There has been a reprieve and HMRC has postponed Making Tax Digital (MTD) for IncomTax Self-Assessment (ITSA) by two years. Previously planned for April 2024, HMRCe has put it back on the shelf until April 2026 to, it claims, “maximise the benefits.” Victoria Atkins, the Financial Secretary to the Treasury, commented that “it is important to ensure this works for everyone: taxpayers, tax agents, software developers, as well as HMRC.”
What HMRC has not been clear in communicating is that the delay should be used to migrate across to the new way of working and ‘test the service voluntarily’ – rather than there being a mass mandatory move when the new deadline dawns. There remains a massive lack of clarity over this latest phase of MTD, as research from Intuit QuickBooks shows. It polled over 500 UK accounting firms and 59% said they didn’t know when the changes are due to come into effect, only 32% said they fully understood the new reporting requirements, and more than a quarter were worried about poor communication from HMRC.
A chance to reflect
While HMRC may intend the adjournment to provide more time to prepare, many accountants and industry bodies feel the time would be better served in rethinking MTD to consider whether policy decisions made seven years ago are still appropriate today. At a recent regional seminars, some members called for MTD for ITSA to be scrapped entirely, or at the very least for serious consideration given to the burden that quarterly reporting represents.
It was the opinion of members that quarterly reporting feels too officious. Businesses need free reign, especially in the current economy, to be able to spend and save. By paying quarterly tax payments, it reduces the working capital businesses have access to, which means it isn’t being pumped back into the economy – it is a literal false economy. January payments on account already mean HMRC has some tax money in advance, and there comes a point where demanding more will have a negative effect on how businesses trade.
It was suggested that where more is required from entrepreneurs, they will find a way round restrictive regulations and it will simply widen the tax gap. There were also some interesting debates about how year-end reconciliations and adjustments will work. Ultimately, what was apparent to the practitioners discussing MTD for ITSA is that there are still unanswered questions and all the old points still stand – none of it has been adequately addressed yet, and the delayed timeline exacerbates this.
CPAA members’ wish list
In listening to members’ feedback, the CPAA noted three key points that HMRC need to look at: scrap quarterly reporting; rethink the penalty regime to offer incentives to digital filing (i.e. like the incentives offered on introduction of RTI); and extend the thinking around migrating businesses organically to digital filing (i.e. do away with a mandatory date).
Conversations about the latest MTD drama, as well as extensive discussions around the service provided by HMRC, led to practitioners reflecting generally on what more HMRC could do to make life easier for agents, businesses and individuals. This included reducing the admin burden on business, and giving agents access to assist businesses with admin and compliance burdens.
Moreover, there are simple steps HMRC could take to aid agents in their efforts to make life easier for clients – and thus enable the right amount of tax to be paid into HMRC’s coffers with fewer headaches – such as:
Agent services account should show client lists
The information on the Agent Services Account should mirror that shown on the Personal Tax Account
Facilitate agents to file capital gains returns for clients
Negotiate time to pay arrangements with agents on behalf of clients
Simplify VAT registration rather than adding steps that make it harder.
We will keep representing members’ views and best interests in all dealings with HMRC. We can only hope this grace period for MTD for ITSA provides the powers that be with an opportunity to reflect, take guidance from accountants and accountancy bodies, and make meaningful changes.