Unbelievably, it’s now been just over six years since the first Making Tax Digital (MTD) consultation papers were published, but we are still waiting for HMRC guidance to tell us how the proposed various MTD Income Tax Self-Assessment (ITSA) reports will fit together in practice.
When I was a child, a common schoolyard chant was “Why are we waiting?” sung to the tune of O Come, All Ye Faithful. This mantra invaded my brain when I learned that the MTD guidance for self-assessment tax returns will not be available for ‘some time’. To say the least, this was extremely disappointing, especially as HMRC have not even hinted at a date when it will be available.
MTD ITSA: ‘Some time’ or is it ‘perhaps never’
What, in this context, does “some time” mean? An acceptable delay would be perhaps 3 months, a delay to April 2023 would be pretty much the last possible date to start communicating MTD requirements to taxpayers. Anything later would be far too late as taxpayers need to have some time, as would the software companies, to prepare for the proposed MTD start date of 6th April 2024.
As with many of my professional colleagues, I have been irritated by the HMRC’s breadcrumb approach to releasing MTD ITSA information piece by tiny piece. Where is the coherent plan? The draft MTD ITSA notices thusfar have been one small crumb after another; as an example; publication had been promised for months, and when the consultation did appear on 1st July it gave us no new information other than they would allow three-line accounts for small businesses.
As the Association of Taxation Technicians has commented, HMRC copied the schemes for categories of business/property income and expenses directly from the existing self-assessment tax returns and pasted them into the draft proposals. This would have been an ideal opportunity to address the relevancy of the expense headings for small businesses operating in 2022.
For example, what category do internet costs fit into? The correct answer is: “Phone, fax, stationery, and other office costs”. This description could have been updated, to remove the obsolete “fax” and include internet and broadband. Other expense categories should have been reviewed to ensure they don’t capture allowable and disallowable costs in one heading such as “advertising [allowable] and business entertainment [not allowable]”.
MTD ITSA: Draft notices are deficient
The draft notices are also deficient as they do not answer a number of questions, almost too numerous to mention, but here’s a selection:
- How residential property landlords, who are required to submit only two totals – income and expenses – should report the finance costs that qualify for a tax credit but not as a deduction
- How businesses should report estimated figures if they don’t use an accounting period ending between 31 March and 5 April
- Where voluntarily class 2 NIC liabilities should be reported
- Where losses brought forward are reported
And believe me, the list of minor and major questions that have been ignored thusfar by HMRC would cover several pages!
MTD ITSA: Hot off the press!
I had just about finished this Blog when I received an email from AccountingWEB that they’d heard from HMRC, who had promised that they planned to publish the long-awaited full MTD ITSA guidance within the next three months and were aiming for 31st October 2022.
If they keep their promise and actually publish comprehensive guidance, the key word being ‘comprehensive’, then software companies have a fighting chance of producing complete MTD income tax packages that allow for adjustments and corrections to be made to submitted figures, in time for a full test from April 2023 to April 2024.
MTD ITSA: Free software?
HMRC had previously promised there would be free software for the simplest of businesses that are not VAT registered, and thus only have to submit the totals of their income and total expenses in each quarterly update and end of period statements.
Unfortunately, there was no mention of free software in their last announcement and none of the six software providers listed on the Find software that’s compatible with Making Tax Digital for Income Tax page on HMRC’s website, are planning to provide a free version.
MTD ITSA: Tax Accountant’s view
Accuse me of being cynical, and you would be correct! In my defence, for the last six years HMRC’s track record has been woeful on MTD and how it links up with In.Tax Self-Assessment. Every announcement thusfar, has either been late or light on detail and I expect their latest promise to fall into one of those categories, or possibly both. I have been wrong in the past, but not often!