MTD ITSA testing to focus on quality not quantityby
With a little over two years before the scheduled mandation of Making Tax Digital for income tax self assessment, HMRC has laid out a timeline for testing the robustness of its systems before the new rules are mandated – but questions remain about several key aspects of the project.
HMRC has expanded on news first published in Agent Update 116 that it will resume testing its Making Tax Digital for income tax self assessment (MTD ITSA) system from April this year.
Speaking during an Intuit QuickBooks webinar update on the current status of MTD ITSA*, HMRC’s Melanie Hume encouraged eligible taxpayers to take part in testing and provided a timetable and several clarifications about the project.
Keen MTD watchers will have spotted that the word “pilot” was notably absent from the broadcast. Instead, testing was the watchword of the day, with “private beta” testing starting in April this year. Private betas are generally test projects in a software release cycle that are locked down to certain users or run as invite-only trials.
This will be followed by a “public beta” where in theory the majority of taxpayers will be able to freely join the programme.
The MTD ITSA testing timetable set out by HMRC during the webinar was as follows:
- Tax year 2022/23 features the current small group in private beta.
- 2023/24 will continue with the programme in private beta but HMRC will seek to “expand the customer journey” by removing some of the eligibility criteria and encouraging a more diverse range of taxpayers to sign up.
- 2025/26 will see the launch of the full public beta, with the programme in the position where most people will public beta before.
- 2026/27 will see self-employed individuals and landlords with income of more than £50,000 mandated to MTD ITSA.
- 2027/28 will bring those with an income of more than £30,000 into the system.
Hume added that as outlined in the conclusion to the MTD Small Business Review, no decision has yet been made about whether to bring those with income between £10,000 and £30,000 into scope.
To sign up, agents or taxpayers need to speak with a software provider taking part in the testing regime. A list of software that is currently compatible with MTD ITSA can be found here.
To be eligible for the first phase of the private beta testing, taxpayers must meet the following criteria:
- be registered for self assessment (SA)
- have submitted at least one SA tax return before
- have an existing source of income from self employment and/or a UK property that was also included on the last SA tax return they filed
- have completed a SA103 and/or SA105 form
- have an annual accounting period that starts on or after 31 March and ends on 5 April. If a taxpayer has a non-standard accounting period they can still take part in testing if their software supports this. HMRC advises agents or taxpayers to check with their provider.
- have a permanent national insurance number
- be a UK resident
- ensure HMRC has an up-to-date address
- not be bankrupt or insolvent.
Taxpayers unable to take part in the first phase of testing include those needing to declare:
- partner income
- high-income child benefit
- trust income
- blind person’s allowance
- married couples allowance
- pensions schemes
- averaging adjustments
- an overdue debt to HMRC
- a pay arrangement with HMRC
- an ongoing HMRC self assesment enquiry
- joint income from property
- a voluntary arrangement.
And taxpayers can’t take part in this phase of testing if they are a:
- minister of religion, Lloyd’s underwriter or a member of Parliament
- member of a trust
- a non-resident company landlord
- bankrupt or insolvent but still trading
- third-party instructed to act on behalf of another taxpayer (for example trusted helpers, insolvency practitioners, solicitors etc).
Full cycle of testing
The previous pilot scheme came in for criticism after a tightening of the eligibility criteria saw participant numbers plummet to just nine in January 2022. This recovered somewhat before access to the programme was paused in February 2023 following the decision to delay the project for a fifth time in December 2022.
Hume told webinar attendees that while the tax authority is keen to allow enough time for the system to undergo thorough end-to-end testing (a full 21 months, similar to the current self assessment cycle) before going live, it does not have a “grand scale of customers” in mind.
Instead, HMRC’s approach for its new testing regime is to aim for “quality over quantity”, making sure that all different taxpayer circumstances, representation statuses and software types are fully tested before the public beta goes live in April 2025.
Hume reiterated the point made by HMRC chief Jim Harra that the tax authority had “underestimated” the complexity of the project.
She added that HMRC is listening to what accountants, end users and software partners want from the programme, and referenced amendments announced during last year’s Autumn Statement, which included the removal of end-of-period statements, a cumulative approach to quarterly reporting and easements for joint property owners.
In a question and answer section at the end of the broadcast, Hume was asked about progress on perennial issues that have dogged the project from its outset, which include accommodating taxpayers with multiple agents and concerns about who will be responsible for errors in the “auto population” of returns from pre-existing HMRC data.
While Hume did not have a definitive answer on either issue, she added that the tax authority was working with accountancy bodies, accountants and software vendors to resolve them before the beta testing goes public.
*A link to the on-demand version of this webinar will be added to this article once it becomes available.