MTD pilot expands in July

An expansion of the Making Tax Digital pilot scheme has been announced by HM Revenue & Customs (HMRC). The Making Tax Digital for income tax self-assessment (MTD ITSA) pilot will include more income tax payers from next month.

From July 2022, HMRC plans to bring taxpayers with the following income types into its pilot scheme:

• self-employment (including multiple self-employments);
• UK property;
• Gift Aid;
• Pay As You Earn income, including employment income and occupational pensions (excluding those with a coded-out liability);
• UK interest; and
• UK dividends.

The plans were announced in Agent Update Issue 97. “Clients will need to have an accounting period that aligns to the tax year (6 April to 5 April) to join the 2022 to 2023 pilot, and have Making Tax Digital-compatible software before signing up (free and low-cost options are available, search ‘Making Tax Digital software’ on GOV.UK),” the update stated.

Pilot problems?

From April 2024, all businesses with annual income from self-employment or property above £10,000 are mandated to follow MTD for ITSA rules. This would require eligible businesses to keep digital records of their earnings and expenses, and file every quarter to HMRC using third-party software. It is estimated that 4.3 million businesses would be affected, and HMRC encouraged a small number to sign up to its MTD for ITSA pilot three years ago.

However, it was reported in January this year that just nine people were part of the pilot, according to a Financial Times article based on a Freedom of Information request by accountancy firm Saffery Champness, which “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 [almost] 900 people in 2018-19, the first year of the pilot, to just the nine who are currently participating.” Tax professionals told the FT that with so few participants, they were concerned that the system would not be as robust or representative as it should be when it eventually goes live.

In late May, HMRC published the results of a survey of 2,200 eligible ITSA businesses that it commissioned, to research how prepared taxpayers were for MTD for ITSA, finding that while 54% of respondents already completed their record-keeping ‘at least quarterly’, only 38% agreed that using MTD-compatible software would be easy, while 35% disagreed with that statement; while 42% disagreed that quarterly summaries ‘would ease the end of year burden’, with 34% agreeing and 20% indifferent. In addition, the research report revealed that 45% of respondents still use paper, with only 17% already using software.

‘Still a test environment’

In the agent update, HMRC stated it wants to ensure MTD for ITSA “is well-tested before mandation, and that agents and customers have opportunities to feedback on how it will work in practice … that’s why we’re running a pilot, inviting agents to recommend clients who can help us test and learn”.

The pilot “is still a test environment”, HMRC added; and “those taking part have the benefit of testing the Making Tax Digital for Income Tax Self-Assessment before April 2024, including their own internal processes for managing Making Tax Digital. Agents and customers are already taking part, and we would like to encourage more agents to start signing up a small number of their clients. If [agents] are interested in joining, we suggest [they] review your client list now and see who is likely to be eligible based on [our eligibility] criteria.”

HMRC advised clients and their agents to visit GOV.UK for more information on the eligibility criteria for joining the pilot. Those interested in joining the pilot scheme can contact their software developer, or email mailboxmakingtaxdigital@hmrc.gov.uk.