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Tax professionals label MTD ‘fundamentally flawed’

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Agents remain highly sceptical about the benefits of Making Tax Digital and HMRC’s ability to deliver the project, according to recent research from the CIOT and ATT.

8th Aug 2023
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A poll of more than 500 tax professionals found that 95% of those surveyed were not confident about HMRC’s ability to oversee the introduction of Making Tax Digital for income tax self assessment (MTD ITSA). Agents questioned the timing, purpose and benefits of the £1bn project when the tax authority’s day-to-day service standards continued to slide.

Conducted in June and July this year, the research from the Chartered Institute of Taxation (CIOT) and the Association of Tax Technicians (ATT) highlighted the impact MTD has had on the relationship between HMRC and tax agents. Of those responding, 79% indicated the project had adversely affected their trust in the tax system, with 56% stating this impact has been “significant”.

The survey comes hot on the heels of reports on the project from the National Audit Office (NAO) and Public Accounts Committee (PAC), which flagged a £1bn budget overspend and highlighted multiple issues still dogging the digital tax transformation programme.

April 2026 date still ‘unrealistic’

In December last year, the Treasury announced a fifth delay to the income tax self assessment stream of the MTD programme. Those with incomes above £50,000 are currently slated to join in 2026, while those in the £30,000 to £50,000 bracket will join in 2027. 

While almost a quarter of the CIOT/ATT survey respondents (24%) welcomed the deadline shift as “much more manageable”, the majority (70%) stated that April 2026 was still an “unrealistic” date.

“Despite the start date being postponed for two years to April 2026 and the introduction being phased based on income levels, tax agents are still very concerned about the impact the MTD ITSA proposals will have on them and their clients,” commented Alison Kerrey, chair of the CIOT and ATT’s digitalisation and agent services committee. “There is a real lack of confidence that a convenient, user-friendly and effective system will be ready to go by April 2026.”

The Treasury is currently reviewing whether MTD quarterly reporting is appropriate for people with income between £10,000 and £30,000 – 86% of survey respondents opposed extending MTD ITSA to taxpayers with incomes under £30,000.

Responding to the new research, a spokesperson from HMRC told AccountingWEB: "Making Tax Digital will make it easier and quicker for small businesses to get their tax affairs right first time, supporting their productivity and growth.

“MTD is a step-change which requires taxpayers and agents to change their behaviours," they continued. "We are fully committed to supporting them all through this change and bringing these important benefits to customers from April 2026.” 

VAT efficiencies fail to materialise

When pressed on the effectiveness of the project, HMRC officials have often fallen back on the defence that while MTD’s income tax stream has failed to launch, MTD for VAT is now fully operational with 3.2m taxpayer records moved onto its updated IT platform by March 2023.

Back in June, an HMRC spokesperson told AccountingWEB: “MTD has already made it easier for businesses to get their VAT right by helping them reduce errors and freeing up time to help them to grow.” Initial (and unpublished) research from HMRC revealed as part of the recent investigation by the National Audit Office (NAO) into the project also indicated that since its introduction, MTD for VAT had contributed to generating additional tax revenues of between £185m to £195m.

However, tax professionals surveyed reported seeing no improvement in the accuracy of returns or increased productivity, since the introduction of MTD for VAT. Just 15% of respondents noted an increase in productivity for their practice and only 10% saw an increase in client productivity. 

In terms of the accuracy of VAT returns, 81% said this stayed about the same and 7% indicated this had actually decreased. At the same time, tax professionals reported they felt the cost of VAT compliance had increased under MTD, with 29% reporting significant increases for clients, and 23% reporting significant increases for their practice.

Freeform comments from the survey also highlighted the minimal impact of the project, and several flagged that the challenges of MTD ITSA are likely to be far more pronounced.

“VAT is already a quarterly (or monthly) reporting tax with few accounting adjustments required assuming the client’s bookkeeping is up to standard,” stated one respondent. “MTD ITSA however is a different matter with a multitude of potential adjustments required for computing the trading income for tax purposes.”

HMRC ‘squaring an impossible circle’

Many tax professionals took the survey’s freeform comment section as an opportunity to express concern about the basic principles of MTD, its perceived benefits and costs, and the approach taken.

One comment suggested that while the project might make sense on a conceptual level, the current version was “fundamentally flawed”. 

“What is required is a revisit to the drawing board and then starting over from first principles again, not endless deferrals while HMRC attempts the Sisyphean task of squaring an impossible circle,” continued the comment.

Another questioned the tax authority’s motivation for the project’s introduction: “Everyone needs to be able to see the benefit of MTD, not just HMRC. HMRC should fully sort out their own current basic admin and staffing issues before implementing something as seismic as this.”

Another consistent message from the UK’s tax professionals throughout the responses was that MTD should not be given priority over the need to improve HMRC’s current service levels.

“HMRC [has] bigger problems with levels of staff and taxpayer satisfaction that need addressing before implementing these changes,” read one comment. Another added that HMRC “should divert funds into trying to improve general service levels and phone lines and not pursue MTD further until this has been done.”

“The profession is keen to embrace digitalisation where this delivers benefits for their clients and their firms, as evidenced by the significant levels of online filing of self assessment returns,” continued CIOT/ATT committee chair Kerrey. “However, HMRC must do more to retain the faith and confidence of the large numbers of UK taxpayers affected by this change, and their agents.”

9 Aug 2023: This article was amended to add a comment from HMRC

Replies (32)

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By GHarr497688
08th Aug 2023 15:42

Words fail me. How on earth could HMRC get all of this so wrong. What you enter into a computer is as good as the person entering the information and using AI to make decision without any human thought process is beyond mad. I just can't believe that HMRC say that MTD for VAT has saved so much lost tax without explaining where the stats come from. Who on earth is signing off this mis-information. I feel like HMRC is a massive out of control organisation and they expect Accountants to police the tax system , deal with the mess they created and then support their mad ideas. I 100% do not believe MTD Vat is producing better results or making significant time saving , I would place a bet that 9/10 records are worse for the smallest business. MTD ITSA will be a complete an utter nightmare doomed to failure. Someone with a backbone needs to put an end this NOW.

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Replying to GHarr497688:
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By bendybod
09th Aug 2023 09:48

It wouldn't have anything to do with the fact that the VAT threshold has been fixed for several years and so more businesses are coming in to VAT registration? Excuse the cynic in me!!

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By Justin Bryant
08th Aug 2023 16:37

Credit to Aweb for publicising CIoT's online MTD poll in the link below (I doubt as many as 500+ would have provided feedback otherwise).
https://www.accountingweb.co.uk/tax/hmrc-policy/make-your-feelings-on-mt...

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By Catherine Newman
08th Aug 2023 17:58

I had a Loan Charge Compliance case until yesterday. £1.26K has been written off over night due to a suicide in 2019. Tax gap of £1.26 K vanished in a puff of thin air. Was this due to small business error or the Government's incompetence in misunderstanding this too?

Kevin Ringer, David Jeffreys, Fiona Fenney and I attended the House of Lords to give evidence re MTDVAT. The Loan Charge was discussed there and Fiona Fenney more than graphically explained the potential issues. The Lords were very interested and wrote a report, which got ignored.

I got paid today but charged a very low fee to the now widow of a suicide case.

HMRC need to sort out the issues they face before they bring in MTD ITSA.

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Replying to Catherine Newman:
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By Justin Bryant
09th Aug 2023 09:06

It's almost hard to believe (do a search here if you don't), but there are still people who comment regularly here that think the LC was a great idea and see no problem whatsoever with it. (I suppose it's actually a helpful way of knowing who's a complete idiot here - there's at least around 4-5 of them who you can identify from a search.)

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Replying to Justin Bryant:
By Ruddles
09th Aug 2023 10:38

I challenge you to find one person that has said that "the LC was a great idea and
[that they] see no problem whatsoever with it"

I won't hold my breath ...

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Replying to Ruddles:
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By Justin Bryant
09th Aug 2023 11:07

I believe there's a saying about people who protest too much isn't there (clearly I'm paraphrasing)? (At least you've helpfully identified yourself.)

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Replying to Justin Bryant:
By Ruddles
09th Aug 2023 11:16

Put up or shut up. In other words, stop lying. Identify one post of mine where I (or anyone else) have said that the Loan Charge was fine and dandy and without issues, or apologise.

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Replying to Justin Bryant:
Stepurhan
By stepurhan
09th Aug 2023 12:03

There is a difference between someone saying "The LC is fine and dandy and there is nothing wrong with it" and saying that disguising incomes as "loans" that were never expected to be repaid was wrong.

To say otherwise is as bad as someone outright saying you thought pretending income was "loans" was fine and dandy.

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Replying to Justin Bryant:
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By Justin Bryant
11th Aug 2023 10:23

I see one of the other 4-5 has helpfully identified himself above.

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Replying to Justin Bryant:
Stepurhan
By stepurhan
14th Aug 2023 09:38

Justin Bryant wrote:

I see one of the other 4-5 has helpfully identified himself above.

I see you are opting to make accusations rather than engage in intelligent discussion, again.
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By AdamJones82
08th Aug 2023 18:52

They need to make the current system of a decent standard before even beginning to attempt anything else.

By contrast I had to contact the Eire tax authorities this week for a client, I was able to email them and got a reply the same day. It reminded me of the early 2000s when I could call the local tax office and get a quick answer

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By Hugo Fair
08th Aug 2023 21:39

Congratulations to CIOT and ATT for pulling together the survey and report.

*However*, there's still not enough courage to call a spade a spade ... for instance:
“There is a real lack of confidence that a convenient, user-friendly and effective system will be ready to go by April 2026.”

True ... but there's absolutely no evidence that HMRC have even started to recognise and tackle the gaping holes (one might say flawed structure) that is an incomplete specification of how they expect it to work across the scenarios it is supposed to encompass.
Everything else (that not unnaturally winds up Aweb readers) is entirely irrelevant IF a complete specification cannot be agreed ... since it means any 'development' (whether of software or guidance or the policies/processes of practices) is doomed to be wrong!

And that is why MTD ITSA (or anything approaching its current planned incarnation) will NOT happen ... and HMRC need to be told that in no uncertain terms.
It's not enough to berate them that "a convenient, user-friendly & effective system won't be ready" ... since nor will an inconvenient, user-antagonistic and ineffectual system. IT IS DEAD!

Thanks (5)
Replying to Hugo Fair:
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By NotAnAccountant2
09th Aug 2023 08:40

Hugo Fair wrote:

Congratulations to CIOT and ATT for pulling together the survey and report.

*However*, there's still not enough courage to call a spade a spade ... for instance:
“There is a real lack of confidence that a convenient, user-friendly and effective system will be ready to go by April 2026.”

True ... but there's absolutely no evidence that HMRC have even started to recognise and tackle the gaping holes (one might say flawed structure) that is an incomplete specification of how they expect it to work across the scenarios it is supposed to encompass.

One of the things that feels very different today to even 10 years ago is that (very) senior management have got so used to being able to dictate what happens that they're now defying reality. To an outsider, that's bizarre and frightening. It's not just that reality won't bend to opinion, reality cannot bend to opinion.

There is sometimes a very fine line between facts and the interpretation of facts, but more and more I'm seeing people deny the facts, not just the interpretation. Partly, I think that has come about due to a lack of competence at the top - finding an alternative interpretation that is consistent with the facts (a la courtroom drama) isn't easy to do and currently many people who deny the facts are allowed to get away with it.

Having said that, I don't understand where HMRC are going with MTD or why. My gut feeling is that HMRC don't know where they're going with MTD or why. It's (IMO) been exclusively driven by software providers who see subscription revenue from every taxpayer in the land, income that the taxpayers cannot avoid paying. It literally does not matter to the software providers whether MTD works, they just need something sufficiently complex that barriers to entry are high enough that free software will never cover more than a tiny proportion of users and they're in clover. It doesn't even matter to the software providers if we have quarterly submissions that nobody looks at and then the same EoY process as now provided that the quarterly submissions require you to buy their software.

I won't be at all surprised if that hybrid system isn't what we see next - the boxes on the normal SA will be prepopulated with MTD data (but can be amended).

I'm not convinced that MTD will die a quick death. I suspect that can only happen with a change of government - although an incoming government then risks being blamed for binning a "billion pounds of investment into a streamlined tax system"

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Replying to NotAnAccountant2:
Tornado
By Tornado
09th Aug 2023 11:26

I think one of the original concept of MTD was that everyone would have to use proprietary accounting software, and this idea was probably sold to HMRC by the software developers themselves, for obvious reasons.

This is a great idea really, and I offered (on AWEB ) and even better solution which was that HMRC developed the software that we could all use for free which would mean that we are all using the same software at the same time and all with the same updates and added features as they became available. This idea has a number of flaws, however, and is never going to happen even though it is probably the correct and only way to make MTD successful.

I think the first nail in the coffin was when it was conceded that Spreadsheets and other digital methods of record keeping (not using proprietary software) were acceptable as 'Digital' records, which was a big blow for the software developers and effectively created a situation where HMRC and the developers completely lost control of the project.

At this point the project should have been abandoned or drastically revised. I think that is what a commercial organisation would have done, but not HMRC ................. and the rest is history.

We have been told that that MTD is £1,000 million over budget so when added to the original budget of some £1,800 million, I reckon it has cost us nearly £3,000 million (£3 Billion) so far and we have practically nothing to show for it.

MTD is dead and needs to be finally buried so that we can move on to something more viable.

Thanks (9)
Replying to Tornado:
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By GHarr497688
10th Aug 2023 13:57

an alternative could be something as simple as:

Use MTD on a quarterly basis through choice and/or
Spread your SA tax over 12 months instalments.

SIMPLE

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By swimmer
09th Aug 2023 11:40

https://www.change.org/p/scrap-quarterly-reporting-mtd

I’m sure you’ll agree that preparing quarterly reports (under Making Tax Digital) will be a significant burden for small businesses. So please read about this matter on the above link, and then sign up to the new petition to scrap this costly and time-consuming proposal.

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Replying to swimmer:
John Hextall
By John Hextall
10th Aug 2023 10:01

I would like to sign this petition but the link does not seem to give me that option.

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Replying to John Hextall:
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By Hugo Fair
10th Aug 2023 12:26

Presumably the software was commissioned by HMRC then?

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By agknight
10th Aug 2023 09:57

I can see no gain from MTD for Vat. All that has happened is that clients email me their spreadsheet, we attach on the bridging software tab and send on. Thus charging the client +£25 for nothing.

Unless something looks masively awry we don't check. Leave that to year end as before.

Clients that used accounts software continue to do so as before.

To suggest that businesses with income below £85k will benefit in any way from MTD is for the birds. Basically we have HMRC and the London-centric government trying to kill the multitude of small traders who enjoy ploughing their own destiny as self employed.

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By Latinaid
10th Aug 2023 11:27

‘A poll of more than 500 tax professionals found that 95% of those surveyed were not confident about HMRC’s ability to oversee the introduction of …. MTD ITSA.’

Who on earth are the 5% who ARE confident? Personally I’m not confident about HMRC’s ability to open their mail and answer the phone, let alone deliver a massive IT project affecting millions of taxpayers.

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Replying to Latinaid:
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By bendybod
11th Aug 2023 14:34

They were probably the "neither positive nor negative" or "don't know"!

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Replying to bendybod:
Tornado
By Tornado
11th Aug 2023 14:45

bendybod wrote:

They were probably the "neither positive nor negative" or "don't know"!

............... or like me, don't care.

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By GHarr497688
10th Aug 2023 14:06

I notice the article was changed on 9th August with the same old standards phrases from HMRC:

Responding to the new research, a spokesperson from HMRC told AccountingWEB: "Making Tax Digital will make it easier and quicker for small businesses to get their tax affairs right first time, supporting their productivity and growth.

“MTD is a step-change which requires taxpayers and agents to change their behaviours," they continued. "We are fully committed to supporting them all through this change and bringing these important benefits to customers from April 2026.”

Thanks (0)
Replying to GHarr497688:
Tornado
By Tornado
10th Aug 2023 14:50

It is very sad that HMRC cannot see the truth about the failure of the MTD project in the same way that the rest of us can. Perhaps their dogged optimism is to keep their own delusion alive, but I think the rest of us have moved on and put MTD in the OUT tray.

I feel that HMRC are continuing to lie to us, but all that does is make us trust them even less. Very sad, very sad indeed.

Thanks (1)
Replying to Tornado:
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By gillsoffice
10th Aug 2023 17:10

I agree, but I don't think HMRC are deluded, I think they want to string this out as long as possible and grab as much £ as they can until they retire with huge pensions. I wish I could be paid such a large amount for managing a failing project which no one has the guts to pull the plug on. To add insult to injury, we are the ones paying them to do this. I think I heard the latest report showed the number of civil servants earning over £100k has doubled since the pandemic. With the advent of computers and the internet surely they should be more efficient and the numbers should be going down rather than up!

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Replying to gillsoffice:
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By Justin Bryant
11th Aug 2023 15:00

Yes and if anyone thinks HMRC are incapable of huge deliberate whoppers to shield themselves from blame for their scandalous decisions/behavior, see this:
https://www.accountingweb.co.uk/any-answers/hmrc-loan-charge-lies-laid-b...

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Replying to Justin Bryant:
By Ruddles
11th Aug 2023 15:48

But that is simply a link to your own post and your own interpretation of the facts. Which was disputed by a number of people, including one well-qualified individual whose opinions you claim to have huge respect for. As such, it is merely a link to an expression of your own opinion and doesn't really add anything to the current discussion.

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Replying to Ruddles:
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By Justin Bryant
14th Nov 2023 11:19

Well, you seem to overlook the fact that RT agrees with me there at 29th Sep 2023 11:22.

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Replying to Justin Bryant:
By Ruddles
14th Nov 2023 16:50

Not sure how I could be accused of overlooking something that wasn't said until more than a month into the future. But hey ho.

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By swimmer
14th Aug 2023 08:54

John,
As regards the online petition against quarterly reporting posted earlier, please enter your name and email address details and check one of the two following boxes:
Yes! Tell me if this petition wins, and how I can help other relevant petitions
No. I don’t want to hear about this petition’s progress or other relevant petitions.
Then click on submit and an email will be sent to you. Follow the instructions on the email.
Please forward the link to your clients and professional contacts.
https://www.change.org/p/scrap-quarterly-reporting-mtd

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Mark R
By oneclickapplications
10th Jan 2024 10:35

Good article. As a business that has developed an MTD solution for TAS Books we are hugely frustrated at the internal issues with HMRC. I agree completely at your point about the levels of staff and tax payer satisfaction , we are hearing about issues all the time.

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