Host

• Stephen Relf, Technical Manager, Tax, ICAEW

Guests

• Lindsey Wicks, Senior Technical Manager, Tax Policy, ICAEW
• Rebecca Benneyworth, sole practitioner, tax lecturer, ICAEW Tax Faculty member

Producer

• Ed Adams

Transcript

Stephen Relf:  Hello and welcome to the Tax Track, the podcast series from ICAEW exploring the latest developments in the world of tax. Making Tax Digital for income tax has been ten years in the making and is now just over five months away for many sole traders and landlords. In this episode, we'll consider the challenges ahead. Explore some recent developments and catch up with the progress made in testing MTD Income tax.

[Teaser audio] Lindsey Wicks: There's two key requirements. The first one is to maintain digital accounting records, and then the second is about how and when you send information to HMRC.

SR: And more information is now available on the exemption for the digitally excluded. We'll look at what this does and does not cover, and we'll consider how to support taxpayers who are reluctant to use technology.

[Teaser audio] Rebecca Benneyworth: My nickname for these people is digital refusers. They're terribly nice people, but they just don't want to use software.

SR: I'm Stephen Relf, a technical manager for tax at ICAEW. Today, I'm joined by two guests with special insight when it comes to making tax digital. First, Lindsey Wicks, senior technical manager for tax policy at the institute and second, a tax household name Rebecca Benneyworth, sole practitioner, tax lecturer and board member of ICAEW’s tax faculty. Welcome. Lindsey and Rebecca.

LW: Hi, Stephen.

RB: Hello, Stephen.

Who needs to comply? – 01’33”

SR: MTD for income tax will represent a significant challenge for many taxpayers. It is estimated that up to 3 million individuals will be within MTD income tax by April 2028, including 864,000 people who will have to comply from as early as April 2026. Lindsey, could you start us off by explaining who those people are?

LW: MTD income tax applies to those who receive gross income from sole trades and or their property over a certain threshold, and from April 2026, those with gross income of over £50,000 are mandated. From April 2027, the threshold falls to £30,000, and from April 2028, the threshold falls to £20,000. Now, this threshold is applied to the total turnover or gross income from all sole trades and income from property.

The test is applied against specific boxes in the self-assessment return, and we've got all of these boxes listed out on ICAEW.com in TAXguide 01/25. And if it's not on the list, it's not included. It's the 2024/2025 tax return that's relevant for testing the £50,000 threshold and whether a taxpayer is mandated from April 2026. And then you look at the 2025/26 return for April 2027 and so on.

SR: Okay, so it’s the 24/25 tax return that's relevant at the moment. That's the tax return everyone's actually completing now ahead of the January deadline. And for people caught up in MTD, what will change for them?

LW: There's two key requirements. The first one is to maintain digital accounting records in software or on a spreadsheet. And then the second is about how and when you send information to HMRC – that's changing. So you've got to submit quarterly updates of income and expenditure to HMRC. And that's just over a month after the end of the quarter, then plus the year-end tax return after the end of the tax year. And the submissions have got to be made using a functional compatible software product that can access HMRC's APIs.

SR: So quite a lot is changing then, particularly when it comes to reporting in quarterly updates. Now, some people are going to be better placed than others to deal with this. So for example, if you have an agent, then you can access more support. If you don't have an agent, the transition to MTD may be easier if you use commercial software to file your tax return. But we know that a lot of people are unrepresented. They don't have an agent, and they don't currently use commercial software. Now, Rebecca, this is a significant concern, isn't it?

RB: It is. I think it's around 200,000 people coming in in April next year who don't have an agent. That's a rough estimate. And a lot of them won't have software. They won't be using any sort of technology to keep their records. They may well sit down at a computer when in January, when they're getting near the deadline, and just use HMRC’s free facility to file their tax return from bits of paper that they've accumulated during the year.

Those people are going to have a horrible shock when this comes around. One of my worries is, if they don't get a letter from HMRC saying you're coming in – and it's possible some of them will be missed off – they won't even realise that they're supposed to be doing something different.

SR: Yeah. So I know Tax Aid in particular is going to step up its efforts in this area. It does recognise that a lot of people are going to need increased support, so they will have a fundraising campaign, I believe, in the UK to help support those disadvantaged taxpayers who are facing the MTD transition. It is going to use the funds to add email, webchat and messaging to its current telephone service, and it does intend to train up an awful lot more volunteers. I will include some details of that in the show notes. But it isn't just taxpayers who will need to get to grips with the commercial software.

So we know that of those taxpayers who are expected to be in scope of MTD and have an agent, 527,000 – 28% – did not submit their 23/24 tax return using software. Lindsey, this is a concern too, isn't it?

LW: Yes, although I think we’ve got to take those figures with a bit of a pinch of salt. It doesn't necessarily mean that agents are not using software. I think it's more likely to be reflective of the costs of using software. So agents might currently be using HMRC's free service for simple cases, just to keep the number of software licenses that they need within a certain cost band, for example.

RB: Yeah, I think the statistic is that around 18% of agent returns are submitted using HMRC’s free product. That's big, because if you think of all the agent returns that go in, the returns from the very big firms will be a huge number. So 18% not using commercial software, and of course, with the advent of MTD, everyone will have to use commercial software to submit the tax return at the end of the year. So agents are going to have to make changes as well as taxpayers.

Agent challenges – 06’49”

SR: So quite a big learning curve then for agents, particularly the smaller agents, the smaller practices.

RB: Yes, I think that's absolutely right. If they're going to have to change what they do, they really need to start thinking now. It's quite a long lead time. But I think exploring what products are out there. Finding out what the price might be, I think, is something that needs to start probably now, as soon as January is over, rather than immediately. But yeah, agents really need to get on that and get thinking about it.

SR: So MTD won't start in earnest till April, which isn't far away, as we've said, but I believe some people are already testing the waters during the trial period. Now, HMRC recently revealed that it had 2037 successful quarter one submissions for 25/26 in the trial. Now, that seems like a very small number for me, given the larger numbers that we've discussed so far. Rebecca, do you think that's enough to give us confidence that HMRC's systems will work?

RB: I've got four clients in the trial. Two of them I put in last year, and then two more have joined them. And as soon as I get this quarter over, I think I'm going to put another couple in. I'm pretty confident that HMRC systems are going to work. Obviously, HMRC would have liked more. It may well be that other people put people in the testing phase. Now you can put people in as late as you like. It's really up to the end of March if you wanted to. So I'm confident about the HMRC side of it. Where I'm not quite so confident about is the processes that agents have got to implement to get MTD ready.

So I'm really worried. 2000 is not many and if I'm four of those, then I think there are a lot of firms that just haven't really started preparing adequately.

SR: So you are clearly part of the trial.

RB: Yeah.

SR: Has it been a positive experience?

RB: It has. I've learned so much from being in the trial. Although I'm lecturing on MTD and I am part of HMRC program boards for MTD as an external advisor, it's nothing like actually doing it and getting your hands dirty to find out what is involved. My approach to services we're going to offer, how I design, how that's all going to happen in the office, have all changed during the course of the trial, because I'm experiencing what it feels like.

So we're up against the deadline now for quarter two, which will all have to go in pretty soon. And my process is still evolving. I think I've got my pricing worked out now. So yeah, it's been a really positive experience. Also HMRC have learned from those of us because we'll feed back, ‘oh, that didn't work very well’ or ‘this is a problem’. And then HMRC are able to dynamically evolve the service as we're going along. So HMRC are learning. We're learning. I can't recommend it too highly.

SR: And have you learned more about the software market as a result of doing this, because you were quite wedded to one product originally, weren't you?

RB: Yeah. So because that product wasn't appropriate for one of the people I put in – which frankly, was myself. Because I've got three sole trades, I'm actually submitting three updates a quarter. So actually, I've given them more than four because I've given them three from me. My software wasn't really able to support that. So it's enabled me to have a bit of a look around. I've been trying some bridging software out and it's enabled me to experience [it].

And because I've now filed a year end for last year, I'm getting a better idea of what the process is going to feel like. Although it's very similar to filing a self-assessment return, actually, in practice, it's nothing like it. It's very different.

MTD exceptions – 10’48”

SR: Yeah, it's good to hear about the year end process, because obviously we've talked about quarterly submissions, but that's a significant change as well, isn't it? How that will adapt to meeting tax digital. So clearly, then, there are benefits to signing up now for the trial or early for 25/26. Is it open to everyone, Lindsey, or do exceptions still apply?

LW: There is still quite a long list of exceptions. First of all, you can't have a payment plan with HMRC and I don't think you can have any tax outstanding at all. You can't be a partner in a partnership as well as having a sole trade or property income. You can't claim married couples allowance or blind person's allowance. You can't currently be bankrupt or insolvent or be about to go into bankruptcy or insolvency. MPs, ministers of religion and Lloyd's underwriters are out.

You can't have income from being a foster carer or being in a shared lives scheme. You can't have income from a trust. You can't have a compliance enquiry open, and you can't use averaging, whether you're a farmer or an author or whatever. So this is quite a long list. We expect that a lot of these restrictions will start falling away in the run-up to April 2026, but there are a few that are going to survive throughout this current parliament. So the reforms that were announced back at the spring statement. Married couples allowance will continue being out. Blind persons allowance will still be out. Ministers of religion and Lloyds underwriters. So those four will be out for this current parliament.

RB: And I think that's because of really that followed on from HMRC’s announcement that the year end would have to be done using software. There can't be very many people claiming married couples allowance out there because they must be, at least, I think I worked out, 80 or 90 years old. They've got to be born before 6 April 1935. So, obviously, if you're relying on the commercial software sector to come up with software, nobody's going to invest money in developing software for the one person in the country with married couples allowance who's coming into MTD.

So I think that was probably quite a smart move by HMRC. I mean, actually, ministers of religion have to buy software now for self-assessment. HMRC’s product doesn't cope with ministers of religion. So I'm glad that you know, as part of the package of announcements in March that HMRC said: ‘right, these people aren't coming in because that gives us a little bit more stability’.

SR: I'm glad you clarified the married couples allowance point there, because I was initially thinking of the transferable marriage allowance, which is a lot of people, isn't it? But that's not the one that's a problem.

RB: No.

SR: That's good to know.

Signing up clients – 13’40”

SR: So if I am an agent, then, signing up clients, will I find that an easy process?

LW: I think you need to dedicate time. I've seen somebody refer in the last week that it's taking about four minutes per client, but I'm assuming that's if they've got all the information to hand in the first place. Because I know, Rebecca, you've talked before about having all the information there ready to do it.

RB: What I'd recommend…so you initially need the client name, national insurance number and date of birth. And that will get you going on it. Now, I recommend that people do this as an exercise, so that they collate all the information into a spreadsheet. I'd add the UTR onto the spreadsheet as well. You don't need it to sign them up, but a bit like accessing those records on the agent's services account – you need to put the UTR in to bring the client record up.

RB: We haven't got a client list yet. Don't hold your breath, folks, but it will come eventually, I think. So get your spreadsheet put together and start signing up people now for next year, even if you don't want to put people into testing. I mean, one of the ways to think about it is if there's the thick end of a million people coming in next April, how many of those will have done nothing until April? Do you really want to be clogging up the system with all of them? And the phone lines, obviously, will be a disaster, so it's really worth actually setting some time aside to sign people up – four or five minutes.

Actually, I think once you've done it a couple of times, you'd probably whittle it down to two. There's a bit of reading to do, but one of the screens – which has got a lot of words on – once you've read it once, you won't need to read it again. One thing I'll mention, because a lot of people seem to have been a bit put off by this: what it tells you is you will need the following information. You'll need name, national insurance number, date of birth. But it also says you'll need to know when your client started their business. You don't actually need to know that accurately because a lot of people are going ‘well, we won't know that’.

And that was that was my first bit of feedback to HMRC, way back in April 2024, when I tested the system for them signing a client up and I went: ‘we won't have any idea and the client won't have any idea’. So the only constraint is, if they started the source within the last two years. And I think that data now is starting to be pulled across from the other HMRC system. So when you're signing people up, don't be put off thinking you've got to know that – you haven't. And if it was in the last two years, you're pretty likely to know that. So it's fairly straightforward, really. Obviously, you've got to have an agent services account, so if you haven't got one of those, you need to crack on.

LW: Some people have said it's been good to do it now, because it's flushed out some problems with the client's personal data, that some things haven't matched on HMRC system, and the fact that you've currently got a dedicated support team, if you're in the testing, you're able to resolve that quite quickly. You mentioned the Agent Services account. I know that HMRC says a lot of people who are struggling or having failures when they're trying to sign up clients because they're using the wrong login. They're going in via their online services account.

Using that login, you've got to use your agent services account, and you've got to have linked your authorisations between your old legacy online Services account and your Agent Services account. You talked about the various screens that you'll see. We have got screenshots of those that were in our webinar MTD talk earlier this year, and HMRC has also got some YouTube videos, both of the signup journey and also how to set up your Agent Services account and link your Online Services account and your Agent Services account.

And there'll be links to those in the show notes as well.

RB: Also, you must have the client on your self-assessment list, and if you haven't, then you won't be able to sign them up, because the system will check that you are authorised for that client, and it checks back into the self-assessment system. I've got a client where we've been around the houses with issuing codes about three times now, and I still can't get him on my list. He's coming in next April. So I'm going to have to take intervention action, I think, to actually get him on my SA list.

SR: So there is quite a lot to remember there, but from what you're saying, it sounds to me like an achievable process. So certainly do not put this off, just get it done, in effect.

LW: And actually, one thing that I have heard is that one of the software providers is looking at building a bulk sign-up service. So again, that's another reason for looking at the software market.

SR: So we do have an article published recently on the importance of the ASA when it comes to this. So again, I'll put a link to that in the show notes. And that has links to further support as well. While we're talking about the ASA Agent Services account, it's also worth emphasising the importance of keeping your agent details safe. Now, we recently published an article reminding agents that they could lose access to agent services if HMRC thinks an account is being compromised. And those articles do also explain the steps you can take to prevent that happening.

Mandation letters - 18’ 58’’

SR: But anyway, returning to MTD: the first step in complying with MTD income tax is knowing that you're within it from the April 2026 start date. It's based on the figures in the 24/25 tax return, as you said Lindsey. And once HMRC has processed returns, it will identify in scope taxpayers and will let them know. Now, Lindsey, I think we now understand a little bit more about this process, don't we?

LW: We do. The first set of mandates and letters are due to start landing. So based on 2024/2025 tax returns, and if the taxpayer filed early by the end of August, that is, they will start receiving letters in the first two weeks in November. And then in the final two weeks of November, unrepresented taxpayers will get a final prompt letter, and that will be based on their 2023/2024 tax return.

And they'll only get that if they weren't one of the early filers for 2024/2025. And then everyone else: anyone who files from September onwards will get their letters in batches, either in February or March 2026. But one of the key messages is, don't rely on having that letter. If the taxpayer doesn't receive a letter, it remains their responsibility to check if and when they need to use MTD for income tax, and to make sure that they're signed up and prepared to use it.

One final thing about these letters is that, sadly and disappointingly, agents won't be receiving copies of the letters, so hopefully your clients will tell you if they've received the letter, but don't necessarily rely on them reading the letter and contacting you.

SR: For some taxpayers and agents, it's going to be quite a while to receive a letter. It could be, as you say, February or March next year. But in the meantime, they can also check for themselves whether they think they're going to be in it. I know, Rebecca, you've provided a very helpful tool to help with that.

RB: Yeah, really on the back of, when delivering lectures, the plethora of questions I get of [what to] include in the total. Do we include pension income? Do we include salary? Do we include this? Do we include that? No, no, it's just the boxes you've mentioned. So I put together a little spreadsheet so that you can actually just copy the figures off the 24/25 tax return onto the spreadsheet. And it's programmed to tell you, yes, you're coming in, or no, it looks as if you might come in in 27.

I mean, certainly for me, when I'm finalising once the 24/25 return is filed for a client, my last letter to them is usually confirm it's filed – ‘here's your bill’ – and remind them what their tax payments are next year. And in there, if they're coming in, there is then a paragraph dropped in to say: we have already discussed this, but I'm reminding you.

That needs to recognise that different clients will want a different range of services from us. They might want to do their own bookkeeping, they might have a bookkeeper, they might want us to do the bookkeeping. so I'm sort of warming them up to the changes. My original ambition was to have everyone that's coming in in 2026 on software by April 25. Failed miserably. Absolutely failed miserably. With a bit of luck, in the following window, I'll have them all on software by April 26. But it's an uphill struggle. I've had people. I've said: ‘look, let's get you on some software so that you get used to it’.

‘No, I don't want to do that. I'll wait until I have to’. And it's like, you can't help people sometimes.

SR: It's human nature, isn't it? To wait to the very end. Especially if you fear something. If you think it's going to be more difficult than perhaps it is. I think one thing that for the letters, it occurred to me as well if you're receiving this, you're not overly familiar with it, you may assume that HMRC will sign you up, but actually, the responsibility is on you to sign yourself up, isn't it?

RB: I would recommend for agents listening that you sign your clients up rather than letting them sign themselves up. There's a couple of questions that, if you're signing up now, they might make a mistake. They may not understand what they're being told. And if they make a mistake, it might be very difficult to undo it. So the safest bet is for agents to do it.

Digitally excluded – 23’ 30’’

SR: So another recent development has been that we had more information about the exclusion for taxpayers who are digitally excluded, that can't comply with MTD. Lindsey, could you tell us a little bit more about that?

LW: Yeah. So taxpayers are digitally excluded if they're a practising member of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records, or it's not reasonably practical for them to use electronic communications or to keep electronic records. And this could be for any reason that includes age, disability or location. But there is also some guidance about when HMRC won't accept a digital exclusion application.

They won't accept it just on the basis that, ‘well, I've always filed on paper so I don't want to use digital’. They won't accept it just because you're unfamiliar with accounting software, or just because you've only got a small number of records each year, or just because of concerns about costs, whether that's time costs or financial costs. A couple of other things to mention are that taxpayers who've already got a digital exclusion exemption in place for VAT still need to take action.

They still need to effectively apply, albeit [through] a slightly different process. I'd also say that you should only apply for those who are going to be mandated from next April 2026. Now, rather than looking ahead and thinking, ‘well, my client might be coming in in the future,’ HMRC has 28 days to turn around an application, and then taxpayers have 30 days to appeal. Give time for that process, and to make sure that the process isn't too clogged up, only apply for those who are mandated from April 2026, and we'd actually recommend probably getting your applications in by January, just to give yourself time for that turnaround. You can apply by calling or writing to HMRC. There's not a digital process.

SR: I do wonder if there's going to be some confusion around this, or because some people may see it as a kind of get out of jail free card, in that they don't want to use technology, not that they can't use technology. And it's actually quite a narrow definition, isn't it?

RB: Yes it is. And I think agents really need to manage their clients’ expectations. My nickname for these people is digital refusers. And I've got a few of them. They're terribly nice people, but they just don't want to use software. Actually, the reality is, I'm quite sure if they wanted to buy tickets to go and see a show, they'd manage. They'd somehow fight their way through the digital jungle and get those tickets. So it is, ‘I don't want to or I don't see why I should’, rather than ‘I can't’.

Just go back to the people who are excluded for that. I happen to know, because I was talking to a practitioner from the west coast of Scotland, that a huge chunk of people were digitally excluded when that came in in 2019, because there was no internet or no stable internet right on the west coast of Scotland. I would be surprised if there's still no internet there, it’s probably still under the digital exclusion for that. But there is a warning, if your circumstances have changed and you shouldn't be digitally excluded, then you’ll probably lose your VAT exemption as well.

SR: Okay, so it's not. It doesn't cover you forever if you apply and receive an exclusion for that purpose. So you do have to keep your circumstances under review then.

RB: Yeah.

LW: And how are you coping with your digital refusers? Because I think that earlier on in the year I remember you calling them digitally reluctant. But it does seem like the narratives changed.

RB: It’s getting to a hardcore now of people and, while we can, let's just think about what we could do as a service for those guys. So I'm thinking of my builder, bless him. He doesn't use internet banking at all. So we would have to wait for him to bring in a paper bank statement that has come in the post. I would collate the bank statement and his receipts and get one of my staff to key those into a spreadsheet or into some software, because if he doesn't use internet banking, I can't get a bank feed.

That's going to be incredibly labour-intensive. We're not going to be able to start until well on through that month. So I'm trying to think how I can offer them a service.

SR: Is cybersecurity a concern? Are these people generally concerned that their data could be at risk, for example, because you hear so many scare stories? Are you?

RB: I think with bank accounts, that tends to be the things that they say. They're worried that if they give someone their bank details to make a payment, the person can go in and take money out of their bank account. I guess that's an understandable concern. And I would hope that the banks are doing as much as they can to reassure people.

SR: I suppose the onus is on all of us to educate people, isn't it? And to make the system work for them. Okay, then. So, as I've mentioned a number of times during this episode, MTD income tax is just months away. Now, with that in mind, can I ask you both what advice you would give to agents at this point? Lindsey, would you like to go first?

LW: I would say: think about your sign up process for your taxpayers that are coming in from April 2026, and what you are going to do to get them signed up to MTD, income tax, and also whether or not they need any digital exclusion exemptions, whether that's going to be valid for them, but also to be open to a variety of software products.

RB: I think mine would be: put at least one person into testing, and if you get one person in, you'll get a sense of what's involved in the submissions. And really, if you can crack the bookkeeping, you're there, actually. Making the submission is dead easy.

SR: Yeah, some great advice there. And I think all agents who are listening today, please do give MTD your full attention over the next few months. There is a lot to do, but it is all achievable, and we will all get there.

Well, many thanks Lindsey and Rebecca for your contributions.

LW: Thank you.

RB: It's a pleasure.

SR: All of the topics we've discussed today are covered in more depth in the articles linked in the show notes. If you found this useful, then don't forget to subscribe so you never miss an episode. You can rate and share the podcast, too. We'll be back next month with the next Tax Track. In the meantime, why not check out the sister podcast from ICAEW? Accountancy Insights provides business finance and accountancy analysis, while each episode of Behind the Numbers offers a deep dive into a selected topic, and there's also the students’ podcast, aimed at young professionals. If you're not already a member of ICAEW’s Tax faculty, remember that Institute members can join the Faculty for no additional cost.

Faculty members receive our monthly tax line bulletin. In addition, anyone can subscribe to receive our weekly TAXwire newsletter containing the latest tax news from ICAEW. Thank you for listening.