Leading tax bodies respond to the Making Tax Digital delay

The Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT) welcome a delay to a major change in how self-employed businesses and landlords with annual business or property income above £10,000 keep their records and report to HMRC.

But the tax organisations say there is still much to be done to ensure that Making Tax Digital (MTD) delivers its purported benefits without adding significant costs and burdens for businesses and their advisers.1 They would urge HMRC to prepare and publish a detailed implementation roadmap to ensure there is adequate time for software development, testing and communication in time for the launch of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA).

In a written statement to Parliament today (23/9),2 the new Financial Secretary to Treasury (FST) Lucy Frazer said the Government will introduce MTD for ITSA a year later than planned, in the tax year beginning in April 2024. Frazer added that general partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025. The date at which all other types of partnerships will be required to join will be confirmed later, she said. The FST claimed a later start for MTD for ITSA provides more time for those required to join to make the necessary preparations and for HMRC to deliver the most robust service possible, affording additional time for testing in the pilot.

Alison Hobbs, Chair of the joint CIOT and ATT Digitalisation and Agent Services Committee, said:

“The delay gives HMRC a fighting chance of achieving the goals of MTD while limiting the confusion and costs for individuals who are reeling from the impact of the pandemic and, for some, the consequences of Brexit.

“There is now more time to sort out problems and get software products tested, for example, but HMRC must make full use of this extra year.  They must also undertake a significant communications and educational exercise to try to ensure all affected taxpayers are aware of their obligations and how to comply with them in time. Our tax adviser members report that it has been difficult to get clients engaged with MTD for ITSA because of uncertainty with the project up to now.

“We now need to see a marked increase in the number of taxpayers taking part in the pilot, as well as an increase in the number of software products available.

“We urge the Government to use the extra time to assess the effectiveness of MTD for VAT, as well as whether the administrative burden it is imposing on business is reasonable.”

Alison Hobbs added:

“We are pleased that general partnerships will be deferred until 2025 to allow HMRC to focus on getting sole traders and landlords ready for MTD ITSA first.

“Excluding partnerships from the initial wave of MTD for ITSA is sensible. It is increasingly clear that imposing the digital requirements on partnerships will be challenging because of the way partnerships are managed and taxed.  In addition, many large partnerships and limited liability partnerships (LLPs) have an international dimension which creates added complexity. We hope the deferral until April 2025 for general partnerships will give sufficient time to enable these issues to be ironed out. But LLPs want some certainty about when they will be mandated into MTD for ITSA so they can also have adequate time to prepare. HMRC need to say soon when LLPs will have to comply with the regime.”

On basis period reform announcement in Frazer’s written statement, Alison Hobbs commented:

“We welcome the delay outlined in the minister’s statement as this will give more time for consultation on proposals that could have a fundamental impact on affected businesses.”