Delay Digital Tax Reporting Requirements For Self Employed

December 15, 20220

The government should think again about its plans to make it compulsory for self-employed businesses and landlords to keep digital records and report their income quarterly from April 2024, say Tax Advisers.

In a survey of tax professionals about making tax digital for income tax self assessment (MTD for ITSA) carried out by the Chartered Institute of Taxation and Association of Taxation Technicians, 97% of respondents did not think that MTD for ITSA, in its current form, could be successfully introduced from April 2024.

The survey found further that 94% of respondents were uncomfortable with the level of taxpayer awareness and taxpayers’ ability to comply. Nearly two-thirds (65%) had concerns about the availability of suitable software.

On HMRC’s capacity and resources to support taxpayers and agents, only 3% of respondents felt this was the case.

There was considerable support for pausing the roll-out to allow time for further consultation, with 47% of respondents recommending this step. A further 31% said MTD for ITSA should continue, but on a voluntary basis, while 30% suggested that the process should continue, but with a significant increase to the £10,000 minimum income threshold.

Alison Hobbs, chair of the joint CIOT and ATT digitalisation and agent strategy committee, said: ‘These results confirm what we, and others, have felt for some time. The incredibly limited testing, combined with there being some key problems still to be resolved, means that HMRC must announce that the April 2024 start date is to be pushed back.

‘While we remain supportive of digital tools which improve compliance and customer experience, the limited piloting of MTD for ITSA has yet to demonstrate that it will do either of these things. It is vital that these new processes are fully tested, and deliver the intended benefits, before they become mandatory.’

Many respondents to the survey had concerns about the alleged costs and benefits of MTD. For example, 92% of respondents were uncomfortable about the cost to clients. However, while most (79%) thought that keeping digital records will be useful, when it came to quarterly reporting, only 36% of respondents considered this would be helpful and even fewer (28%) said the quarterly tax estimate following the quarterly update would be useful.

Ms Hobbs said: ‘While we support the objectives of MTD, we regret that the consultation around how to achieve them started too late in the process, after critical decisions had already been taken. As our survey demonstrates, it’s time to take a fresh look at how these objectives might be achieved.

‘There are clearly elements of MTD for ITSA where HMRC and stakeholders are largely in agreement as to their benefits, and these might represent parts of the project which can be implemented first. For instance, most respondents see the benefits of keeping records digitally. Indeed, many of the difficulties we are seeing arise around the changes to reporting processes, and these are perhaps aspects which might reasonably be deferred until key issues such as the use of multiple agents can be resolved.’

Under the current plans, sole traders and landlords with annual turnover or gross income above £10,000 will need to follow the rules for MTD for ITSA from 6 April 2024. General partnerships will not be required to join until 6 April 2025.

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