Former Tax & IT Partner
Columnist
Share this content
A pilot's cockpit - Final approach at night
istock_pilot-cockpit_michal_staniewski

MTD ITSA delay: More power for the pilot

by

Paul Aplin is relieved that MTD ITSA has been postponed again, but HMRC, software developers and the accountancy profession need to use the extra time well.   

23rd Sep 2021
Former Tax & IT Partner
Columnist
Share this content

In my last article I expressed concern about the timescale for MTD ITSA. Given the restrictions on who could join the pilot programme, there simply wasn’t enough time.

The proposed changes to basis period rules would have exacerbated the problem, creating a huge peak in 2023 and straining agents’ capacity to provide the effective training and support that many clients would need.

Breathe out

I was therefore relieved to see the announcement by the new financial secretary to the Treasury, the Rt Hon Lucy Frazer QC MP that the start date for MTD ITSA will move back a year. The move recognises the extraordinary pressures that people, the economy and the tax system have faced in the pandemic.

The start date for MTD for ITSA is now to be April 2024 (April 2025 for general partnerships and further out, to a date yet to be announced, for other partnerships). 

The new late filing and late payment penalty regimes will also be deferred for a year to 2024 for those who are mandated to use MTD ITSA, and to April 2025 for all other ITSA taxpayers. Also, the proposed changes to the basis period rules will not come into effect before April 2024, with a transition year not earlier than 2023.

But this is only a deferral: The “entry point” is still turnover or rental income exceeding £10,000 and there has been no change to the core requirements to provide quarterly reports or to keep digital records.

I suspect there will be a huge sigh of relief from all who are going to be affected by MTD ITSA. It is far more important to deliver MTD effectively than to deliver it fast.

Regulations, costs and benefits

The MTD Regulations (also published on 23 September) will allow businesses, agents and software suppliers to plan.

Alongside the regulations a policy paper was published containing HMRC’s current assessment of costs and benefits. A second paper looks in more detail at the costs and benefits, which will vary according to business size, complexity and current degree of digitalisation.

We now have breathing space. I said at the end of my last article: “the tight restrictions on who can join the pilot need to be relaxed very soon if numbers are to build to the level we need to see ahead – preferably well ahead – of mandation and it is only when numbers in the pilot build that we – businesses, agents, software developers and HMRC – will gain the data and experience needed to successfully deliver the programme. It can only be delivered by a joint effort.”

I believe that is still true.

What next?

The next step, I would suggest, is a roadmap setting out which groups will be able to join the pilot and when. That roadmap should be agreed between HMRC, representative bodies and the software developers. Inevitably some of the staging will change as the project progresses, but at least there would be a shared framework to work to.

MTD ITSA will be a far more complex undertaking than MTD for VAT. A shared plan would enable HMRC to proceed and software developers to design with confidence, learning – as inevitably we all will – from experience as the pilot expands.

It would also enable businesses to plan and to seek training and support from their advisers if they need to and enable advisers to spread training and support so that it is effective.

The extra time also creates more opportunity to incorporate prompts and nudges – for example to reflect the new late filing and late payment regimes – into MTD.

In short, we have a very welcome breathing space – but we need to start using it straight away.

-----------

Paul Aplin will be speaking about MTD at AccountingWEB Live Expo on 1-2 December 2021 alongside such guests as Rebecca Benneyworth, Peter Rayney, Anita Monteith, Carl Reader, Steve Collings, Reza Hooda plus representatives from HMRC. 

AccountingWEB Live Expo takes place on 1-2 December 2021 at Coventry Building Society Arena, Coventry. Registration is now open. A full content programme will be announced in early October enabling you to register for specific sessions. Please visit the AccountingWEB Live Expo website for full details and to sign up to our newsletter.

Register now

Replies (14)

Please login or register to join the discussion.

Richard Sergeant
By Richard Sergeant
24th Sep 2021 10:52

Thanks Paul, very helpful context.

Thanks (0)
avatar
By djtax
24th Sep 2021 17:28

As has been pointed out by others elsewhere any trial/pilot testing should not just be with those who are highly computer literate (who of course are the most likely to volunteer for such). To be truly representative a pilot run should also try to include those who may be less tech savvy - if the pilot is to assess how easy (or otherwise) it is for HMRC 'customers' to adopt any new systems - especially if HMRC will then be reporting on 'typical' costs likely to be incurred by users of new systems (both in time and money) - as has been the case in the past.

Thanks (3)
avatar
By GHarr497688
24th Sep 2021 21:19

PLEASE meet some of my clients in their late 50's to 60's and you will realise the problems. Why won't anyone listen.

Thanks (8)
Replying to GHarr497688:
avatar
By djtax
25th Sep 2021 11:29

In the past very, VERY occasionally senior HMRC personnel have been persuaded out of their London ivory towers to visit accountants to experience what goes on in the real world but nowadays that is like getting blood out of a stone.

On the one and only occasion I hosted someone from HMRC HQ (over ten years ago) she was genuinely shocked at the sheer volume of HMRC rubbish/errors/mistakes/delays I had to deal with regularly.

More recently (couple of years back?) I volunteered for a one off similar visit but my offer was declined because I was 'too far away' - I work in Cambridgeshire: the regular train service to London Kings Cross takes one hour.... and my office is a five minute walk from the station.

Thanks (5)
Replying to GHarr497688:
avatar
By Jimess
27th Sep 2021 09:47

My thoughts exactly!

Thanks (1)
avatar
By petestar1969
27th Sep 2021 09:36

Good news, possibly. I can now push my retirement from accountancy back another year...

Thanks (1)
avatar
By raybackler
27th Sep 2021 10:00

Good summary. MTD for VAT was dumbed down and does not collect any more information than the previous VAT regime, although, I guess, in time it may be enhanced. MTD for ITSA is a whole new level of complexity and HMRC have got a tiger by the tail. This one can't be dumbed down and so a disaster is inevitable unless they start listening to the end of the profession that deals with all of the smaller clients. There are vast numbers of these helped by the vast majority of small and medium sized accountancy practices.

I recently read the consultants report on the success or otherwise of MTD for VAT. The result were biased, because the report included large firms with internal accounting expertise and medium sized firms who employed bookkeeping staff. These were never going to struggle with MTD for VAT. The smaller clients, who exist in huge numbers, were not properly examined.

MTD for ITSA, as it stands, will cause ructions with these smaller clients and across the profession serving this sector.

Thanks (1)
avatar
By Mr J Andrews
27th Sep 2021 10:07

You may have hit the nail on the head Paul ''........the roadmap should be agreed between HMRC .... representative bodies......and software developers''. But should we ?
Bearing in mind that HMRC initiated this dumb idea in the first place and are evidently clueless in how to practicalize Osborn's whim , why should the likes of the accountancy profession get involved in helping to instigate a system which no one wants - apart from the big monies up for grabs by software developers.
Harra has done more in his time as head Revenue honcho to alienate the Profession and his Department as far as 'Working Together'' is concerned. Why propitiate the man now ?
Best see what their next step is. Probably more postponements , more deferrals or better still some common sense and scrapping the ridiculous MTD concept.

Thanks (3)
avatar
By raybackler
27th Sep 2021 10:08

MTD for VAT was dumbed down and only collects the same data as the previous regime. The report on the success of it gave a biased result, because it contained large firms with in house accounting expertise and medium sized firms with in house bookkeeping. These categories were never going to be troubled by MTD for VAT.

MTD for ITSA is a whole new level of complexity and it can't be dumbed down at the last minute to shoe it in. Unless HMRC start listening to smaller accounting firms who represent the vast majority of the huge number of small businesses, then a car crash is about to happen.

Thanks (1)
Replying to raybackler:
By Charlie Carne
27th Sep 2021 11:05

raybackler wrote:

MTD for VAT was dumbed down and only collects the same data as the previous regime.


MTD is not about collecting more data. Its purpose (rightly or wrongly) is to mandate digital bookkeeping. I regularly hear accountants asking what was the point of MTD for VAT when HMRC get the same information. The clue is in the name: it's about making tax (and the accounting data behind the numbers) digital, not about increasing the range and scope of data submitted.

MTD for ITSA is, indeed, very different, as it will be collecting data at far more frequent points than the current, annual SA system. But it is still about the digitisation of data and not about collecting more data. We need to use the postponement as an opportunity to campaign for an increase in the ludicrously low £10,000 threshold, as well as for simplification of the ways in which data from multiple sources will be reported at various times across the year (for example by pushing for the OTS recommendation that 31st March be mandated as year-end, instead of 5th April, for both trading and rental income), but we will not get anywhere with government if we continue to argue for abandonment of the MTD project.

Thanks (1)
Replying to charliecarne:
avatar
By raybackler
27th Sep 2021 12:04

You are correct about the digitisation of the data, but one of the worst areas for data corruption is small clients using spreadsheets. These errors are not identified when using bridging software, so the same summary data is often transferred. Businesses that kept manual records were forced on to spreadsheets or on to accounting systems, with no guarantee that the digital record keeping was an improvement. MTD for VAT, according to VAT Notice 700/22 also has the provision for submission of Supplementary Data to the 9 box VAT return as a future development possibility. So whilst more data is not yet being collected, it is possible in the future.

If we take a landlord with one buy to let property, under MTD for ITSA, they will be keeping records digitally, probably using a spreadsheet and bridging software, so the same problems will still exist with the four quarterly submissions. Four quarterly submission, is collecting more data than the current self assessment system.

I am not arguing for abandonment of digital record keeping. Nor am I advocating the abandonment of for MTD for VAT or ITSA. I am arguing for a more sensible approach, one that the House of Lords Economic Affairs Committee has consistently advocated.

Thanks (0)
avatar
By johnjenkins
27th Sep 2021 11:12

HMRC are going to have to drop the quarterly updates so there's no point in planning for something that's not going to happen. I'm not someone who sticks their head in the sand, I'm a realist. The reasons HMRC have given for the quarterly updates have proven to be fictitious, although it might take them a bit of time to get used to the idea.

Thanks (1)
avatar
By chasmeehan
27th Sep 2021 12:26

Thanks to writer - Great article, useful commentary and valuable supporting links - just what I read accountingweb for ! HMRC have obviously put a lot of effort into this and maybe in 20 years time it will have been fully absorbed into our everyday digital ecosystem and the problems will be the sort of technical and behavioural outliers that end up at the FTT. Mind you, we are still waiting for those jetpacks from the Jetsons of my childhood !

Thanks (0)
Replying to chasmeehan:
avatar
By johnjenkins
27th Sep 2021 13:26

HMRC haven't put any effort into it, unless you mean trying to persuade the Accountancy profession that quarterly updates is the way to go, even though it's not.
What this has and will continue to do is highlight the difference in peoples absorption of technology. HMRC expect everybody to be on the same level. That won't even happen in 20 years time.

Thanks (1)