HMRC backed by Office of Tax Simplication on Making Tax Digital
2nd Nov 2019
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In a report released on Thursday 31st October the Office of Tax Simplification (OTS) has come out in support of HMRC's plans for Making Tax Digital for Income Tax Self Assessment (ITSA).
The report which is entitled "Simplifying tax for self-employed people and residential landlords" has three main recommendations. Firstly it calls for improvements to the Individual Tax Account so all information can be seen in one place. Secondly it has called for a study into whether third parties can supply some information to HMRC. Finally it calls for a study into which types of self employment or rental businesses would benefit most from making electronic submissions to HMRC."
The improvements to the individual tax account have had general support, but the proposals on third party data have had concerns raised.
Victoria Todd, head of the Low Incomes Tax Reform Group, indicated that HMRC should be careful about relying on third party data saying “What we’ve found in other areas that use third party data are that when it goes wrong, there aren’t clear processes in place for how to challenge that”.
The OTS has not prescribed MTD as the way in which digital tax submissions should be made, but it has recognised that this would be one way in which digital submissions could be made. The OTS sees a criticism of MTD in that there is no built in option to pay more flexibly although it does recognise that this is a plan for the future (Para 3.25). However, the OTS does say "Making Tax Digital for Income Tax could support the wider vision outlined in this report."
The OTS recognises that MTD will not be extended on a compulsory basis to any new taxes (beyond VAT) until 2021 at the earliest. It also recognises that HMRC would not intend to make MTD compulsory for taxpayers with a turnover (not profit) less than £10,000.
"It is clear", said John Hemming CEO of Cirrostratus who provide MTD software for ITSA, VAT and the Agents Api, "That the OTS and HMRC are concerned about the cost of implementing digital tax. I know personally from contacts with HMRC that they are pleased that we provide free MTD services for ITSA as well as VAT."
The OTS have put cost as being the first limitation for ITSA MTD. Their other limitations are that there are fewer suppliers, only people with simple tax affairs can use the beta system and there is no inherent system for payments on account.
"It is clear from this report", said John Hemming, "that the direction of travel for HMRC using MTD for Self Assessment is something that fits in with the objectives of the Office of Tax Simplification. What I recommend for accountants and other agents is that they aim to get one self employed person and possibly also one landlord into the beta test scheme. That means that they can learn how the system works so it is not new when most of their client base needs to do this. We at Cirrostratus can help with this, but we ask that people email us so we can liaise on their behalf with HMRC."