Taxpayers unready and unenthusiastic about Making Tax Digital

The Association of Taxation Technicians (ATT) and the Chartered Institute of Taxation (CIOT) are calling on HMRC to increase their publicity around Making Tax Digital for Income Tax1 after a HMRC instigated survey suggests lack of preparedness and enthusiasm among many businesspeople about this major change in how they meet their income tax obligations.

HMRC have recently released the results of research2 into the preparedness of taxpayers for the introduction of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) in April 2024. 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, as well as report their income and expenses to HMRC once a quarter. HMRC claim that MTD for ITSA will mean that many of the existing paper-based or manual processes are eliminated, more accurate tax records are submitted to them, and time spent by many taxpayers on administration is reduced.

The survey results report that3 ‘awareness of MTD in general, and MTD for ITSA specifically, was low in the qualitative interviews’.

Taken across all categories of taxpayers, the HMRC survey also showed:

  • Just 38 per cent agreed that using Making Tax Digital-compatible software would be easy, 35 per cent disagreed with 14 per cent indifferent.
  • 43 per cent agreed that submitting quarterly returns would be easy, 39 per cent said it would be difficult with 11 per cent indifferent.
  • 42 per cent disagreed with the statement that quarterly summaries would ease the end of year burden, with 34 per cent agreeing and 20 per cent indifferent.
  • The questions surrounding record-keeping revealed 45 per cent of respondents still use paper, with only 17 per cent using software.
  • 54 per cent of respondents already completed their record keeping at least quarterly.

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

“We welcome HMRC commissioning this survey because it is about a major change in how millions of people will report their income tax affairs to the tax authority. The survey results suggest the lack of understanding among affected people of what the changes mean in practice that we have long suspected, heard and warned HMRC about.

“While the interviews which form the basis of the research were carried out last year little has been done by HMRC since then to raise awareness. Software companies and professional bodies such as ourselves can spread the word but it is vital that HMRC start informing people of the changes, so it comes from the horse’s mouth, so to speak.”

Andrew Jackson added:

“The survey results show an alarming lack of readiness and enthusiasm for MTD, fuelled largely by a lack of awareness that MTD for Income Tax begins in less than two years’ time. This is why we have encouraged HMRC to publish more detailed guidance about the Making Tax Digital process, as there are seemingly more questions than answers at the moment. HMRC must spell out what they are going to do to improve awareness and bring out all the necessary guidance they can urgently.

“The survey adds to our concerns about the lack of available and affordable Making Tax Digital software and the low numbers of businesspeople and landlords signing up to take part in the Making Tax Digital for Income Tax pilot.4 This taxpayer scepticism and overall lack of readiness is combined with a lack of certainty and continuing questions from agents on practical matters.

“According to the survey, many taxpayers also share our doubts around HMRC’s claims about the usefulness and the potential time savings and low estimates of the costs being imposed on businesses and individuals of using Making Tax Digital compliant software.”

Notes for editors

1. Since 2019, VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000 at the time of writing) have been required to follow the Making Tax Digital (MTD) rules by keeping digital records and using software to submit their VAT returns. Unincorporated businesses and landlords with annual turnover or gross income above £10,000 will need to follow the rules for MTD for Income Tax Self Assessment (ITSA) from their next accounting period starting on or after 6 April 2024. For those who are both self-employed and landlords, this is their total income (from self-employment and property rental). General partnerships will not be required to join MTD for ITSA until 6 April 2025.

2. HMRC commissioned Ipsos Mori to conduct this piece of research on customer readiness for MTD for Income Tax Self Assessment (MTD for ITSA) mandation, scheduled for April 2024.

The aim of the research was to update HMRC’s understanding of eligible Income Tax Self Assessment customers’ readiness to move to MTD and consisted of:

  • Ipsos conducted a random-probability telephone survey with 2,200 customers eligible for MTD for ITSA. Fieldwork took place between 22 February and 20 August 2021, with a pilot of 22 interviews conducted between 22 and 25 February 2021. Respondents were randomly selected from HMRC’s ITSA database, and the final data was weighted to be representative of the MTD for ITSA population.
  • A segmentation (also known as a cluster analysis) is used to divide survey respondents into distinct groups with specific characteristics, which can include demographic, behavioural or attitudinal variables. Variables are introduced until the optimal segmentation is found. This is one where all segments (or clusters) are different and distinct, the clusters are well distributed, and it is possible to derive an algorithm to predict membership. The segmentation resulted in 6 distinct clusters, based on survey data, who vary in terms of their current recordkeeping practices, demographics, and attitudes towards MTD.
  • Following the survey and segmentation analysis, Ipsos conducted 30 in-depth, qualitative interviews with survey respondents. Customers were recruited in line with the six segments, in order to better understand their willingness and ability to comply with MTD for ITSA, and the support they would need to transition.

3. The HMRC survey ‘Income Tax Self Assessment: Readiness for Making Tax Digital’ is available to view here.

4. Accountants flag fears about new UK digital tax system for self-employed – Financial Times (January 2022) The article says: ‘The UK tax authority confirmed the figure to the Financial Times after a Freedom of Information request by the accountants Saffery Champness showed a sharp decline in the uptake of volunteers to test the new software since the trial began three years ago. The numbers signing up fell from a peak of 900 people in 2018-19, the first year of the pilot, to just the nine who are currently participating, according to HMRC.’

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