HMRC has opened up its Making Tax Digital income tax pilot to allow all self-employed to register after a near year-long limited testing phase, with unincorporated landlords likely to follow next month.
In an announcement last week, the tax authority stated that self-employed businesses can now voluntarily use software to keep their business records digitally and send income tax updates to HMRC instead of filing a self assessment tax return.
While tax commentators have given the ‘soft launch’ a cautious welcome for moving the project forward, only the self-employed, and only two software houses currently have software capable of filing the quarterly updates required.
What software is available?
HMRC has also published a list of software providers ready to support the MTD pilot for the self-employed or their tax agents.
At the time of writing, there are just two names on the list currently capable of filing the quarterly updates required for MTD: practice software giant IRIS and Rhino, a solution provided by Leicestershire-based Rhino Software. However, HMRC is confident they will soon be joined by others.
In the final paragraph of the list, HMRC also states that it "doesn’t recommend or endorse" any one product or software supplier, and "isn’t responsible for any problems you have with software.".
According to the AAT’s tax policy adviser Brian Palmer, the lack of MTD-compliant software products for income tax is hardly surprising given last year’s announcement that rollout of the project would be delayed for all businesses under the VAT threshold.
“As a direct consequence,” said Palmer, “software providers switched their resource to ensuring their products will be capable of filing MTD-compliant VAT returns.”
With the VAT-MTD pilot is projected to start next month, many vendors AccountingWEB spoke with are confident they will have products ready to coincide with the start of the VAT-MTD private testing.
What are the implications of the launch?
The AAT’s Brian Palmer stated that he does not expect a “headlong rush” by the self-employed to onboard for income tax purposes, given there are only two income tax update filing solutions available and mandation places the emphasis squarely on VAT.
“However, I do anticipate that if the VAT MTD-pilot is a success, and the subsequent mandation phase goes well, there will be a slow but steady stream of self-employed businesses joining the income tax pilot,” said Palmer, although he did go on to base this on a greater range and depth of MTD for income tax-compliant software becoming available.
According to Palmer, if accountants and tax advisers believe the pilot is going smoothly they may decide self-employed start-ups should be on-boarded straight into MTD to avoid the need to transition from the current regime when mandation comes arrives in 2020.
*This article was amended 19 March to include the correct Rhino Software*
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