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Making Tax Digital extended from April 2022

A new ambitious plan to digitise tax administration will extend compulsory MTD filing to all VAT-registered traders from April 2022 and to most self-employed traders and individual landlords from April 2023.

21st Jul 2020
Tax Writer Taxwriter Ltd
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Treasury
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On 21 July the Treasury set out a first draft of the government’s ten-year plan to modernise the tax administration system. This includes restarting the making tax digital (MTD) program which had ground to a halt in the face of Brexit and the coronavirus pandemic.

MTD for VAT

Currently the MTD regime is compulsory for VAT registered traders who are required to be VAT registered as they have taxable turnover of over £85,000. An estimated one million VAT registered businesses with lower annual turnover are not required to enter the MTD regime as they are automatically exempt on the basis of their low VATable sales level.  

The written statement from Jess Norman, Financial Secretary of the Treasury, confirmed that all VAT registered traders will have to use MTD compatible software to file their VAT returns with effect for VAT periods starting on and after 1 April 2022. They will also be required to keep the VAT records in a digital format.

Around 30% of these small VAT-registered businesses have already been using MTD software voluntarily. However, the strategy paper says “there have also been lessons learned, which will be used to inform and shape the introduction of the next phases of digital implementation”.      

MTD for income tax

The MTD programme was originally planned to start with quarterly reporting for income tax, but the focus switched to VAT as it was perceived to be an easier transition for businesses that were used to making at least quarterly returns.

The ten-year plan sets a goal of April 2023 for micro self-employed businesses and unincorporated landlords to commence quarterly reporting through MTD software, and to keep digital records. Around four million unincorporated businesses and landlords with annual turnover exceeding £10,000 per year will be drawn into MTD.

However, the roll-out may be different to that initially envisaged as HMRC says it will draw on everything that has been learned from the implementation of the VAT service to date, and responses to the MTD evaluation document, which was published in March.

MTD for corporation tax

We have been waiting nearly four years for a consultation document on MTD for corporation tax, and now we are promised such a paper will be published in the autumn.

There is no mention of MTD for complex bodies such as large partnerships. When MTD for income tax was first proposed it was quickly apparent that quarterly reporting would not be practical for very large partnerships and LLPs which operate more like companies, but are legally partnerships where the individual partners pay income tax.

The thorny problem of mixed partnerships - LLPs with corporate members - was not addressed at all in the original MTD proposals. It will be interesting to see if the consultation paper released in the autumn squares the circle of corporation tax and income tax reporting by the same body.

Paying the right tax

The second strand of the tax administration strategy is to explore the timing and frequency of tax payments, to make them more “real time” to align with the reporting of tax information. It admits that the technology infrastructure will have to be changed to support such tax payments. However, real time tax reporting under MTD can be introduced without changing tax payments.

HMRC says it wants to make it as easy as possible for people to pay the right amount of tax and make it harder for taxpayers to avoid paying tax. The government argues that using digital technologies, which permit HMRC to make interventions earlier, will prevent tax loss and reduce the tax gap. 

Improve administration 

The third part of the strategic plan addresses the UK’s creaking tax administration framework, much of which is over 50 years old, going as far back as the Taxes Management Act 1970. The government will publish a call for evidence later in the year to help identify a range of reforms to include:

  • Obligations of taxpayers and HMRC
  • Penalties and sanctions for failing to comply with obligations
  • Taxpayers rights and safeguards
  • How taxpayers are identified and register with HMRC
  • How tax liabilities are identified amended and assessed.

The plan says “Taxpayers should be able to view their tax position and tell HMRC anything it needs to know through a single online account.” This implies that the personal tax account and business tax account will be merged - something the CIOT has long called for.

Steady change 

The final section of the strategic plan warns against rushing change and emphasises that getting the foundations of a new system right is an important first step. The government wants a genuine open debate about long term reforms such as changing tax payment schedules. It also says that HMRC will ensure that its services can continue to be accessed by those who are digitally excluded.

To find out more about the future of MTD and discuss the implications with fellow accountants, join Rebecca Benneyworth, Paul Aplin and Brian Palmer for AccountingWEB Live's Great Debate at 9am on Monday 3 August. 

Replies (26)

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By johnjenkins
22nd Jul 2020 09:35

Wow! Is this finally an admission from HMRC (or whoever) that MTD needs time to be implemented properly? Or just too much more important stuff to deal with.
Let's hope this new regime actually listens to our fears and ideas instead of blindly heading into the thicket.
I still have grave doubts that quarterly updates linked to real time tax payments will work.
Let's just take a simple example. Business has a contract which is very lucrative so big quarter, big tax bill, then business thinks right we can upgrade our equipment, oops no money as had to pay a big tax bill which really shouldn't be due until normal due date. Unless, of course there is a provision (which is in place at the moment) to reduce the RTI payments for whatever reason.

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By 0098087
22nd Jul 2020 09:37

So..who's going to tell the clients who have no interest in going with software? Who's going to have the time to show them how to use it...Unnecessary...

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By philaccountant
22nd Jul 2020 09:39

"The second strand of the tax administration strategy is to explore the timing and frequency of tax payments, to make them more “real time” to align with the reporting of tax information."

Despite (if my memory serves me correctly) HMRC promising from day one this was never the intended goal, here we are.

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Replying to philaccountant:
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By Peter Bromiley
22nd Jul 2020 10:39

Quelle surprise! They want our money earlier. Who would ever have thought it.

They could have just said this and let us/businesses decide whether to go digital or not.

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By 0098087
22nd Jul 2020 09:42

When should I tell them..should I do it now when they have nothing else to worry about or when we have the whole world vaccinated by the end of 2021.

I'm sorry..this is insane when the country is dealing with a pandemic..

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By North East Accountant
22nd Jul 2020 10:29

The big risk is we spend years and untold 10 of £1,000's preparing and then on 29th March 2023, HMRC announces a delay until 2027 as the tax system is too complex and can't cope with it or some other such reason.

Here's a daft idea.

Why don't HMRC actually ask people who know what they are talking about, listen to what they say, and act on it. Work together to create a decent system.

Oh, hang on we had that, working together.... or pretend to listen and do what we want anyway.

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By C J EYRE
22nd Jul 2020 10:32

Thanks. Just made my mind up that I retire on 31 January 2021. Being an older Accountant, I just do not feel up to trying to get and train my clients, who do not have computers, do not understand computers, and do not want a computer all about MTD.
Personally I can see many of our older small property repair type clients officially retire and then do cash in hand jobs, at a Tax loss to the Revenue, plus any state benefits they can then claim.

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Replying to C J EYRE:
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By AWeb72
22nd Jul 2020 10:40

Dont rush to retire. Some people did that when Osborne announced MTD and look what happened there

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Replying to C J EYRE:
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By North East Accountant
22nd Jul 2020 12:05

Under the guise of Covid-19 safety maybe they plan to abolish cash so all payments must be made electronically.

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By L Haldane
22nd Jul 2020 10:48

You can add my name to the list of accountants opting to retire before the madness begins.

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By 0098087
22nd Jul 2020 10:59

Cant afford to retire!

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By AWeb72
22nd Jul 2020 11:26

This is starting to read like replies to the original announcement. I almost made what would have turned out to be bad decisions based on what was announced then. I would hold off. Look at MTD for vat. Even now we can still just copy and past the 8 box number entries nothing more.

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By puzzel
22nd Jul 2020 19:09

Maybe not so much a copy and paste, but extract a report to excel.
Problem being when you have a refund, you have to remove the "-" from box 5.
Hey Ho,so is life.
It is not manual input, but deletion!

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By petestar1969
22nd Jul 2020 11:36

Hmm, so I need to retire before April 2022 or at the very latest before April 2023? That might be doable....

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By Ian McTernan CTA
22nd Jul 2020 12:30

So April 2023 is when millions of people who have zero interest in using a digital system and making quarterly filings will be forced into doing so....

I can just imagine the joy this will bring to the struggling landlord with one property who pays an agency fee to the estate agents, then pays us to do the filings, then isn't allowed a real deduction for his actual expenses (mortgage interest)- I guess it's time to increase rents if you ever want to make a real profit!

Huge amount of extra work for us (which we don't really want) and a lot of unhappy customers forced to pay more for something none of us want to do.

I predict an even worse mess than MTD for VAT as at least with VAT people were used to filing quarterly plus their businesses were sufficiently large to warrant it and bear the costs, but for small self employed and landlords this is going to add significantly to costs and hassles with zero benefit to the client.

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Replying to Ian McTernan CTA:
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By North East Accountant
22nd Jul 2020 13:00

Spot on Ian.

And when you have landlords with one bank account for properties in the following names;
their own
joint with wife
wife only
joint with brother - 50/50 split
joint with bother - 60/40 split
joint with son - 50/50 split
joint with son - 60/40 split
son only
wife and son

your head explodes at the thought of it!

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Replying to Ian McTernan CTA:
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By Carolynne
22nd Jul 2020 14:58

Exactly my thoughts Ian. The smaller one man band clients will not be happy, having to pay me for the more regular processing of their figures for HMRC, and how does a stand alone practitioner like me (who does not want to expand or take on staff), handle all this additional work? I am doing far more than I used to, with all the revamps HMRC have had in the last 5 or 6 years. It's getting grim and bleak for those of us doing the work too.

I bet they will again start to carp on about how many £millions will be saved by companies on this one, instead of opening their eyes on the costs it will reign down on the small companies who simply won't be able to afford it.

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Replying to Carolynne:
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By C J EYRE
22nd Jul 2020 16:10

As I started this, let me ask how many Accountants have completed the new Capital Gains Tax Return. I have completed 2 so far, a joint let property. Don't quite understand why we have to do so much work. Firstly the clients have to open a Government Gateway, fortunately they both had a computer, and then they had to click on complete CGT Return. They get a number which they have to then send to me. I then had to open an Agents Service account and enter this number in the appropriate box to then be given an Web address to sent to both my clients who have to then tick it to authorise me to act on their behalf, before then letting me know they have done that. I then complete the CGT Return, but have to estimate how much Tax they have to pay and let them know the Tax Reference they have to put on the back of their cheques. Then I understand that I have to put all these figures again on next years Tax Return and adjust any payment accordingly. And all this has to be done within 30 of the sale.

Its all a waste of time, no wonder I am looking at packing it all in next January.

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Replying to Ian McTernan CTA:
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By puzzel
22nd Jul 2020 19:17

A lot of letting agents are already geared up to reporting the income and expenditure of rental properties, more so for those that live abroad.
Many letting agents are also required to submit an annual return to HMRC of there landlords and rental income, and has been so for a good few years.
The work load will pass more to the letting agent and not use.
More a case of the landlord pays his tax on a monthly basis, then an adjustment at the year end.
CIS scheme springs to mind

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By ireallyshouldknowthisbut
22nd Jul 2020 13:03

Nothing has changed at since it was an appalling idea first time around.

I imagine the fact that VAT reg businesses are paying out money to use a third party software to file VAT is somehow a "success".

Despite the fact that for many business the only change has been to type the numbers into bridging software.

HMRC have not check or audited a single MTD process at client end to my knowledge and yet trumpet the 'success' of squandering millions of pounds developing a system which did what the old system did, just with slightly less functionality and a huge cost burden for businesses in the middle.

Given we were told this would (somehow) save business time and money AND magically increase the tax take, the big question is, how much more VAT have they collected as a result of MTD? It was supposed to be billions.

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Tornado
By Tornado
22nd Jul 2020 13:26

Thank you for the article Rebecca which is very good as usual.

I have read it and can now forget it as there are a million more important matters to deal with over the next few years (like survival) than the unworkable aspirations of MTD.

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Jennifer Adams
By Jennifer Adams
22nd Jul 2020 16:48

philaccountant is absolutely right.

Ages ago when this MTD fiasco was first announced we all thought that the real reason was quarterly payments for all and guess what.... our fears have come to fruition.

However, I'm going to follow Tornado's stance.

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By EnglishRose
22nd Jul 2020 20:47

They never make things less work or easier.....
I just got my MTD for VAT exemption letter this week so I thought I could forget about all this and keep with my paper records......

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By KABcraigmore
22nd Jul 2020 21:43

So exemption from MTD being removed from all VAT registered traders. What about the flat rate scheme for farmers? This doesn't require VAT returns. So presumably still exempt from MTD?
Another reason for opting for the scheme! ( Apart from no self supply on deregistration from full registration and 4% retainable VaT charge on outputs to other registered traders and no quarterly returns-win-win!!)

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By K81
23rd Jul 2020 16:02

sigh, wish I could retire too!
I have seen a move away from letting agents in recent years & a move back to bringing me rent books to photocopy & receipts in a bag.
I don't even know where to start with this.
cup of tea isn't going to help this one.

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By SXGuy
25th Jul 2020 20:27

Surely everyone can see that post corona we should be removing burden on small business not adding more.

There will clearly be an increase fee burden on the client, and at a time when we should be making it easier for new small business start ups, mtdftax won't help.

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