HMRC urged to thoroughly pilot Making Tax Digital

From April 2023, self-employed businesses and landlords with a +£10,000 turnover per year will be required to keep digital records and submit income tax updates every three months instead of filing annual self-assessment tax returns.

At the moment, HMRC is running a small-scale pilot with self-employed businesses and landlords, and plan to scale the pilot up from April 2021.

This is part of HMRC’s Making Tax Digital (MTD) programme which began in April 2018 with a VAT pilot and forms a core part of HMRC’s 10-year tax administration strategy to modernise the UK tax system.

The Low Incomes Tax Reform Group (LITRG) has responded to this news and is urging HMRC to make effective use of the next three years, running full pilots and supporting taxpayers in making the transition to the new system.

Victoria Todd, Head of LITRG, said, “We recognise the many benefits that a primarily digital system will bring for individuals and businesses as well as for HMRC. However, it is important that those who require assistance to transact digitally and individuals who are digitally excluded continue to have their needs met.

“MTD for income tax represents a huge change for self-employed individuals and landlords and we are pleased that the enormity of this has been recognised by introducing the requirement from 2023 rather than sooner. However, a lot of work needs to be done before then to ensure individuals are ready and that appropriate software is available.”

It’s also worth noting that the legislation that supports MTD for VAT and Income Tax contains exemptions from the requirements, including where it is not reasonably practicable for someone to use digital tools to keep business records or submit returns digitally because of age, disability, remoteness of location or for any other reason.

Victoria Todd, added, “HMRC must do more to promote these exemptions for MTD for VAT. As the pilot for income tax grows, HMRC must make the exemptions clear in guidance and ensure that individuals and HMRC staff know about them. In addition, HMRC should ensure those who want to transact digitally but who need some assistance to do so, have access to appropriate help and support.

“One longstanding concern we have with both MTD for VAT and income tax relates to software requirements. Although some free software is available from commercial providers, it is often very basic and there has been a lack of accessible software available for VAT3.

“At present, very little software is available for the MTD for income tax pilot4 and this must be addressed if the pilot is to be successfully scaled-up.

“We continue to urge HMRC to provide their own free, basic software that small businesses and landlords can use to help them comply with their obligations.”

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