For a fifth time, the start date for MTD for income tax has been deferred. There are a number of critical issues to resolve, such as a widening of the pilot and multi-agent authorisation, and the announcement of a review brings the opportunity to pause and look afresh at how the core ambition for MTD can best be delivered.
There is now scope for some radical rethinking.
The further delay to MTD for ITSA announced by the financial secretary to the Treasury on 19 December had been widely anticipated.
MTD for ITSA will now be mandatory not from April 2024, but from April 2026. It will apply from that date to those with qualifying income (broadly annual rent and/or self-employment turnover) over £50,000. That threshold will fall to £30,000 from April 2027. MTD for ITSA will not now be extended to general partnerships from April 2025, but from a later date. The new penalty system for late submission and late payment for ITSA will also be deferred, coming into effect when taxpayers become mandated to join MTD for ITSA (and at a later date for those outside the scope of MTD).
There will be a review of the needs of smaller businesses, particularly those under the £30,000 threshold, to ‘look in detail at whether and how the MTD for ITSA service can be shaped to meet the needs of smaller businesses and the best way for them to fulfil their tax obligations’. Plans for further mandation of MTD for ITSA will be set out when that review – and consultation with businesses, taxpayers, agents and others – is complete.
Clearing logjams
The delay buys some time to get the programme back on track, but that time must be used wisely. A clear plan, agreed in consultation with stakeholders, is needed for dealing with some specific issues.
The first of these is the pilot. The current restriction preventing businesses with non-fiscal year ends joining the pilot is a millstone that must be shed as a matter of urgency. The pilot needs to be open to all potentially mandated taxpayers – and to function as envisaged – for at least a year before mandation. Retaining the original commitment that most businesses would have two years to prepare and test the service voluntarily prior to its introduction would be safer. In its 2022 annual report, HMRC’s Administrative Burdens Advisory Board (ABAB) described the pilot as mission critical: it is.
A second issue that needs to be resolved (again mentioned in the ABAB report) is multi-agent authorisation. Quarterly reporting creates additional work. Some businesses will take that in their stride, but others will look to their accountants and bookkeepers for help. Bookkeepers and accountants will have different roles in the quarterly reporting/end of period statement/finalisation process, and both will need to be able to view the relevant information on HMRC’s systems. This issue also needs to be addressed as a matter of urgency.
Removing complexity
Over the last year, a number of things have added to the complexity of MTD for ITSA. We now know, for example, that the MTD for ITSA quarterly reporting dates will be aligned with the tax year rather than (as had previously been expected) the accounts year end for a business. HMRC has estimated that 528,000 businesses with non-fiscal year ends will have to apportion two years accounts (and an estimated 278,000 of those businesses will have to estimate the result for the second year), though these numbers are likely to be affected by the 19 December announcement. HMRC also insists that errors and omissions must be amended by re-filing the relevant MTD ITSA quarterly return (in complete contrast to the process for correcting errors in MTD for VAT returns). All of these things have added complexity and created knock-on effects. Going forward, we need to see a clear focus on simplification and burden-reduction.
Co-creation
HMRC has convened many MTD roundtables with the professional bodies and software developers, particularly over the last year. The conversations – many of which I have taken part in – have been candid and constructive. All of the issues mentioned in the ABAB report (and many others) have been discussed at length and in depth. I believe HMRC has now taken these issues on board, but if the programme is to be delivered on the revised timetable, we will need to move quickly from discussion to active resolution of these problems.
The professional bodies and software developers bring a vast amount of practical experience and technical know-how to the table and a shared belief in the potential that digitalisation holds for improving tax administration.
As HMRC’s ten-year strategy set out in 2020 said so clearly, effective digitalisation is best delivered through a process of co-creation. The deferral provides a new opportunity to turn that aspiration into a reality. So does the review.
Let’s be radical
The world has changed since the announcement of MTD in 2015. Technology has changed too. With MTD for ITSA now scheduled to launch more than a decade after MTD was announced, this is a good time to pause and look afresh at how the core ambition for MTD (better quality business records, with fewer errors) can best be delivered: is it still, for example, by a process of quarterly reporting? Could it be delivered in a more effective, less burdensome, way?
Perhaps it is time for a wider review, along the lines of that conducted by Lord Carter of Coles in 2006. Why not extend the review announced on 19 December to look at digitalisation of tax administration more broadly, including for example the single customer account? Why not look at how the expertise and experience of stakeholders can best be harnessed to facilitate co-creation?
The 2006 Carter Review turbo-charged HMRC’s digitalisation programme. A similarly broad review could do so again. There is scope for some radical thinking.
Home >Articles > MTD: pause for thought or radical reboot?
MTD: pause for thought or radical reboot?
Speed read
For a fifth time, the start date for MTD for income tax has been deferred. There are a number of critical issues to resolve, such as a widening of the pilot and multi-agent authorisation, and the announcement of a review brings the opportunity to pause and look afresh at how the core ambition for MTD can best be delivered.
There is now scope for some radical rethinking.
The further delay to MTD for ITSA announced by the financial secretary to the Treasury on 19 December had been widely anticipated.
MTD for ITSA will now be mandatory not from April 2024, but from April 2026. It will apply from that date to those with qualifying income (broadly annual rent and/or self-employment turnover) over £50,000. That threshold will fall to £30,000 from April 2027. MTD for ITSA will not now be extended to general partnerships from April 2025, but from a later date. The new penalty system for late submission and late payment for ITSA will also be deferred, coming into effect when taxpayers become mandated to join MTD for ITSA (and at a later date for those outside the scope of MTD).
There will be a review of the needs of smaller businesses, particularly those under the £30,000 threshold, to ‘look in detail at whether and how the MTD for ITSA service can be shaped to meet the needs of smaller businesses and the best way for them to fulfil their tax obligations’. Plans for further mandation of MTD for ITSA will be set out when that review – and consultation with businesses, taxpayers, agents and others – is complete.
Clearing logjams
The delay buys some time to get the programme back on track, but that time must be used wisely. A clear plan, agreed in consultation with stakeholders, is needed for dealing with some specific issues.
The first of these is the pilot. The current restriction preventing businesses with non-fiscal year ends joining the pilot is a millstone that must be shed as a matter of urgency. The pilot needs to be open to all potentially mandated taxpayers – and to function as envisaged – for at least a year before mandation. Retaining the original commitment that most businesses would have two years to prepare and test the service voluntarily prior to its introduction would be safer. In its 2022 annual report, HMRC’s Administrative Burdens Advisory Board (ABAB) described the pilot as mission critical: it is.
A second issue that needs to be resolved (again mentioned in the ABAB report) is multi-agent authorisation. Quarterly reporting creates additional work. Some businesses will take that in their stride, but others will look to their accountants and bookkeepers for help. Bookkeepers and accountants will have different roles in the quarterly reporting/end of period statement/finalisation process, and both will need to be able to view the relevant information on HMRC’s systems. This issue also needs to be addressed as a matter of urgency.
Removing complexity
Over the last year, a number of things have added to the complexity of MTD for ITSA. We now know, for example, that the MTD for ITSA quarterly reporting dates will be aligned with the tax year rather than (as had previously been expected) the accounts year end for a business. HMRC has estimated that 528,000 businesses with non-fiscal year ends will have to apportion two years accounts (and an estimated 278,000 of those businesses will have to estimate the result for the second year), though these numbers are likely to be affected by the 19 December announcement. HMRC also insists that errors and omissions must be amended by re-filing the relevant MTD ITSA quarterly return (in complete contrast to the process for correcting errors in MTD for VAT returns). All of these things have added complexity and created knock-on effects. Going forward, we need to see a clear focus on simplification and burden-reduction.
Co-creation
HMRC has convened many MTD roundtables with the professional bodies and software developers, particularly over the last year. The conversations – many of which I have taken part in – have been candid and constructive. All of the issues mentioned in the ABAB report (and many others) have been discussed at length and in depth. I believe HMRC has now taken these issues on board, but if the programme is to be delivered on the revised timetable, we will need to move quickly from discussion to active resolution of these problems.
The professional bodies and software developers bring a vast amount of practical experience and technical know-how to the table and a shared belief in the potential that digitalisation holds for improving tax administration.
As HMRC’s ten-year strategy set out in 2020 said so clearly, effective digitalisation is best delivered through a process of co-creation. The deferral provides a new opportunity to turn that aspiration into a reality. So does the review.
Let’s be radical
The world has changed since the announcement of MTD in 2015. Technology has changed too. With MTD for ITSA now scheduled to launch more than a decade after MTD was announced, this is a good time to pause and look afresh at how the core ambition for MTD (better quality business records, with fewer errors) can best be delivered: is it still, for example, by a process of quarterly reporting? Could it be delivered in a more effective, less burdensome, way?
Perhaps it is time for a wider review, along the lines of that conducted by Lord Carter of Coles in 2006. Why not extend the review announced on 19 December to look at digitalisation of tax administration more broadly, including for example the single customer account? Why not look at how the expertise and experience of stakeholders can best be harnessed to facilitate co-creation?
The 2006 Carter Review turbo-charged HMRC’s digitalisation programme. A similarly broad review could do so again. There is scope for some radical thinking.
