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?
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:
- Accounting Software
- Digitising business records
- Computing the profit or loss
- Costs and savings
- Quarterly updates
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.