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MTD ITSA pilot access paused for newcomers

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Following the December delay to Making Tax Digital for income tax self assessment, HMRC has now ‘paused’ access to its pilot scheme for new arrivals, sparking concerns about how effective the two-year postponement will be in fixing some of the project’s fundamental issues.

7th Feb 2023
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An HMRC official confirmed to AccountingWEB that the tax authority has temporarily paused adding any new entrants to its Making Tax Digital for income tax self assessment (MTD ITSA) pilot “whilst we are refreshing our testing strategy.”

“We will keep stakeholders informed of any changes to the pilot process and how to get involved,” added the statement.

The move puts the pilot programme in line with the latest two-year delay announced in December. This pushed back mandatory MTD ITSA filing until April 2026 and significantly descoped its reach as the Treasury bowed to urgent calls from the tax and accounting world that the project could not be delivered successfully in its current form.

No timeline has been laid out for when the pilot will reopen, but an HMRC spokesperson said that ahead of mandation the tax authority “will be building up our pilot to test the MTD for ITSA service” and plans to “expand the pilot significantly to allow many more businesses to join as the system develops further before phased mandation begins.”

Entry restrictions limit testing abilities

The MTD ITSA pilot currently has 137 businesses participating, the Revenue confirmed. Prior to the pandemic, some 500 businesses were actively engaged, but due to restrictive criteria limiting participation to very simple businesses with either property or sole trader income, this plunged to nine in January 2022. 

The criteria was marginally expanded in July 2022, but participating businesses still required a 5 April year end and were also required to sign up for the pilot via a ‘compatible’ software vendor on HMRC’s list of MTD ITSA providers, rather than via the Revenue itself.

HMRC has confirmed to ICAEW that the MTD ITSA pilot will not open to businesses with accounting periods that do not use 5 April year end until 2024. This has raised concerns in some quarters about how effective the two-year delay will be in fixing some of the fundamental issues flagged by tax professionals.

Commenting after December’s delay, former ICAEW president and tax writer Paul Aplin said: “The limitations on entry to the pilot made an MTD deferral of some kind inevitable. The pilot will not (and cannot) gain any real momentum until it includes non-fiscal year-end businesses.”

“We are back – or should be back – to the Carter Principle,” added AccountingWEB consulting tax editor Rebecca Cave. “The whole system needs to be tested ‘live’ and open to all permutations of income and deductions for at least a year before anything is mandated.”

“The minister’s statement says most taxpayers within the scope of MTD ITSA will be able to sign-up voluntarily before they are mandated to do so,” Cave continued. “This indicates that the MTD pilot will be expanded soon, but when?”

Vendors ‘on the hook’ for development costs

Since December’s MTD ITSA delay announcement, bridging tool TaxSheets became the first MTD vendor to close its doors. With the number of people now in scope under the new rules down from more than 4m to around 1.8m there are concerns that some vendors, particularly those set up to specifically meet the regulatory requirements of MTD, will choose to shut down instead, leaving a limited number of larger vendors in an increasingly niche market.

Several smaller vendors have also voiced frustration about the concept of ‘co-creating’ software alongside HMRC. One small vendor owner told AccountingWEB that while they understood HMRC has no obligation to software companies, they had spent time and money on development costs to keep up to speed with changes to the pilot before having the rug pulled from under them.

“It’s basically saying ‘you guys are on the hook but don’t have the ability to make money,’” they said.

MTD for ITSA delay - what it means for your practice: Join ATT technical officer Emma Rawson, Xero Head of Product Compliance Stuart Miller and AccountingWEB technology editor Tom Herbert to discuss what the delay means for accounting firms and what action - if any - they should be taking. For more information or to sign up for the webinar click here.

Replies (24)

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By ireallyshouldknowthisbut
07th Feb 2023 12:03

I think they mean "we have abandoned the project, but are trying to avoid an embarrassing announcement that quarterly reporting was actually a daft idea and those grumpy accountants were right all along"

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By Hugo Fair
07th Feb 2023 12:58

A new low is reached by HMRC ... a public announcement that appears to contain more lies (or should I say mis-directions) than the number of statements therein!

* has temporarily paused adding any new entrants to its Making Tax Digital for income tax self assessment (MTD ITSA) pilot “whilst we are refreshing our testing strategy.”
Leaving aside that any pause is by definition temporary (except I suspect in this case!) ... they don't have a testing strategy to refresh (although creating one would be a laudable and exceedingly belated step in the right direction).

* ahead of mandation “will be building up our pilot to test the MTD for ITSA service” and plan to “expand the pilot significantly to allow many more businesses to join as the system develops further before phased mandation begins.”
So what was the pilot intended to do up 'til now (if not to test the MTD for ITSA service)?

But most importantly, the primary objective should not be to simply 'allow more businesses to join' ... HMRC have still not grasped that it is the variable nature of businesses that are needed to trial any software/service!
Different sectors, different sizes & mixes, different basis periods, different accounting methods, in-year starts and cessations, and so on (and on).
All these and more apply to hundreds of thousands of unincorporated businesses - so it will be no good saying later "Ah, we didn't think of that!"

Has anyone checked what HMRC currently thinks the word "pilot" actually means in practice?

It *doesn't* mean a perpetual test of still changing software (which is at best alpha-testing) or 'trying things out' whilst the spec is still being written (aka prototyping before they called it agile development).
It means taking software AND documentation that is at the very least developed & tested (against specifications) to beta level ... AND is supplied for 'live' use by a carefully selected group of users (in order to test all possible scenarios) ... AND for a complete cycle of activities (which in this case is between 18-24 months to cover a full year for variable year-ends whilst allowing time for analysis and corrections to both the live data and to the reporting software/documentation).

This is what was achieved during RTI (less than perfectly but at least the intentions were clear) - and is the minimum required for the much more complex (if only in terms of changing the habits of taxpayers) MTD ITSA.

Of course it should go without saying that this means HMRC needing to go back to the start (and tackle the paucity/inconsistency of what they claim are specs) AND set up a proper plan (also from scratch not merely 'pausing' something that is on life-support) AND resource it all properly (so that developers and pilot users can directly contact 'experts' with practical queries as they struggle through initial baby steps).

OR of course they could admit they got it all wrong (and bury it) ... the pigs are in formation I see!

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By ABC12
07th Feb 2023 13:16

Insert "he's dead Jim" meme

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By GHarr497688
07th Feb 2023 13:23

Please could someone from HMRC answer the comments made by AWEB commentators. The fact is that MTD was announced in 2015 and was due to be introduced in 2019. Now the planned date is 2026.
11 years - should HMRC not explain why such a delay. Research showed that many taxpayers hadn't even heard of MTD let alone be ready to start using the system. Now a delay of two year and we are told newcomers can't even join. A reasonable person would say that the scheme must be basically flawed and so scrap the idea altogether. Surely if the scheme goes ahead then a mass advertising plan should be in place now with adverts letting taxpayer know. This would be TV adverts - letters - emails and new prompts. Awarness is the way forward . Currently the scheme delay will just mean no one bothers anymore and in two years HMRC will come out yet again saying "oh we are still looking into it - your not ready and so it's delayed again. Please could you indicate you agree or otherwise in the replies.

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Replying to GHarr497688:
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By ABC12
07th Feb 2023 14:14

It's an unfunny joke that it's not yet been scrapped. If it was happening in two years there should be a MAJOR pilot NOW. There's no way it can be happening in 2016 and that's over a decade since first announced.
Just stop wasting money and invest it in improving existing services.

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Replying to GHarr497688:
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By David Ex
07th Feb 2023 17:19

GHarr497688 wrote:

A reasonable person ….

You’ve answered your own question there.

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Tornado
By Tornado
07th Feb 2023 17:02

This project is well and truly dead.

HMRC are unable to achieve even the basic requirement of thorough testing of all aspects of the systems & software until it works perfectly under all conditions before going live. I have no legal obligation to use MTD until it is working properly, which is not a particular problem as it is just not going to happen.

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By Alanpryan
09th Feb 2023 09:26

In other news, I hear they are trying to bring the Dodo back to life. Probably more chance of that to be honest...

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Replying to Alanpryan:
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By Latinaid
09th Feb 2023 13:44

Alanpryan wrote:

In other news, I hear they are trying to bring the Dodo back to life. Probably more chance of that to be honest...

The Dodo would more useful

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Morph
By kevinringer
09th Feb 2023 10:24

Way back in 2016 HMRC confidentially announced they would have 400,000 volunteers in the pilot by 2017. Here we are 8 years after the initial MTD announcement and the number in the pilot is a mere 0.03% of the target that they expected to reach 6 years ago. No amount of spin can put a good light on this catastrophic failure. The MTD pilot has failed for all the reasons we agents told HMRC in the 2016 consultations. HMRC ignored what we said. HMRC's arrogance has cost HMRC serious credibility and serious resources. Heads should roll at HMRC for wasting public money.

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Replying to kevinringer:
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By moneymanager
09th Feb 2023 13:28

"wasting public momey" has become so ubiquitous that can any longer be considerd an accident, aircraft carriers with no planes and limited utility, a border security system that is palpably unfit for purpose, HS2 the non solution, on and on and on.

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By johnjenkins
09th Feb 2023 10:30

The clash of the mighty. IR35 vs MTD. We all suspected the result many moons ago.
Can you imagine GO singing "what now my love"?

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By moneymanager
09th Feb 2023 13:24

The first rule of digitising a system, ensure the analogue one works first.

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By Yossarian
09th Feb 2023 13:29

Couldn't they just repurpose the Test & Trace app? Switch it over from tracking Covid-19 to tracking Simplex-D? Anyone with a manual cashbook who comes into contact with another manual cashbook carrier has to self-isolate for a full VAT quarter.

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Replying to Yossarian:
By Nick Graves
10th Feb 2023 12:12

Yossarian wrote:

Couldn't they just repurpose the Test & Trace app? Switch it over from tracking Covid-19 to tracking Simplex-D? Anyone with a manual cashbook who comes into contact with another manual cashbook carrier has to self-isolate for a full VAT quarter.

Thanks for the laugh.

Thing is, most traders made a right pig's breakfast filling in one of those.

I'm sure they'd be absolutely fine* with the MTD software and the results will be perfect*.

What's needed is an injectible bookkeeping chip, that'll record:

Every transaction you make,
Every dump you take,
They'll be taxing you...

Mwahahahah...

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Replying to Yossarian:
By Nick Graves
10th Feb 2023 12:12

Timeout error

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By AS44NG
09th Feb 2023 14:05

An HMRC official confirmed to AccountingWEB that the tax authority has temporarily paused .. “whilst we are refreshing our testing strategy.”

--

Translation: "We were never going to be ready for MTD for ITSA for April 2024, we don't know what we are doing, and will probably abandon the whole sorry saga once one or two have received their OBEs."

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Tornado
By Tornado
09th Feb 2023 14:34

Who is actually still the slighted bit interested in this failed project?

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Replying to Tornado:
Morph
By kevinringer
09th Feb 2023 14:41

HMRC and the software industry.

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Replying to kevinringer:
Tornado
By Tornado
10th Feb 2023 12:36

kevinringer wrote:

HMRC and the software industry.

Yes indeed, both organisations that require a high level of skill and qualifications to work within.

Just the type of organisations that seem to expect everyone else, without any qualifications or training , to magically become Grand Masters at the art of using Accounting Software. That ugly word ARROGANCE comes to mind again.

Fortunately for us, they are so Arrogant that they will be the last to see that this MTD project has failed miserably, whilst the rest of us quietly move on to more important matters in the real world.

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Replying to Tornado:
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By johnjenkins
10th Feb 2023 13:22

I remember going on a two day sage course about many years ago. There were a mixture of Accountants and business people there. The outcome was quite simple. Everybody was astonished how difficult something as simple as bookkeeping could be made. 80% of business people didn't have a clue and 80% of Accountants, including myself thought that this software was not suitable for business to do without an Accountant.

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Replying to johnjenkins:
Morph
By kevinringer
10th Feb 2023 13:55

The difference between then and now is HMRC mistakenly believe 2023 software is intelligent and will do half the job for you and spot mistakes you make. In reality, modern software has no intelligence and does not identify mistakes. Indeed, it makes the mistakes. You mention Sage. I'm currently inputting a job into Sage which defaults every transaction to T1 (standard rated) including wages, insurance, business rates, drawings, tax. HMRC needs to pilot MTD ITSA by getting their own staff to use software by simulating how a typical small business owner would use it: no training and very short of time so has to post everything somewhere without the luxury of research.

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Replying to kevinringer:
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By GHarr497688
11th Feb 2023 11:08

This is exactly what I would say and some of the new cloud products are much worse than old style sage . Using software is a risky business .

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Replying to kevinringer:
By Nick Graves
14th Feb 2023 14:57

kevinringer wrote:

The difference between then and now is HMRC mistakenly believe 2023 software is intelligent and will do half the job for you and spot mistakes you make. In reality, modern software has no intelligence and does not identify mistakes. Indeed, it makes the mistakes. You mention Sage. I'm currently inputting a job into Sage which defaults every transaction to T1 (standard rated) including wages, insurance, business rates, drawings, tax. HMRC needs to pilot MTD ITSA by getting their own staff to use software by simulating how a typical small business owner would use it: no training and very short of time so has to post everything somewhere without the luxury of research.

Good idea.

Then get Jim Brittas to do it as well and upload to Bitchute/Rumble etc.

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