financial Secretary to the Treasury, has announced that Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) will be deferred for two years, to April 2026. Businesses, the self-employed and landlords with an income of more than £50,000 will be mandated to join first, with those with income of more than £30,000 mandated to join from April 2027.
Caroline Miskin, ICAEW Senior Technical Manager, Digital Taxation, said:
“This further two-year deferral is the right move but we believe that fundamental changes to the policy and design of Making Tax Digital are needed.
“Digitalising accounts and tax compliance can provide businesses and practices with significant efficiency and productivity benefits, but HMRC should now undertake a critical review to question whether policy decisions made seven years ago are still appropriate. For example, quarterly reporting should be reconsidered.
“This delay means we have the time and the space to rethink some of the more problematic aspects of MTD to ensure that the UK has a world class digital tax system. We look forward to working with HMRC and adopting an open-minded approach to solving the problems.”It had become clear over the past several months that a deferral was inevitable, ICAEW said, given the very small numbers of taxpayers in the restricted pilot and a long list of problems with digitalising trading and property income.
The most recent one-year deferral provided the opportunity to identify problems with MTD. It is hoped that a further two years will either afford the time to address these issues or to agree a change in direction, ICAEW added.
Problems with MTD ITSA include:
- A lack of awareness of the MTD ITSA requirements among taxpayers – particularly those with a single source of property income.
- The lack of functionality to allow taxpayers to appoint more than one agent, such as a bookkeeper, to handle quarterly updates and an agent that completes the year end processes.
- The lack of adequate solutions for the complexity associated with jointly-held property.
- The lack of a design solution for non-tax year accounting periods.
- The design around amendments and corrections and how they are made. A practical design for fitting together the various reporting elements is required. This includes quarterly updates, business source adjustable summary (BSAS)/end of period statement (EOPS), and final declarations. A design where quarterly submissions are of cumulative year-to-date figures could help to resolve this.
- Taxpayers being resistant to using commercial software. This is partly due to its cost, but also because many taxpayers use their mobile phone for their simple record keeping. ICAEW said it was currently unaware of any product being designed to address this. It is not yet clear whether the software market will deliver free (as opposed to freemium) products.
- The capacity of HMRC, software developers, agents and taxpayers to deliver the change. ICAEW added it was particularly concerned about the customer support that HMRC and the software industry will be able to deliver and the impact on its member firms.
In the light of these fundamental issues, ICAEW said it urged HMRC and government to reconsider some of the key policy and design decisions and return the focus to businesses keeping good quality digital accounting records. Otherwise, there is a risk that this further deferral will not be the last and it will be difficult to persuade taxpayers to prepare.
The shifting MTD ITSA timeline
Under the original proposals the start date for MTD ITSA was April 2018.
- In July 2017 the start date was deferred to “not before 2020”
- In March 2019 the start date was deferred to “not before 2021”
- In July 2020 the start date was deferred to April 2023
- In September 2021 the start date was deferred to April 2024
- In December 2022 that start date was deferred to April 2026
Notes to editors:
CONTACT: ICAEW media office email@example.com or 07970 402 073