MTD ITSA to be delayed?

UPDATE TO THIS STORY: Government announces MTD ITSA to be delayed until 2026.

It’s fair to say that HMRC hasn’t found it easy to introduce Making Tax Digital for Income Tax Self Assessment (MTD ITSA). Originally scheduled to come into force in April 2023, it is currently supposed to be introduced in April 2024 for the self-employed and landlords, and in April 2025 for general partnerships. However, according to a recent article in AccountingWeb, HMRC is now under pressure to delay MTD ITSA for at least a year.

Concerns about MTD ITSA

AccountingWeb reports that the calls to delay MTD ITSA are coming from the Administrative Burdens Advisory Board (ABAB). This group of business operators and tax advisers has published an annual report that is heavily critical of MTD ITSA.

While supportive of the Making Tax Digital for Income Tax Self-Assessment, ABAB has identified the following five areas of concern.

• The pilot programme. ABAB says the pilot programme is ‘mission critical’ and needs to test as many real-life scenarios as possible. The pilot is currently only open to businesses with a 5th April year end. ABAB says this restriction hamstrings the pilot and needs lifting as soon as possible.
• Basis period reform. ABAB says that basis period reform is complicating the picture, stating that 528,000 businesses will have to apportion two years’ accounts to arrive at their taxable profit. ABAB is concerned that not enough support or necessary easements are available for these businesses.
• Quarterly reports currently align with the tax year. ABAB believes that aligning them with the accounts year would reduce unnecessary complexity.
• Error correction requires resubmitting an MTD ITSA return for the relevant period, rather than correcting an error in the next return following discovery. This will simply increase the number of submissions made.
• Other issues. ABAB says there are ongoing issues including the need to authorise multiple agents, dealing with estimated profits for non-fiscal year-end businesses and dealing with jointly let property.

Recommendation to delay MTD ITSA

Because of the issues summarised above, ABAB recommends delaying MTD ITSA for at least a year. This would allow HMRC to reassess compliance costs and burdens, especially in the way they affect the smallest businesses.

Other feedback

ABAB also uses its annual report to provide other feedback for HMRC. In particular, it welcomes HMRCs efforts to encourage MTD ITSA software suppliers to build in prompts and nudges. These are designed to help businesses meet their obligations. However, ABAB warns that these nudges and prompts will only be included at a software provider’s discretion. It also believes that they are unlikely to be included in bridging software. As a result, ABAB urges HMRC to include them in the Single Customer Account so that all taxpayers benefit from them.

Will MTD ITSA be delayed?

While ABAB is a highly influential group, HMRC has not yet indicated that the MTD ITSA introduction dates will change. So, for the time being it remains wise to prepare for it and ensure you have compatible cloud accounting software such as FreeAgent (for the self-employed) or Hammock (for landlords). If you’d like any further advice, please feel free to talk to your THP account manager.