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Autumn Statement hands MTD reprieve to low-income taxpayers

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The Autumn Statement confirmed that Making Tax Digital for income tax self assessment won’t be extended to those earning under £30,000 for the foreseeable future, as well as making a number of other tweaks to the rules. Emma Rawson explores what this might mean in practice.

22nd Nov 2023
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If you listened to the Chancellor’s Autumn Statement speech you may have been surprised to hear no mention of Making Tax Digital for income tax self assessment (MTD ITSA), despite a specific focus on the tax affairs of the self-employed. However, that doesn’t mean there is nothing to report.

In particular, HMRC’s small business review outcome confirms that MTD ITSA won’t be rolled out to those earning under £30,000, at least for the time being. As discussed below, there are also a number of small, pragmatic changes being made to the rules.

Low-income taxpayers exempt (for now)

In December 2022, it was announced that the introduction of MTD ITSA for landlords and the self-employed would be staged. Those with income over £50,000 will come in first from April 2026, and those with between £30,000 and £50,000 will come in a year later in April 2027.

It’s now been confirmed that those with income under £30,000 will not be brought into MTD ITSA for now. However, this decision will be kept ‘under review’, so there’s every chance the threshold could come down in the future.

Today’s announcement is a sensible measure. The professional bodies and other commentators have long queried the wisdom of including individuals on low incomes within MTD ITSA. In particular, any potential benefits to the business of digital record keeping could quickly be outweighed by the increase in costs and admin burdens.

However, even if the lowest income taxpayers will no longer fall into MTD ITSA, these costs will still bite. The entry threshold of £30,000 applies to gross total self-employment and property income, and actual profits may be much lower in practice.

Alongside confirmation of the £30,000 entry threshold, we also have new MTD ITSA exemptions for foster carers and those unable to get a National Insurance Number. Again, these are both sensible moves — digital record keeping would have been an incredibly big ask of foster carers for very little benefit, and how those without a NINO were expected to interact with MTD has long been a concern.

PracticeWeb Autumn Statement 2023 Covers

Reporting changes

A less eye-catching change, but one which will have a big impact on reporting under MTD ITSA, is the removal of the requirement for taxpayers to file an End of Period Statement (EOPS).

Under the original MTD ITSA proposals, year-end reporting would have involved two separate steps: an EOPS reporting the taxable profit/loss of each trade or property business, and a ‘Final Declaration’ pulling together EOPS data, other sources of income, allowances and reliefs etc. to calculate the final tax position.

This separation of the current, single year-end process into two distinct steps could have caused a great deal of confusion amongst taxpayers (especially the unrepresented). It is therefore welcome that HMRC has indicated that the EOPS will no longer be a separate requirement, and will instead be built into the Final Declaration process. However, it’s not yet clear how this will work if a taxpayer’s software cannot support their full Final Declaration.

Another welcome change is to make quarterly updates cumulative. This should facilitate easier amendments, with taxpayers able to simply correct any errors in their next quarterly update, rather than resubmitting past quarters. Again, this is something the professional bodies and other stakeholders have been requesting for some time.

Jointly owned property

The final area where we are promised some sensible relaxations is joint landlords. In particular, they will be able to opt out of quarterly updates and keep simpler records in respect of jointly owned property.

This should simplify record keeping and reporting, and reduce the need for joint property owners to share records multiple times a year. However, it does mean that any in-year tax estimates joint landlords receive under MTD are likely to be even more inaccurate than usual.

Final thoughts

It’s now over eight years since George Osbourne announced the ‘death of the tax return’ in his 2015 Budget. Since then, we’ve had numerous difficulties and delays, and MTD ITSA is still yet to be launched.

The Autumn Statement announcements are a pragmatic step in the right direction. In the coming days, we should see updated regulations and notices published which will provide more detail.

However, there’s no doubt that HMRC, taxpayers and agents still have lots to do ahead of April 2026. It’s also disappointing that, despite its already long and chequered history, the main building blocks of MTD – in particular the requirement for quarterly updates – have never really been up for debate.

Visit our dedicated Autumn Statement 2023 hub here to find all related articles from our experts.

Replies (36)

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Head of woman
By Rebecca Cave
22nd Nov 2023 16:46

The changes to the cash basis will also make MTD reporting easier.

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Replying to Rebecca Cave:
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By Calculatorboy
25th Nov 2023 20:44

No it won't, it means that small businesses that keep decent accounting systems are going to have to spend a huge amount of time calculating numerous idiotic reversing journals every quarter for their debtors and creditors , stock and wip in order to file digitally from their system to nutjob hmrc

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Replying to Calculatorboy:
Morph
By kevinringer
26th Nov 2023 07:44

Quarterly reporting for MTD ITSA does not require any quarter end adjustments; no stock, no WIP, no prepayments, no accruals. This applies regardless of whether the reporting basis is cash or not. But it means whatever is reported is not the actual profit, so is meaningless. At the end of the year, some adjustment is required regardless of whether reporting basis is cash or not. Curiously, it's that end of year return that was abolished in the autumn statement. This is not to be confused with the Tax Return, which is still required under MTD ITSA (called the final declaration in MTD-speak). https://www.gov.uk/guidance/using-making-tax-digital-for-income-tax

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Replying to kevinringer:
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By johnjenkins
27th Nov 2023 08:46

It's quite funny that HMRC first came out with MTDQU is so that less errors are made and that they can forcast what your tax liability is likely to be. Having proved them wrong they now decide that MTDQU is to make sure that business are compliant digitally. I really don't think it will ever happen.

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Replying to johnjenkins:
Morph
By kevinringer
27th Nov 2023 09:13

Yes John, HMRC move the goal posts when they realise their argument doesn't stack up. A good example is the cost of MTD. Initially HMRC said businesses would incur less costs through MTD compared to their current systems. Despite being presented with loads of evidence that proved costs would increase, HMRC didn't accept this at all for a few years. Gradually HMRC changed its tune as HMRC realised they were wrong (aren't they always?), and HMRC then said the cost saving would be smaller than initially claimed by HMRC, then HMRC admitted there would be a slight cost. Now HMRC is silent on costs, presumably because HMRC do now agree the cost of complying with MTD ITSA is significant.

HMRC now need to realise that QU does not prove digital records. I was speaking to an accountant recently who said they still maintain manual VAT records and input the totals into bridging software. HMRC therefore assume this accountants' clients maintain digital records. The irony is that this accountants' manual VAT is probably more accurate than many business' own spreadsheets.

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By AdamJones82
22nd Nov 2023 16:48

It shows how ridiculous this scheme is (was?) that foster carers were even ever under it. Currently all that is required is to tick a box to say foster care provisions apply, job done. Never known a foster carer be paid more than the allowances!!

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Replying to AdamJones82:
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By rmillaree
22nd Nov 2023 17:07

Never known a foster carer be paid more than the allowances!!

we have a few that have exceded limits for sure

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Replying to rmillaree:
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By AdamJones82
22nd Nov 2023 18:33

Must be under a very generous local authority then

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Replying to rmillaree:
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By mbee1
22nd Nov 2023 19:05

rmillaree wrote:

Never known a foster carer be paid more than the allowances!!

we have a few that have exceded limits for sure

We have a number of clients where income is well in excess of £50K.

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Morph
By kevinringer
22nd Nov 2023 17:10

"The final area where we are promised some sensible relaxations is joint landlords. In particular, they will be able to opt out of quarterly updates and keep simpler records in respect of jointly owned property.

This should simplify record keeping and reporting, and reduce the need for joint property owners to share records multiple times a year. However, it does mean that any in-year tax estimates joint landlords receive under MTD are likely to be even more inaccurate than usual."

As has been demonstrated in other threads, quarterly reporting will result in inaccurate tax estimates anyway. I would go as far as saying quarterly reporting will result in misleading tax estimates.

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Replying to kevinringer:
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By Open all hours
22nd Nov 2023 20:46

In what other context could an organisation deliberately mislead its ‘customers’ about how much they owe and not find themselves under sanctions?
Quarterly reporting with an HMRC calculation attached is dangerous, potentially distressing and must be stopped.

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Replying to kevinringer:
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By WhiteRose
23rd Nov 2023 08:39

My guess is that we are heading towards quarterly payments as well

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Replying to WhiteRose:
Morph
By kevinringer
23rd Nov 2023 09:21

I have no problem with quarterly payment. For some clients, it will help cashflow. If HMRC/Government want quarterly payments, then go for it. VAT is quarterly. What I object to is digitisation of transactions and quarterly reporting because these put a huge burden on small businesses for no gain.

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By GHarr497688
22nd Nov 2023 17:15

Watered down , half baked and not at all what MTD is supposed to be about...........

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Jennifer Adams
By Jennifer Adams
22nd Nov 2023 17:16

Not much cheer here then - it would have been better to have cancelled the whole MTD thing altogether.

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Replying to Jennifer Adams:
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By AdamJones82
22nd Nov 2023 18:34

It will come, it keeps getting watered down as time goes on until it will soon be fully dluted

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Replying to Jennifer Adams:
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By Open all hours
22nd Nov 2023 20:47

What will Rachel do?
(Copy notes made by someone else is my guess.)

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By ireallyshouldknowthisbut
22nd Nov 2023 17:24

April 2026 eh?

2026 will mean a full scale pilot from April 2024 in order for the first returns to be filed by Jan 2026 and so before the mass compulsory roll out from April 2026.

Hmmm. Seems unlikely given they have majorly annoyed all the main software co's and no-one seems to be working on the projected as AFIK the old pilot is only open to a handful of developers.

Keep dreaming.

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Replying to ireallyshouldknowthisbut:
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By rmillaree
22nd Nov 2023 17:37

2026 will mean a full scale pilot from April 2024 in order for the first returns to be filed by Jan 2026 and so before the mass compulsory roll out from April 2026.

the forced vat stuff was done at pretty short notice wasnt it - wouldnt put it past hmrc to not have full scale pilot - not sure what you mena by ful scale is it not already up and running in theory ?

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Replying to rmillaree:
By ireallyshouldknowthisbut
22nd Nov 2023 18:38

VAT had a proper pilot and was only a single reporting period for 8 numbers. rather than an annual cycle report over 22 months with year end adjudtments. It'd infinitely less complex. The new tax return to be populated from quarterly reporting doesn't even exist. They could have a 100 percent lame duck quaeterly reporting not integrated to anything but one assumes even hmrc are not that mad albeit it has been mooted. To be on for April 2016 in any seriousness we would need it all more or less complete now for the pilot starting April 2024. Its simply not a serious project.

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Replying to ireallyshouldknowthisbut:
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By johnjenkins
23rd Nov 2023 09:44

Although I agree with you, he did say that he was going to make sure HMRC were adequately financed. Now that could mean he's giving them more money or it might be an HS2 scenario.

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Replying to ireallyshouldknowthisbut:
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By Latinaid
27th Nov 2023 11:59

ireallyshouldknowthisbut wrote:

April 2026 eh?

2026 will mean a full scale pilot from April 2024 in order for the first returns to be filed by Jan 2026 and so before the mass compulsory roll out from April 2026.

That would leave 3 months for them to fix any issues which arise in the January 26 pilot filing. Given that HMRC take 3 months to open their post, I think this is, to say the least, unrealistic.

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By NotAnAccountant2
22nd Nov 2023 17:37

Quote:
and will instead be built into the Final Declaration process. However, it’s not yet clear how this will work if a taxpayer’s software cannot support their full Final Declaration.

More genius from the big software suppliers "advising" hmrc.

That "property" app that was going to do MTD for you.
"Oh, you make gift aid payments? We don't handle that".
"Oh, you're subject to HICBC, we don't do that".
"Oh, you make RAS pension contributions? We don't support that"
"You extended a lease and there's some CGT to pay? I know it's still the same property but we're only for tax on rental income"
"Oh, you received a taxable redundancy payment? I know you've used our app for the last five years but ..."

Quote:
The final area where we are promised some sensible relaxations is joint landlords. In particular, they will be able to opt out of quarterly updates and keep simpler records in respect of jointly owned property.

I am completely at a loss to understand why HMRC have made such a meal out of this. Ignoring how tax is calculated (and how profits are apportioned), I don't see why treating rental property and partnerships the same way (for MTD) wouldn't work.

However, As my only contact with MTD quarterly reporting would have been jointly owned property I'm very pleased that HMRC have thrown up their hands and given up!

I'm guessing there will now be a mad scramble for landlords to put a second name on their properties.

Jointly Owned Properties Ltd.

Are you a landlord subject to MTD quarterly reporting? For an initial fee of 1000 our solicitors will add us as a second legal owner of your property with a 0% beneficial interest. For a monthly recurring fee of 10 (100 if paid annually in advance) you will then be exempt from MTD quarterly reporting.

[smallprint] We will not sign any TR1 forms until all our fees are paid up to date.

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Replying to NotAnAccountant2:
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By moneymanager
22nd Nov 2023 22:42

and another little wrinkle, a partially exempt (for VAT/) residential landlord registered because of unrelated car parking activities, fortunately now with full MTD exemption grantd.

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Tornado
By Tornado
22nd Nov 2023 18:11

As I have said elsewhere, four inaccurate quarterly Returns a year is no better than five inaccurate Returns a year. We already have the ideal situation with just one Accurate Return a year.

MTD is dead to me as I still cannot see how all the the valid points against this madcap scheme made in hundreds/thousands of posts on AWEB alone have been addressed, and most of these latest proposals are just new ideas with nothing to back them up. When will all of this be ready to use?

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Replying to Tornado:
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By AdamJones82
22nd Nov 2023 18:35

As Rose in Titanic said at the end "It's been 84 years".....

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Replying to AdamJones82:
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By Postingcomments
22nd Nov 2023 22:02

At least she was fondly remembering a good shafting.

We and the taxpayers will end up with a very long and unenjoyable one. My only pleasure might be if the greedy software companies end up getting one too.

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Replying to Postingcomments:
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By AdamJones82
23rd Nov 2023 15:41

They've been fellating HMRC since MTD was announced and got their rewards by getting people signed up who didn't need to be

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By adjadj
22nd Nov 2023 21:50

The gap between the two implementation phases remains too short. The second phase starts before the end of year processing of Phase 1.

HMRC will be dealing with the first end of year processing of phase 1 whilst onboarding an even larger number of Phase 2 taxpayers.

I anticipate an emergency delay of phase 2 thus wasting all the effort that people had put in to achieve this nonsense implementation date.

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By moneymanager
22nd Nov 2023 22:37

"It’s now over eight years since George Osbourne announced the ‘death of the tax return’ "

With so many reporting requirements under MTD, the supposed (promised?) death of the tax return seems more like the death of Dracula without a stake, garlands of garlic, and a silver bullet.

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Replying to moneymanager:
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By possep
23rd Nov 2023 08:11

Dracula isn't a werewolf. Silver bullets are for them.

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By listerramjet
23rd Nov 2023 08:54

and yet the whole thing is still stupid, pointless and expensive, with no benefit to anyone!

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By Twickers Call
23rd Nov 2023 09:54

If the joint Landlords are allowed to opt out of quarterly update why in-year tax estimates should be issued to joint landlords ?
Utter nonsense and unrealistic to introduce MTD for Landlords.

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By Eric T
23rd Nov 2023 10:57

With the removal of so many categories from the need to submit quarterly reports, does this not mean that the original aim of abolishing the annual tax return cannot be achieved?

Wasn't that the main selling point of MTD?

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Replying to Eric T:
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By rmillaree
23rd Nov 2023 11:46

it simply never made any sense - either way its fairly obvious a submision after tax year end will be needed to confirm info - they are trying to make it ridiculously complicated when tax return does the job in no nonsese fashion.

for example how does it work with 3 monthly filing and p11d's ? these are not issued till late june or July - i would guess its highly likely hmrc wont want to be waiting till july for last 3 monthly submission - if its final submission confirming everything whats the point of the earlier stuff - ridiculous nonsense from people who dont have a clue about what they are making decisions for.

We really need a simple body of 5-10 volunteer practicing (not 500k a year pwc chaps who dont have a clue or care about technicalities) accountants that advise what will work and what wont and whats needed and can hold hmrc to acount - peeps who just want to finds best medium term solution.

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By steve 12321
02nd Dec 2023 19:23

I though this was funny - see below - in the context MTD for ITSA! Perhaps she can be our champion to stop this non-sense for exactly the reason she quotes below "they (Labour) always load burdens onto businesses" - seems quite relevant to the journey they are on with MTD for ITSA

"Labour’s net zero plans have been heavily criticized by former Environment Secretary Theresa Villiers.

The Chipping Barnet MP said: “Labour don’t understand that it is business and enterprise that create the growth we need to raise living standards.
“They always load burdens on to business. Their ideological approach to net zero will damage our economy. We need the kind of pragmatism on reducing emissions that the PM has set out, not green dogma from Labour.”"

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