At ICAEW’s MTD Live event, HMRC responded to the questions and concerns of members as the MTD ITSA pilot looks to expand.
With the April 2024 launch date confirmed for Making Tax Digital for income tax self assessment (MTD ITSA), many questions remain for accountants and their clients. While regulations published last autumn provided more of the detail, we are still waiting for the notices that are expected to contain important detail, particularly around retail sales, quarterly updates, the end of period statement and digital links.
Draft notices, expected to be shared in the next few months, should answer many outstanding questions. But accountants still have concerns about how it will work in practice. ICAEW’s MTD Live event aimed to address members’ more pressing questions.
Anita Monteith, Head of Taxation Policy, ICAEW, and Caroline Miskin, Senior Technical Manager, Digital Tax, ICAEW, were joined by HMRC’s Syed Sufan, from the Policy and Design team for MTD, and Richard Fowler, from its Making Tax Digital, Customer Readiness and External Stakeholder team. The panel answered questions from attendees about the next steps for MTD ITSA and discussed their biggest concerns about it.
Several people asked if there was any chance that the introduction of MTD ITSA might be put back, particularly in light of the civil service cutbacks recently announced by the government. Everything is on schedule for April 2024, said Fowler. “HMRC as a whole has committed to that.”
Pilot programme
The MTD ITSA pilot is being ramped up in 2022, having started more modestly back in 2018 and being somewhat hindered by the COVID-19 pandemic. Since April, the pilot has opened up, but with strict criteria. People must join the pilot through a software developer, which then performs a check against HMRC’s criteria. To join, the person must be a UK resident, must have already submitted a self assessment tax return, must account on 5 April (31 March won’t be accepted yet), and have no debt, arrears, or other compliance activity. This has been met with concern and scepticism by some accountants.
“Small numbers have been really helpful for initial testing,” said Fowler. “We’ve certainly learned a lot and had some really good feedback.”
The pilot will open up further once HMRC has the first quarterly submission, due at the beginning of July. That will give HMRC the necessary data to make improvements to the system.
Talk moved on to possible plans to consolidate MTD VAT and MTD ITSA submissions. It’s likely that they will remain separate obligations, said Miskin: “I think it’s one to push back to your software provider. If you’re using one software product, there may be two submissions, but you may be able to make the experience feel like one submission, if your quarters are aligned.”
Other members had concerns that bridging software for Excel spreadsheets would not always remain accessible for MTD. While Fowler said that he cannot speak for the longer term, there are no plans to remove bridging software from the list of acceptable options for MTD. “Obviously, we feel that there are wider advantages to using software and that many people might gravitate towards that, but for now we have no problem with people using bridging software.”
In practical terms, it will have to remain, adds Miskin. “For MTD for VAT, spreadsheets are necessary for some of the largest taxpayers because they are pulling together data from legacy systems and different software products.”
Monteith asked the panel what HMRC is doing to manage the pressures put on clients at the moment. Things are already challenging for businesses and this will cost time and money. “It’s why HMRC is taking part in as many public forums as possible,” said Fowler. “Certainly what I picked up today is that you all have your individual views about what MTD will mean for your practice.”
Lines of communication
HMRC’s communication strategy was brought into the conversation. Miskin said there is a bit of a communication vacuum at the moment. Monteith added that while software companies are promoting MTD-ready software, it still means little to most members of the public.
The next steps of the pilot are extremely important to the next phase of communications, said Fowler. The critical data it needs should be available within the coming weeks. “We’ll be able to talk about that. We’re also very conscious of the change curve that people go through in making [the shift to MTD].”
Communications will be focused on making sure that people are aware of the changes on the horizon and talking through the steps to make that change, he said. “Later in the year, we’ll be looking to do further communications about the road out to 2024.”
Miskin explained that the important task for accountants in practice now should be analysing their client bases to determine which will struggle most with the transition. “Learn what the rules are, think about what the workflow is going to be like, analyse your clients and, to the extent that you can, get clients maintaining digital records, even if you don’t go into the pilot just yet. Start the process now and it will undoubtedly be more straightforward.”
How to choose the right software
Roger Lovis is a partner at RSM and leads its technology consulting practice. In his talk at MTD Live, he explained how attendees could choose the right MTD software to help their clients. What you choose
depends on how you operate, he said. Start by thinking about how you deal with clients, the current software you’re using for tax returns and if you would consider bridging software, or a full accounting package. Your decisions will be based on the sort of services you offer, the capabilities you have, and the cost implications.
Selection and risk
Lovis compared the waterfall and agile approaches to systems selection. The former is highly structured, a full set of requirements. It requires a lot of activity and resource upfront and involves more consideration before a software solution is selected. “There is a risk there, of course,” he said, “that rather than harnessing some of the new features of new technologies, you just go out to tender based on your existing ways of working, which might be built upon the technologies that you’ve deployed [in the past].”
More companies are taking a more agile, rapid implementation approach, driven by the key requirements important to your business. With software as a service (SaaS)-type software deployed across thousands of businesses, you don’t necessarily need to understand whether it can do standard functionality – that’s basically a given, said Lovis.
“It gives you the opportunity to focus on the things that are important for your business, as opposed to trying to compare everything. You can spend more time articulating and sharing that with the vendors.”
Start early
Having a look at software earlier in the process can give you an idea about the ‘art of the possible’, said Lovis. It might open your eyes in terms of understanding what is actually available to you when implementing agile practices. “It also involves stakeholders far more with the more agile approach; you do get the stakeholders engaged in writing the requirements.”
Don’t define the ‘how’ when looking at requirements, define the ‘what’, he advised; outline the outcomes you expect to see, don’t try to recreate the way in which you deliver those outcomes. Modern technology will do things in a different way, and you need to be open to that.
Several software vendors – Xero, Sage, TaxCalc, 123Sheets and BTC Software – were at the event to talk through their offerings and the practice processes that they were able to offer. “You have to be open to those processes,” said Lovis.