Small businesses spared from digital tax proposals

22 November, 2023

Tax professional bodies have backed a decision to exclude many lower-income businesses and landlords from new digital record keeping and reporting requirements.

The Chartered Institute of Taxation (CIOT) and Association of Taxation Technicians (ATT) welcomed the announcement in today’s Autumn Statement1 that, for now, Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will only apply to sole traders and landlords whose turnover is above £30,000.

The government’s flagship scheme was originally proposed to cover those with self-employment or property incomes above £10,000. However, in December 2022 it was announced that a first cohort with incomes above £50,000 would be subject to MTD for ITSA from April 2026, before being expanded to those with turnover above £30,000 from April 2027. A review of the needs of those with turnover under £30,000 was also launched.

Alison Kerrey, chair of the joint CIOT/ATT Digitalisation & Agent Services Committee, said:

“We are pleased that the government has listened to our and others’ concerns about bringing small businesses and landlords into MTD for ITSA.

“In a survey of more than 500 CIOT and ATT members in summer 2023, 86% said they were ‘greatly’ or ‘somewhat’ opposed to the MTD for ITSA requirements being mandated for businesses/landlords with incomes under £30,000.2

“Relieving small businesses and landlords from the requirements is a welcome move, which will save those affected potentially hundreds of pounds in compliance costs. It also ensures that any further expansion is delayed until MTD for ITSA has had time to bed in, and gives HMRC, taxpayers, and their advisers, some much-needed breathing space to get used to the change.”

Today’s announcement confirmed that the timelines and thresholds announced in December 2022 will remain in place as scheduled, though will be subject to future reviews.

Some welcome easements were also announced today for those who remain in scope. These include simplification of the quarterly updates (which will now be cumulative), removing the need to file End of Period Statements (EOPS) for each income source, and simplified record keeping and reporting for landlords of jointly-owned properties.

Last week, CIOT and ATT also issued a joint letter3 to the new Financial Secretary to the Treasury, Nigel Huddleston, expressing concerns about the program, including its costs and benefits, and how ready both HMRC and taxpayers are for the new system.

Alison Kerrey continued:

“For some time, we had called for quarterly reports to be submitted on a cumulative basis, rather than making taxpayers resubmit previous reports to correct errors or make amendments, so this change is most welcome. Likewise, the need to submit EOPS was widely seen as simply adding confusion, as well as an unnecessary administrative burden, onto taxpayers.”

“Despite today’s announcements, there is still real concern as to whether MTD for ITSA and HMRC will be fully ready for a 2026 start, and whether the projected financial benefits of the project and ease to the taxpayers, will materialise. CIOT and ATT will continue to work closely with HMRC to ensure that the 2026 start date for MTD for ITSA goes as smoothly as possible and that taxpayers and their agents are prepared for the change.”

Notes for editors

  1. Autumn Statement 2023 and Making Tax Digital Small Business Review.

  2. Making Tax Digital – CIOT and ATT survey.

  3. Making Tax Digital – CIOT and ATT letter to FST.