MTD ITSA pilot numbers plummet as restrictions take holdby
With just nine people currently taking part in the Making Tax Digital for Income Tax pilot scheme, professional bodies and commentators are calling for more information on how HMRC plans to scale up its testing process.
A Freedom of Information Request from top 20 firm Saffery Champness first reported in the Financial Times revealed a dramatic fall in Making Tax Digital for Income Tax (MTD ITSA) pilot participants.
The test scheme’s first year in 2018/19 saw 877 people register for the pilot, but that number has now plummeted to just nine, as confirmed yesterday by HMRC.
While the figures are stark, the drop-off can be explained by a tightening of the criteria limiting participation to very simple businesses with either property or sole trader income in 2019/20 which saw more than 500 people removed. Those numbers were thinned out still further by the exclusion of those who had received Covid support grants from the pilot.
Gary Jacobs, CEO at Eazitax, has been involved in the MTD for ITSA pilot since its inception in 2016. At one stage his firm had four clients with relatively simple business needs operating within the pilot scheme, but he told AccountingWEB that once they received the self-employed income support scheme they were no longer considered active.
“We knew the pilot numbers were low but not this low,” said regular AccountingWEB columnist Paul Aplin. “Given there are so many restrictions on who could join however, it’s hardly surprising.”
“My concern is how you scale this up in the time left available, from just a handful with very simple tax affairs to more than four million small businesses and landlords with potentially complex tax affairs and multiple income sources?” continued Aplin, who called for a rapid relaxation of the restrictions on who can participate in the pilot programme in August last year.
Robert Langston, partner at Saffery Champness and the firm’s Making Tax Digital lead, commented that for larger firms the MTD challenge was a question of scale.
“We’ve got 3,000 clients that are going to be affected by MTD ITSA,” he said. “That’s a lot to be engaging with and the challenge is not something that can be underestimated if you think about where many are at the moment.
“Our issues are about eligibility,” continued Langston. “We have tech-savvy clients who we want to put on the pilot but invariably they don’t fit the criteria. HMRC is engaging on this but our clients have complex needs and the system isn’t something that can be turned on and off overnight.”
Lack of full-cycle run
HMRC has previously stated a desire to limit pilot numbers to provide “additional support to the first customers in the service before testing at scale”. According to sources, the tax authority plans to open up the trial to more people from April 2022, two years ahead of launch, but hasn’t provided further details.
There is concern among technical specialists that this will not allow for a large-scale ‘full cycle’ run of the scheme, with businesses starting the pilot phase in April 2022, completing a full year’s trading in April 2023 and filing an end of period statement and final declaration by 31 January 2024.
“Without the full-cycle run involving a wide range and significant numbers of taxpayers, how can [HMRC] say they have fully tested the system?” commented tax writer and adviser Rebecca Cave, “What's more, a new penalty system is also due to apply from 6 April 2024, so the first few periods of MTD ITSA will not only be testing the MTD structure in a live environment but the new penalties as well.”
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