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MTD: A look back and forward to IT and CT filing

HMRC plans to make MTD mandatory for income tax from April 2023, with MTD for corporation tax starting no earlier than April 2026. Will those goals be achieved?

11th Dec 2020
Tax Writer Taxwriter Ltd
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The Making Tax Digital project was first proposed in the 2015 Spring Budget, when Chancellor George Osborne promised to “abolish the annual tax return”. His vision was that taxpayers would have information automatically loaded into their digital tax account and businesses would “feel like they are paying a simple, single business tax.”

He also promised make the tax affairs of self-employed people simpler and to abolish class 2 national insurance contributions (NIC).

So far, neither of the primary objectives for MTD have been reached, not even close.

The ambition was to digitise the reporting of self-employed business profits first, so by 2020 those taxpayers would be able to view their “complete financial picture” in their digital tax account, including their tax liabilities and entitlements.

Not so easy

The first HMRC paper about digital tax accounts was branded “Making tax easier”.

It took another 15 months for the skeleton to get a little flesh in the shape of six consultation papers issued in August 2016 that addressed aspects of the MTD project for income tax. I responded to the consultations with the help of AccountingWEB members, covering the issues of:

Change of direction

In July 2017 the accounting community was delighted when Paymaster General Mel Stride announced that MTD for income tax would be pushed back to at least 2020, but MTD for VAT would start in 2019.

MTD for VAT did start on schedule in April 2019, with only a select bunch of more complex businesses having to defer their entry to the MTD regime until October 2019. However, public sector bodies that use the GIANT system to report VAT won’t join MTD until 2022.

The last few steps of the VAT project are due to come online from:

  • April 2021 – compulsory digital links to transfer VAT data through the accounting system
  • April 2022 – mandation of all VAT registered businesses within MTD.

Income tax vision 

The digitalisation of income tax was always going to be more complex than MTD reporting of VAT, which essentially replaces the partly manual process for delivering the VAT return with an automated one. No additional reports are required and no additional data is transmitted.

MTD for income tax will require the taxpayer to deliver four new quarterly reports, with a finalisation of figures in a fifth and final report that may in some cases replace the annual self-assessment return.

This frequent reporting will only be achievable if traders keep digital records in real time. I raised 12 technical questions about MTD for income tax for income tax in April 2017 and they remain largely unanswered.    

The pilot for MTD for income tax started in April 2018, but at the time of writing there are still only six MTD-compatible software packages for income tax, and the numbers  of taxpayers and agents participating in the MTD pilot have been very small.   

Corporate tax future

The consultation on MTD for corporation tax and complex businesses was first promised for the spring of 2017. Complex businesses were defined as large partnerships with income of over £20m and mixed partnerships that include both companies and LLPs or individuals. 

Some three and half years later 2020 HMRC finally issued a document in November addressing MTD for corporation tax, but nothing has appeared for complex businesses. Although the first virtual event to discuss this consultation is aimed at large partnerships, which generally pay income tax not corporation tax.

More quarterly reports

The MTD reporting for corporation tax will have more in common with the structure for income tax than VAT. Quarterly reporting of income and costs that fall in 28 categories will be required, although the number and scope of these categories is up for discussion.

Companies will still have to tag all their accounting totals for iXBRL in order to submit the annual accounts to HMRC. This means that a company within MTD will be submitting five reports to HMRC in respect of its accounts, plus four quarterly VAT returns, and 12 RTI returns for PAYE.

The government seems to be basing its assumptions about the ease of adopting MTD for CT on the experience of MTD for VAT, which as I explained above, is a very different animal.   

Join Rebecca Cave and Rob Ellis on AccountingWEB Live this Monday for a special Making Tax Digital edition of Any Answers Live. Rebecca and Rob will answer YOUR questions on the digital roll out and give an update on where we are with MTD. Reserve your place now

Any Answers Live

Replies (32)

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ghm
By TaxTeddy
11th Dec 2020 09:47

George Osborne's original vision seems awfully naive now, doesn't it? Although, to be fair he probably had software salesman whispering in his ear and telling him it was all easily achievable.

Probably those same salesman are still talking to the Treasury today. I can't help but think that tax software is fast becoming the 21st century equivalent of snake oil.

And as for MTD for income tax - well, if I can quote from the above article; "This frequent reporting will only be achievable if traders keep digital records in real time." ......IF.......

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Replying to TaxTeddy:
By 0098087
11th Dec 2020 10:16

Yes we get these emails that tell us how easy it for cloud accounting. Still 70% of ours are on paper or just excel and they have no interest/idea of cloud accoutning.
Treasury living in a dream world

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Replying to 0098087:
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By C J EYRE
11th Dec 2020 11:22

How do you get 30% of your clients using software. Most of my clients are older people with small none VAT registered businesses, moving towards retirement age, with no knowledge or inclination to use computers.On checking., I find I actually only have 3 using soft wear.

Many of my clients will call it a day if they are pushed into using soft wear, including myself.

Personally I can see the rise in cash in hand jobs by the tradesmen, when they take early retirement..

With the MTD ideas of clients doing quarterly submissions, then there will be no need for us Accountant, Ha Ha, until they find they need accounts for a loan or mortgage.

I have pushed things along this year because of the uncertainty of the virus, so I am in the happy position of only having 2 Tax Returns to submit before the 31 January deadline. Usually I am still submitting up to the deadline.

Looking forward to a restful Christmas and January, so a Merry Xmas and Happy New Year to all readers.

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Bee
By May bee
11th Dec 2020 10:06

Aaarrrgggghhh!

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Replying to May bee:
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By lh3f9764bg1g
11th Dec 2020 10:20

YeeeeeeK!

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By jon_griffey
11th Dec 2020 10:23

If it comes to quarterly income tax and corporation tax filing then there will be a jobs bonanza for accountants. There already seems to be a very noticeable shift in the number of clients who cannot be doing with MTD and RTI etc and are passing the whole bookkeeping function to their accountants, and just having to swallow the cost. Will accounting firms have to double their staff to cope with the extra work? Can we even get the staff?

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picture of a mushroom
By mushroom_dept
11th Dec 2020 10:25

When I refer to MTD these days I mean Making Tax Difficult!
Far from making VAT more accurate the use of MTD for VAT inevitably means that errors are not correctable until subsequent periods because the ledgers for the reporting period are closed. Therefore VAT reporting is always going to be less accurate under MTD than it used to be.
I am not sure whether MTD for PAYE will make a huge difference to a small monthly payroll but I can see MTD for Corporation tax being much more difficult.

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By Kathryn15
11th Dec 2020 10:31

Is it not April 2023 for MTD for Income Tax?

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Replying to Kathryn15:
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By NewACA
11th Dec 2020 18:51

Correct!!

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By brianpinderayres
11th Dec 2020 10:32

I understood that MTD for IT was mandated from April 2023 rather than 2022 - has that changed ?

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Replying to brianpinderayres:
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By Geoff56
11th Dec 2020 12:43

My understanding is that MTD for income tax applies to the first accounting period beginning on or after 6th April 2023, so landlords will be caught for 2023-24, but self-employeds with a 31st March year end won't be dragged in until 1st April 2024 i.e. 2024-25.

The lecturer who said this, suggested people might want to look at adopting a 31st March year end before 2023.

Personally, I think the whole thing will be completely unworkable in its proposed form. My clients won't engage and won't cope (and neither will I). It's all madness. Completely bonkers.

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Replying to Geoff56:
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By DMBAcc
11th Dec 2020 16:18

Nor will I cope. I shall wait until a few months before to see what amendments have been made. Also I am expecting a free MTD upload facility. My clients will carry on using excel and I am sure I shall be able to find some one to show me how to upload summary info from my clients current data sources. I shall be holding out to NOT pay all George Obsorne's friends who own accounting package firms. Having had my tax payments stolen to pay these [email protected]@ars in the first place I don't see why I should pay a second time. Same old, same old rob the small tax payers in order to feather the nests of Gov't friends.

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By North East Accountant
11th Dec 2020 10:53

Before moving house you have a big old clear out chucking out all the crap that has accumulated, especially in the loft and garage.

It seems odd then that there is no mention whatsoever of clearing out the tax system, streamlining and simplifying the crazy rules before having the biggest move in the history of tax.

Based on the shambles they have made with Brexit trade rules (20 days to go and still no-one has a clue what the rules are going to be) it's going to make 2020 and furloughing etc appear like a piece of cake in comparison.

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Replying to North East Accountant:
By 0098087
11th Dec 2020 11:35

Farage should be sent to the Tower

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Replying to 0098087:
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By martinhayward
11th Dec 2020 16:04

Along with the 17 million who agreed with him?

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Replying to North East Accountant:
By 0098087
11th Dec 2020 11:35

Farage should be sent to the Tower

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Replying to North East Accountant:
By 0098087
11th Dec 2020 11:35

Farage should be sent to the Tower

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Replying to North East Accountant:
By 0098087
11th Dec 2020 11:35

Farage should be sent to the Tower

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Replying to 0098087:
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By North East Accountant
11th Dec 2020 13:41

It'll be a bit full if they put all politicians in there who should be.

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By Marlinman
11th Dec 2020 12:30

Abolishing the annual tax return will never be possible as many figures are not known until the year end. The quarterly submissions will not affect the tax liability and just make a lot of unnecessary work unless you just fire off random numbers and then put it all right in the final return.

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By Mr J Andrews
12th Dec 2020 09:59

I do find it difficult explaining to most clients the dumb ambitions , visions and promises of a former Chancellor ; he who was found by the Parliamentary Commissioner to have breached the rules on Expenses about record keeping .
How will MTD improve my record keeping asks Dick the carpenter - his craftmanship is top notch but will never catch up with digitalisation . Eighty five year old Derek , sharp as ever with his rentals who has never had time for computers . Both maintain excellent records. It's all very well saying I can do the additional work following the blatant lies about making life easier but at what additional cost to Dick and Derek ?
Why continue this nonsense when everyone knows the vision was tunnelled , the promises were broken and the ambitions went out of the window when Theresa removed the incumbent.
Derek , on the ball as ever is currently looking into the 1998 Human Rights Act , believing he is being discriminated against, forcing this additional work upon him is inhuman and degrading - Article 3 . Freedom of thought , belief and religion ; if the anti computer beliefs of Plymouth Brethren apply , why should Derek as a devout Welsh Baptist not have the same rights - Articles 9 and 14 . And not forgetting the commercial concerns which are of the taxpaying public interest - Article 10.
Good luck Derek. Watch this space.

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By AndrewV12
11th Dec 2020 12:46

George Osborne, he came and went, why cant MTD.

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By Slippy
11th Dec 2020 12:56

'Chancellor George Osborne promised to “abolish the annual tax return”'

'MTD for income tax will require the taxpayer to deliver four new quarterly reports, with a finalisation of figures in a fifth and final report that may in some cases replace the annual self-assessment return.'

Let's replace one relatively straightforward Return with 5 reports. Do they know how difficult it is getting the client to give us the information once? Let alone quarterly!

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Replying to Slippy:
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By KABcraigmore
11th Dec 2020 13:38

Lets get this straight. As far as I am aware MTD is only MANDATORY for VAT registered self employeds ie all those who escaped before because their turnover was below £85,000. At least the vAT registereds have got used to quarterly reporting. But, no plans, information, intentions, alternatives etc have even been talked about for that large band of non VAT-registered individuals that form the backbone of the practices of many of us. How-ever is the Government going to force computerisation on to the many thousands who dont want anything to do with it? These people have learned to live with the idea of parcelling up their meagre records and delivering them to us once a year who make some sense of it for them. Are they soon going to have to pay 4/5 times a year for an accountant, on their behalves to comply with a mandatory computerised quarterly filing system required by MTD?

Accountingweb should be careful with its headlines. Nothing makes me crosser than headlines in dailies which make sweeping claims to make the news understandable and punchy for its readers. Knowing better, I can let them get away with that but not this Medium that is aimed at the experts. Many of us (accountants) are just about clinging on to the roller coaster changes to the tax system but fake news headlines like these are just blood pressure raising for no good purpose.

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Replying to KABcraigmore:
By 0098087
11th Dec 2020 13:44

Um, it will be for everyone under MTD

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Replying to KABcraigmore:
rebecca cave
By Rebecca Cave
11th Dec 2020 13:54

KABcraigmore wrote:

Accountingweb should be careful with its headlines. Nothing makes me crosser than headlines in dailies which make sweeping claims to make the news understandable and punchy for its readers.


What didn't you like about the headline to this article?
Or was it another headline you are unhappy with?
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Replying to Rebecca Cave:
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By KABcraigmore
11th Dec 2020 15:04

Rebecca. The strapline that got me going was the statement implying that ALL businesses are or shortly will be subject to MTD. Changes occur in 2022 and 2023. But even then, lots of small businesses won' be affected-hopefully including me. I am not going to be providing advice on how to join MTD, hopefully to reduce my clientelle from 9 down to zero and then be free from the shadow of the HMRC-Anti Money laundering team.

I really don't know how HMRC are going to get compliance from those S/E with T/o £10,000 to £85,000 let alone those below £10,000. There has got to be a "simples" route for micro businesses otherwise the system will be a killer for lots of one man/woman businesses who have no ambition to grow beyond what they are happy to do. We can't have bureaucracy stifling and oppressing free enterprise

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Replying to KABcraigmore:
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By KABcraigmore
11th Dec 2020 15:08

Sorry . Rereading the strapline, I see it goes even further. MTD mandatory for "income tax". Thats all small businesses, all landlords, all persons on pensions and investment income. Quarterly returns for all these people can never work.

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By dmmarler
11th Dec 2020 14:20

We are being naive to overlook that quarterly reporting probably means quarterly tax payments are expected in the future. (I suspect most companies will make sure their busy/profitable months fall in the last quarter, but it will be difficult for those with uneven sales/costs distributions throughout the year.)

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Replying to dmmarler:
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By KABcraigmore
11th Dec 2020 14:41

I understood MTD was just being extended to VAT registereds who escaped last time just because their registration was voluntary, turnover being below £85,000. IS IT REALLY being extended to ALL self employeds irrespective of whether they are VAT registered or not? If so, I have listened to 2 webinars on the subject completely missing that point. Not only will it apply to my 8 remaining clients (I was told it doesnt apply to Trusts yet) but it would apply to me too! This can't be true!

To clarify, I know that VAT registered businesses status changes from 2022. From 2023 landlords and businesses with t/o > £10,000 will also fall into MTD. But there is no plan or policy which explains how that myriad of businesses with T/O < £10,000 can ever be taught to operate MTD

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Morph
By kevinringer
11th Dec 2020 17:38

I've been submitting digital tax returns to HMRC since 1998 so HMRC needs to catch up because tax is already digital. The big change is not tax, but transactions. MTD really means Making Transactions Digital. And that's the crux of the problem. Most of us use software for submitting tax returns, but our transactions are from numerous sources: digital and manual. It is the digitisation of all those transactions that is the problem.

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Morph
By kevinringer
11th Dec 2020 17:41

MTD was supposed to close the tax gap. Has any research been done into whether this has happened? How much tax has MTD saved? Judging by the state of clients' records, those filing their own VAT returns are paying less VAT now than they used to, mainly because QuickBooks, Sage etc let them claim VAT on everything including expenses that don't have VAT such as insurance, and even on drawings. Most uses think 'the computer says I can claim the VAT so it must be right'.

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