Copy and paste MTD guides raise more questions than answers

Draft legislation designed to help with the transition to Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) still leaves affected taxpayers and their advisers in the dark as to what they must do to comply.

The Association of Taxation Technicians (ATT) and Chartered Institute of Taxation (CIOT) expressed their concerns in a response to an HMRC consultation on draft notices setting out how MTD for ITSA will operate when it launches in April 20241.

From this date, MTD for ITSA will require people with annual business, property, or combined business and property income above £10,000 to use specialist software to keep their records and file their returns. They will also have to report their income and expenses to HMRC once a quarter.

Although the notices clarify how some parts of the regime will work – such as the information that should be provided when reporting income and expenses to HMRC – the tax bodies have cautioned that there remain “a number of essential, unanswered questions regarding how reporting…will work in practice”.

They include:

  • The level of detail taxpayers will be required to report when recording transactions
  • How digital record keeping and reporting will work in cases involving joint property owners and use of either the cash or accruals basis, given an election can be made after the end of the tax year, and different bases can be used for different taxes
  • How digital links must be used to capture information transferred between software programs

The organisations are calling on HMRC to publish “detailed, practical guidance” without further delay so that taxpayers and their agents understand their obligations well before April 2024, particularly those who wish to join the existing pilot.

Andrew Jackson, Vice-Chair of the joint CIOT/ATT Digitalisation and Agent Services Committee, said:

“Although it has been nearly a year since the regulations implementing Making Tax Digital for Income Tax were laid before Parliament, there are still many fundamental questions relating to how the regime will operate that are yet to be answered.

“Much of the information in the draft notices represents a copy and paste from existing self-assessment forms. This is fine, as it ensures consistency, but the lack of any level of detailed guidance in relation to taxpayers’ obligations under MTD for ITSA is a stark contrast to the helpful guidance in VAT Notice 700/22: Making Tax Digital for VAT.

“A comprehensive pilot is vital to a successful launch of MTD for ITSA in April 2024, but until detailed guidance is published, taxpayers and their agents do not know what they are signing up to. It is simply not satisfactory to defer the publication of this sort of information  until later in the year – as has been suggested .

The organisations have also warned that, as further details do emerge, they could push up costs for taxpayers and their advisers.

Andrew Jackson continued:

“As new information comes to light, we are becoming increasingly concerned that the costs of compliance may further increase. For example, it now appears it will be necessary to reconcile the non-cumulative figures in the quarterly updates with the annualised figures in the End of Period Statement, yet HMRC’s estimates do not attribute any cost to what could be an arduous process. The cost versus benefits of MTD should be kept under constant review as we learn more”.

Note for editors

1. The Income Tax (Digital Requirements) Regulations 2021 set out the requirements that taxpayers must comply with under MTD for Income Tax, including the use of MTD-compatible software to keep and preserve their business records digitally, send quarterly updates of their records to HMRC and to submit an end of period statement to HMRC.

On 1 July 2022, HMRC published draft notices under the powers conferred by this legislation, providing additional information on the key requirements of MTD relating to the use of functional software, the information required when submitting quarterly updates and end of period statements, and retail sales election.

2. You can read the CIOT’s response to the consultation here, and the ATT’s response, here.

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