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MTD ITSA testing to focus on quality not quantity

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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.

24th Jan 2024
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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.

Perennial issues

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.

Replies (41)

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By ireallyshouldknowthisbut
24th Jan 2024 09:52

When will they learn?

You cant possibly release a public beta April 2025 and make it mandatory April 2026.............this is 10 months before the first cycle in January 2027 is complete, let alone all the bugs fixed.

If the public beta is launching April 2025, the earliest you can realistically mandate is going to be April 2028, which gives 15 months for bug fixing from January 2027. Given the size of this project even that is optimistic, you really need a soft launch from April 2028 whilst its being volume tested on real tax payers and not just the keen ones who do the beta. The harder cases can then be cleared up for the next 2-3 years and may, just maybe it can be in place with fines etc for non compliance from April 30 or similar.

This is really basic stuff. Zero credibility here for the latest in a long line of pointless dates and plans for this failed project.

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Replying to ireallyshouldknowthisbut:
Rob Swan
By Rob Swan
24th Jan 2024 11:01

Learn? HMRC?? ;)

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Replying to ireallyshouldknowthisbut:
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By petestar1969
25th Jan 2024 09:30

Completely agree, but Fujitsu are behind the software aren't they? We all know how much testing they (don't) do.

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Replying to petestar1969:
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By johnjenkins
25th Jan 2024 09:56

Don't forget the Fujitsu IT workers at HMRC are on indefinite strike for more money.

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By petestar1969
25th Jan 2024 10:48

I wasn't aware of that. It just gets better doesn't it?

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Replying to petestar1969:
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By johnjenkins
25th Jan 2024 10:56

Loads more to come.

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By moneymanager
25th Jan 2024 18:13

And the settlement for that is beyond the Horizon.

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Replying to ireallyshouldknowthisbut:
By SteveHa
25th Jan 2024 12:48

I'm hoping it gets bumped to past December 31. That way, I'll have retired and won't have to worry about it.

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Jennifer Adams
By Jennifer Adams
24th Jan 2024 12:27

Personally I'm not going to suggest (force?) my clients to join any 'pilot' or 'beta' - whatever they want to call it until I am 100% sure it's going to work. Probably 2027/28 as its bound not to work first time round.

Actually.. amend that sentence - its not going to work anyway. Full stop.

Also.. I think we have a right to know which company is creating this software.

See here:
https://www.bbc.co.uk/news/uk-politics-68039961
MPs seek details on public sector contracts with IT firm

It looks like we will have it confirmed within 2 weeks.

But I dont think we need to wait that long.. it's Fujitsu - see here:
https://www.msn.com/en-gb/money/other/fujitsu-staff-at-hmrc-to-strike-ne...

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By GHarr497688
24th Jan 2024 13:18

I read an article about the Horizon scandal recently and it said that Government had hid the true implementation costs , knew the systems were flawed but couldn't lose face and that the reality was manual records were replaced by computer records. The Horizon systems was tested and reports said that worked well and saved money. I don't feel the need to make any other comment on MTD at this stage and you draw your own conclusions. I feel so strongly about how wrong MTD is that my retirement has been enhanced.

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By FactChecker
24th Jan 2024 13:21

Back to basics ...

1. In order to "resume testing its Making Tax Digital for income tax self assessment (MTD ITSA) system", HMRC will have to first complete the specification for ALL aspects of the WHOLE 'journey' (horrible word).
This doesn't yet exist - so testing parts of it is akin to testing a new transmission system for cars without specifying the type of vehicle (or braking system or ...)!

2. "A list of software that is currently compatible with MTD ITSA" is therefore ... (a) not guaranteed to be 'compatible' with the unspecified bits, and (b) may not make it to the finish line.
So hitching your client to such software (a requirement since "To sign up, agents or taxpayers need to speak with a software provider taking part in the testing regime") is to put it mildly foolhardy.

3. How does Hume reconcile saying "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" with the schedule outlined above?
Even if the complete 'cycle' was understood/specified/developed and ready for testing (which it isn't), the dates just don't fit!

This has U C K F U P written all over it ... and shows every sign that, far from 'learning lessons', the top brass have simply had the blinkers cosmetically welded onto the faces of their spokespeople.

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Stepurhan
By stepurhan
24th Jan 2024 13:22

It would be hard to create criteria for a pilot that were more simple than those currently mandated.

Also, quality over quantity rather ignores the fact that the system will have to be capable of handling quantity. This sounds to me like a story I heard (second-hand) about the channel tunnel. There was a cooling system of pipes. These were all installed before the first test. The first test showed that the bracket design did not properly account for the weight of the water as well as the pipe. The whole lot crashed on first full test. I expect MTD to do the same.

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Replying to stepurhan:
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By GHarr497688
25th Jan 2024 09:38

As an add on I wonder if years down the line HMRC will look at errors created by computer programmes / inexperienced users and charge interest and penalty with no one able to unravel the garbage some computer programmes churn out in the hands of inexperienced users . Just wait and see .

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Tornado
By Tornado
24th Jan 2024 13:24

More nonsense. I am not even going to point out all the anomalies as they are so obvious.

The only comment I have is to urge HMRC to dump this unworkable project as soon as possible and start building on what we already know works.

I also wonder if HMRC are using Fujitsu for any of their development work, and if so, can they rely on it to work properly anyway.

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Rob Swan
By Rob Swan
24th Jan 2024 13:44

Testing 'Quality not quantity'. Really? What a novelty.
What should 'testing' do I wonder?
Sounds to me as though Fujitsu just got kicked off the project - with their expertise in 'quantity over quality'.

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By Open all hours
24th Jan 2024 17:36

1). Ronald Reagan's quote needs a slight update the most terrifying words are now ‘I’m from Fujitsu and I’m here to help’.

2). It’s no good talking about accuracy if you abandon long established accounting principles in favour of the so easily manipulated cash accounting.

3). How is this allowed even one additional minute of attention when customer service has completely collapsed?

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By mikeyban
25th Jan 2024 09:32

Or they could save the money and place it in schools, hospitals, our armed forces and public services. This car crash of an idea is absolutely ridiculous.

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By Self-Employed and Happy
25th Jan 2024 09:54

Its like HS2, chucking good money after bad money for something nobody has asked for or wants.

One day we'll actually find out the true cost of MTD in terms of tax payers money, I doubt it's anywhere near as low as whats reported, half of this wastage should end up in an inquiry such is the incompetence.

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By Ben Alligin
25th Jan 2024 09:55

Here's a simple solution. Instead of not allowing MPs to take part in the testing, make it mandatory for all MPs to be involved in the testing. Furthermore only they, not their aides, or agents have to complete the forms.

Problem solved. MTD sails over the horizon!

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Replying to Ben Alligin:
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By johnjenkins
25th Jan 2024 10:01

Like the homophone.

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By Karen whitehead
25th Jan 2024 10:05

The idea of quality over quantity ignores the fact that clients submitting quarterly will submit rubbish. I have 2 large clients in particular whose manual records were beautiful but since they have been forced down the digital route for vat purposes their accountancy fees have tripled. No matter how much we train them they do not understand and hate technology. So every quarter they will be submitting rubbish and we will be completing the year end as we do now. So what is the point of HMRC receiving nonsensical information every quarter?

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Replying to Karen whitehead:
Rob Swan
By Rob Swan
25th Jan 2024 10:33

Karen Whitehead, I can sympathise... with your clients.
I'm a software engineer (accounting sector) and a bookkeeper. I trained in manual double entry and Sage, with some QBO and Xero experience. For business I have digital records, as required by HMRC, but I also maintain full double entry manual books - they're my goto. Unless you're using it full time as an accountant/bookkeeper, most software just obfuscates and complicates and - in my experience/opinion - does little to help business owners see the 'financial picture' clearly.

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By Karen whitehead
25th Jan 2024 10:44

Absolutely agree. Not to mention the added cost of paying for software they didn't want. Forcing people down this route is discriminatory. I have clients that cannot ready or write - I have clients who are severely dyslexic - please tell me how I am going to teach them to use digital software. I can see that as accountants we are going to be dealing with a large number of enquiries that will be opened because clients have just pressed that submit button.

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Replying to Karen whitehead:
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By Karen whitehead
25th Jan 2024 10:45

should say read not ready.

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Replying to Karen whitehead:
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By fmuk
25th Jan 2024 13:05

Agree Karen, but it’s not only the dim ones who will submit incorrect figures.

We’ve recently taken on a new client who has completed his sole trader accounts and tax returns for the last 2 years using FreeAgent and submitted them to HMRC himself.

He is a qualified professional person and comes over as very intelligent.

We’ve been engaged to act for a new limited company he has recently setup, but had asked to take a look at his bookkeeping in FreeAgent to assess if it was suitable for him going forward.

Looking at the automatic calculations FreeAgent has come up with, over both years, his tax and N/I are just shy of £30k under our calculations. (yes £30k)

Not because FreeAgent’s calculations are incorrect in any way, but just because so many transactions are not categorised correctly.

As we all know in the trade the vast majority of clients now using any one of the digital accounting products available today are not capable of using them correctly and categorising expenditures correctly. (at least 99%)

Obviously, as accountants, we go through all the transactions and make the appropriate adjustments before importing them into our tax software, but we won’t be doing it every quarter, and for those traders without accountants, what’s going to happen? Well, we all know what’s going to happen, it appears HMRC is the only one who doesn’t see it.

Good luck to them!

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Replying to fmuk:
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By Karen whitehead
25th Jan 2024 13:23

absolutely - spot on. Also anyone submitting themselves is likely to submit on a cash basis which may be acceptable for the smallest of traders but lenders will not accept those figures for anyone who is likely to carry stock or accept deposits etc they will want a proper set of accounts. Also it is rubbish for actually seeing if they are making a profit or not so not a good tool for business planning etc

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By Mr J Andrews
25th Jan 2024 10:20

Another step towards making ''Robustness'' into a dirty word.
Why don't they just get on with what they are supposed to be doing i.e. the Collection and { Proper } Management of Taxes.

TOM : your informative article shows HMRC as the collective prime mover behind this latest whim - and all the previous farsical MTD dreams. How about naming the actual bodies behind the closed doors running down the service , wasting valuable time of accountants , the taxpaying public public - and HMRC staff. I feel anothe blockbuster T.V. programme on the way once the #### really hits the fan and these mindless lemmings exposed.

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Replying to Mr J Andrews:
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By moneymanager
25th Jan 2024 20:25

"naming the actual bodies'

Possibly not the flavour of the month but one of the strongest advocates of personal responsibility in government, security, and the military of the 20th century was Heinrich Himmler. In his well known, but usually misrepresented Posen speech (the translation by Carlos Porter is probably the best and most honest) he said that no organisation made a policy, no department ever issued an order insisting that every document carried the name of responsible issuer, that would make a few toes curl.

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By PAULLEWISFCCA
25th Jan 2024 10:31

HMRC = not fit for purpose and extortion racket

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By HLB
25th Jan 2024 10:48

Hahahahahahahaha. HMRC haven't got a clue. So glad I retired!

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By PAULLEWISFCCA
25th Jan 2024 10:52

don't agree with everything he said but these questions from Tony Benn come to mind

• What power have you got?
• Where did you get it from?
• In whose interests do you use it?
• To whom are you accountable?
• How do we get rid of you?

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By PAULLEWISFCCA
25th Jan 2024 10:55

“Then render to Caesar the things that are Caesar’s; and to God the things that are God’s”

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By Marlinman
25th Jan 2024 11:15

Just scrap it.

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By Marlinman
25th Jan 2024 11:15

Just scrap it.

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Replying to Marlinman:
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By johnjenkins
25th Jan 2024 11:44

They probably will need to scrap it twice just to make sure.

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Replying to johnjenkins:
By Nick Graves
13th Feb 2024 16:10

Well, like a bad penny you've turned up again,
You're in my sights, there's a mist on my lens.
I think you know how it was when I tripped and fell,
Well, you double-dealed me, baby and I broke like a shell.

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Replying to Nick Graves:
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By johnjenkins
14th Feb 2024 10:16

Well, you won't know what's gone wrong when it all falls down,
You got to learn from now on to stop playing games,
You ought to keep on moving, you got to spin on your way.
Some lonely nights, I hear you calling,

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By steve 12321
25th Jan 2024 16:47

their other project is making the square wheel

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By moneymanager
25th Jan 2024 18:15

Here's a solution, scrap HMRC and just levy a universal charge of 0.1 percent on all electronic transactions, no charge on cash.

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Morph
By kevinringer
28th Jan 2024 07:05

"She [Hume] added that HMRC is listening to what accountants, end users and software partners want from the programme..."

She obviously didn't hear "cancel". It has taken HMRC 10 years to hear "complexity".

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Morph
By kevinringer
28th Jan 2024 07:21

HMRC has been busy dumbing down tax to try and get it to fit within the constraints of MTD. Cash basis is the latest dumbing. I can see all those maintaining their own digital jokes (I mean "records") posting loan repayments in full as expenses, and CIS subcontractors recording their actual cash income as their taxable turnover without adding back the CIS tax deducted. But I still don't see how basis period reform fits in. It would kind of make sense if the the non-31 March/5 April business had to use the actual income/expenses to 31 March/5 April, but basis period reform requires the business to declare n/365ths of the entire future accounting period. No software is going to be able to forecast the future, so why has HMRC pushed for it. In my view, basis period reform will hinder MTD further, unless HMRC intend to change it as that it is based on actual transactions to 31 March/5 April only. The other complexity is 31 March/5 April. The tax year end should have been changed to 31 March.

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