As MTD’s flagship accountancy practice, we’ve immersed ourselves in it from the very start. Initially, it felt like a massive futuristic shift. Five years later, it is all talk and no action. It now feels like the government’s version of the Fyre Festival.
Just like the sham music festival on an impractically remote island (please watch the Netflix doc), HMRC promised something they had no real idea how to deliver. Making Tax Digital has been marred by delays and confusion.
There was a recent revelation in the Financial Times.
Gained under the Freedom of Information Act 2000, a top twenty accountancy firm got access to the current data on MTD pilot scheme. The test scheme’s first year in 2018/19 saw 877 people register for the pilot, but that number has now plummeted, as confirmed by HMRC.
Just nine people currently taking part in the Tax pilot scheme
The figures are stark and the drop-off can be explained by tightening the criteria limiting participation to ‘very simple’ businesses with sole trader income in 2019/20. This saw more than five hundred people removed. HMRC thinned out those numbers further by excluding those who had received Covid support grants.
Our involvement in the MTD pilot since before its formal inception meant at one point our firm had four clients (drivers) with relatively straightforward needs operating within the scheme. However, they were no longer eligible once they received the self-employed income support scheme (SEISS Grant).
Here’s MTD as it stands today
MTD for VAT:
MTD VAT is being offered to all businesses voluntarily registered for VAT for their first VAT return period starting on or after the 1st April 2022.
HMRC has reported that around 100,000 businesses already comply with MTD VAT have still to sign up. HMRC recently sent out a chase letter. It has the data on who isn’t filling out their VAT using the correct method and wants as many businesses as possible to be ready to go fully digital.
Alongside HMRC’s new record-keeping and MTD filing requirements for VAT, there is also a new set of late filing and late payment penalty rules. The new rules were put into law by the Finance Act 2021. The penalties now work around filing obligation dates, imposing penalty points for when a business misses a filing obligation date.
Points don’t mean prizes, they mean fines. But good behaviour can go some way to getting rid of the points over time.
MTD for self-assessment tax returns:
Unlike MTD VAT, the start date for MTD for self-assessment is in secondary legislation. However, following a consultation published late last year, the start date is almost certainly 6 April 2023. It will apply to unincorporated businesses and landlords with total business or property income above £10,000 per year.
Quarterly reports are likely to require quarterly totals under headings following the self-employed pages of the traditional ITSA tax return.
The first accounting periods affected by MTD for self-assessment will be those beginning on or after 6 April 2023. The first quarterly reports will be those due for businesses using financial year accounting, so for the quarter 6 April 2023 to 5 July 2023.
HMRC will need quarterly reports for each taxpayer’s business, including each property business and a rent-a-room business.
Note that the pilot for MTD for self-assessment is ongoing but remains pretty restricted. It is currently only to taxpayers who are:
- UK resident
- registered for self-assessment with all returns and payments up to date
- a sole trader with income from one business only or a landlord who rents out UK property (or both).
- Not reporting income from any other source.
People often ask me how taxpayers will report income other than trading and property.
HMRC’s expectation seems to be that most MTD software will allow non-MTD income to be reported. HMRC are also apparently building a new service to enable non-MTD income to be reported separately.
Right now, this is all we know. More to come next time on the Eazitax blog.
