Andy Vessey ATT, Head of Tax at Kingsbridge Contractor Insurance talks about the ongoing issue with HMRC’s failing Making Tax Digital (MTD) programme.
It’s been 8 years since the government announced its intention to replace the tax return with Making Tax Digital (MTD) by 2020. Clearly this was far too ambitious, mainly due to the fact that HMRC had failed to evaluate the extent and complexity of the work that was necessary to deliver such a huge project.
“It is now expected that MTD will cost £1.3Bn which is £1Bn more than was originally budgeted in 2016 of £226m.”
Just like the introduction of Off-Payroll Working Rules (IR35) for the private sector, HMRC has failed to estimate the significant set up costs for businesses in preparing for MTD, which would include adapting their systems and seeking professional advice. Quite staggeringly, HMRC omitted £1.5Bn of these costs in previous forecasts.
HMRC’s 2021 research indicated that upfront costs could average £330 for each business and in some cases, £1k. Timelines have also been unrealistic, causing HMRC to delay the timetable for MTD for Self Assessment four times since 2015.
“Together with escalating costs, HMRC has had an inability to assess the efficiency and iron out any problems with MTD. Their extremely disappointing MTD for Income Tax Self Assessment (ITSA) pilot where, instead of involving 15,500 business, only 15 people took part, has caused legacy systems to remain in place for longer.”
Access to the pilot is also not available to businesses that do not have a 5th April accounting date, which is likely to remain the case until April 2024. HMRC should know and understand that Businesses have various accounting year-ends, with many of those ending at the final day of a month, and not 5th April. Precluding these businesses from the pilot will only cause further delay to the implementation of MTD.
HMRC’s current plan is to introduce MTD for ITSA for self-employed businesses and landlords with income over £50K, in April 2026, and then for those with income over £30K in April 2027. Although no dates have been announced for general partnerships and corporation tax, someone close to the MTD project has suggested this could possibly be 2029/30 & 2032/33 respectively!
In its report, NAO has told HMRC that it needs to develop an end-to-end plan and resolve questions of design within the Self Assessment regime. NAO also mentioned the lack of engaging adequately with commercial partners and underestimating the complexity involved in moving from legacy systems
“I find it quite amazing and troubling at the same time, that the department has had to have this highlighted to them.”
These increasing delays in the implementation of MTD is also a huge distraction to software companies, many of whom have already invested significant amounts of capital in producing solutions, only for HMRC to keep moving the goalposts.
The Chartered Institute of Taxation (CIOT) has also said that MTD is ‘out of control, with spiralling costs, unrealistic timescales, and questionable benefits’. It’s difficult to argue against that.
HMRC now needs to get back to the drawing board, be honest in its cost-benefit analysis and timescales, re-design and implement a system that will benefit the taxpayer & HMRC alike.
Resources:
https://www.kingsbridge.co.uk/blog/partners/ir35-hub/navigating-off-payroll/
https://www.kingsbridge.co.uk/ir35-white-paper/
https://www.nao.org.uk/reports/progress-with-making-tax-digital/
