CIOT survey supports postponing MTD ITSA

The Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT) have published the results of a survey canvassing the views of tax professionals on Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA). Most respondents did not believe that the rollout could be a success.

The survey, undertaken in December 2022, received 332 responses and a staggering 97% did not think the planned April 2024 rollout of MTD ITSA could be a success. With only 16 months until the launch, there is growing concern that neither the public nor HMRC are ready. 

Just under half of the respondents believed the process should be put on hold until further consultations could take place. Roughly another 30% thought that if the rollout did go ahead, it should either be on a voluntary basis or the threshold for compulsory sign-up should be significantly increased from the current £10,000 turnover level.

The replies to the questions would suggest that the reason behind the lack of faith in the new system was due, in part, to concerns over the lack of taxpayer awareness of the impending changes and their ability to therefore comply with the new rules. There was also little belief that HMRC had the capacity or the resources to adequately support either the taxpayers or their Agents with the rollout. The cost to taxpayers of the rollout and the inability of agents to properly charge their time were also listed as key concerns.

The respondents struggled to pick out any positives of MTD, with Digital record keeping only being considered 'somewhat useful' by 56% of respondents. On the other hand, 72% of respondents thought the quarterly tax estimate was 'not useful' at all.

Alison Hobbs, Chair of the joint CIOT and ATT Digitalisation and Agent Strategy Committee, commented, "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."

The survey comes hot on the heels of the annual report from the influential Administrative Burdens Advisory Board (ABAB). Their 2022 Annual Report recommends that the whole MTD ITSA project needs to be delayed by at least a year. They site five areas of particular concern:

1. MTD ITSA is a far more complex proposition than MTD for VAT and over four million self-employed individuals and landlords will be required to sign up for MTD ITSA in April 2024. There will be many different combinations of income and expense types in this population, and it is vital that as many real-life scenarios as possible are thoroughly tested through the pilot. The restriction of the pilot to businesses with a 5 April year end is hamstringing the programme. This restriction should be lifted as soon as possible.
2. Basis Period Reform has complicated the picture. 
3. As we discuss further below, we can see the merit in this reform as an overall simplification, but 528,000 businesses will have to apportion two years’ accounts to arrive at their taxable profit. Of these, 278,000 businesses will have to estimate their second year’s profit for this calculation. This introduces more complexity for the affected businesses, and we question whether adequate support and necessary easements will be in place.
4. The decision to align the MTD ITSA quarterly reports with the tax year rather than the accounts year was unexpected and potentially adds further complexity.
5. Error correction.
6. While an error or omission in an MTD for VAT quarterly return must be corrected in the next return following discovery, we have recently learned that HMRC will require an error or omission in an MTD ITSA return to be corrected by resubmission of the return for the period in which the error or omission arose. This seems inconsistent and will increase still further the number of submissions MTD for ITSA.
7. Other issues.Given the issues mentioned here, all of which have arisen since our last report, the compliance costs and burdens associated with MTD ITSA need to be reassessed, especially insofar as they impact on the very smallest businesses. More importantly, we think the whole MTD ITSA project needs to be delayed by at least a year to allow these issues to be properly addressed and resolved before implementation commences.
8. The need to authorise multiple agents, how to deal with estimated profits for non-fiscal year-end businesses and the best way to deal with jointly let property all remain unresolved.

See Administration Advisory Board 2022 Report 

Useful guides on this topic

Making Tax Digital: Index and timeline
When does Making Tax Digital (MTD) apply? What does Making Tax Digital really mean? How will it affect you? Does MTD mean quarterly reporting? Is my business exempted from Making Tax Digital?

MTD: Toolkit for accountants
What is the current timetable for Making Tax Digital (MTD)? How will it work? Which clients will be excluded? What planning needs to be undertaken?  

MTD: Income Tax Pilot Tool
Making Tax Digital (MTD) for Income Tax. Are you eligible to take part in the MTD Pilot?

Compare software for Making Tax Digital for Income Tax
What's the cheapest software I can use for Making Tax Digital? What is the best value software can I use for Making Tax Digital for Self Assessment? How do a file a tax return under Making Tax Digital?

External link

Making Tax Digital for Income Tax Self-Assessment - CIOT & ATT survey

Administrative Burdens Advisory Board