HMRC has expanded its Making Tax Digital income tax pilot to accept quarterly updates from individual landlords with simple tax affairs.
In a release this week the tax authority stated that taxpayers would be able to opt out of the current self assessment regime and use software to report their income tax if at least one of the following applies:
They are a sole trader with income from only one business
They rent out only UK property but not as furnished holiday lettings
“If you have income from any other sources,” continued the statement, “you may still have to report it using a self assessment tax return.”
Those with income from furnished holiday lets are not included in the current wave.
Agents can also sign up clients to the Making Tax Digital (MTD) for income tax pilot.
To join the pilot taxpayers must be capable of keeping digital records of their business transactions, and commit to sending income tax updates to HMRC at least on a quarterly basis using MTD-compliant software, instead of filing a self assessment return.
The AAT’s Tax Policy Adviser Brian Palmer called it “another step in the right direction,” but pointed out that the list of software developers with income tax MTD-compliant software remains low. At time of publication there are currently just four software providers on the list: Absolute, Forbes, Iris and Rhino, but the Rhino product isn’t open to tax agents and the Iris product is only accessible by tax agents.
Palmer puts the relative shortness of this list down to Financial Secretary to the Treasury Mel Stride’s decision to reverse the order of MTD mandation by rolling out MTD for VAT ahead of income tax.
“Since his announcement,” continued Palmer, “most software companies refocused resources to ensure their delivery of MTD-compliant VAT products well before next April's deadline.”
The ICAEW’s Tax Faculty understands that approximately 20 providers are working with HMRC on the MTD for income tax pilot, with more products to be added to the list as the pilot progresses.
However, some providers may wait until the full suite of APIs has been released by HMRC, and others may wait until MTD for income tax becomes mandatory.
According to the ICAEW, HMRC expects to release APIs (Application Program Interfaces) to allow software companies to develop the functionality to allow all types of income to be reported using MTD for income tax software, but there is no definite timeframe for this at the moment.