The Chartered Institute of Taxation (CIOT) is urging HMRC to reconsider the national roll out of the Making Tax Digital (MTD) scheme, amid concerns it might place an unreasonable and unaffordable administrative burden on taxpayers, also suggesting there is little reliable evidence to guarantee the scheme will be effective in achieving its purpose (in its existing form).

Making Tax Digital – A recap

MTD was introduced as part of a wider scheme to update the UK’s taxation scheme, intended to simplify the existing tax system, whilst making it more effective and efficient for taxpayers when submitting critical tax information. The scheme was also intended to reduce the tax gap and regain lost revenue.

MTD was partially introduced on 1st April 2019, applicable only to VAT businesses registered with a taxable turnover above £85,000. It meant all affected businesses were required, by law, to store their VAT records digitally and file their returns using digitally compatible software.

Several further extensions were there scheduled, the timescales for which remain as follows at present:

  • Autumn 2020 – the government will consult on extending MTD to incorporated businesses with corporate tax obligations
  • April 2022 – MTD extended to all businesses below the VAT threshold of £85,000
  • April 2023 – MTD extended to taxpayers who file income tax self-assessment tax returns for business or property income over £10,000 annually

Businesses must facilitate the crossover to a full digitised system themselves, implementing the necessary software prior to timescales outlined above.

A call to rethink the Making Tax Digital roll out, from industry experts

Concerns have been raised by several professional bodies, particularly the CIOT, about the proposed compulsory extension of MTD, suggesting more evidence is required to prove the success of the scheme before it is extended to a much wider population.

The CIOT has also raised concerns about the high level of tax that continues to be lost due to mistakes. Lack of technical accuracy within the accounting software may lead to further errors, as taxpayers who may not understand the complexities of the tax system, rely solely on the accounting software for accuracy, questioning the credibility of the system, and its ability to deliver its intended purpose.

Daniel-Stewart Lacey, Personal Tax Manager at Smith Cooper comments:

“The errors that the CIOT have been quoted as having been seen from taxpayers, such as claiming VAT relief on tax payments, are very concerning and demonstrate the importance of taxpayers seeking professional help to avoid making such errors.”

“Given the complexity of tax legislation, it is not just simple errors such as this that can be avoided by seeking professional assistance, there are various tax adjustments that are required which taxpayers may not be aware of. While the automation provided by software used by taxpayers can be helpful, it can also lead to mistakes which can cause HMRC enquiries later down the line, so professional input is vital to ensure that submissions to HMRC are accurate.

HMRC have also underestimated the additional administrative burden that the rollout of MTD will place on landlords and sole traders in particular, as well as the additional costs that will arise to these taxpayers from making multiple submissions each tax year.”

Gavin West, Head of VAT and Indirect Taxes at Smith Cooper comments:

“Due to the significant impact Covid-19 has had on business and the continued disruption to industry, it would appear sensible to postpone the proposed next stage of MTD”.

“There are many significant issues and challenges facing businesses over the coming months as well as Brexit, and a postponement would allow for businesses to prioritise these whilst allowing HMRC and taxpayers to stress test the accuracy and benefits of the initial MTD implementations.”

If you have any queries regarding Making Tax Digital and how the proposed changes may affect you or have questions about what you need to do to prepare, please get in touch with a member of our team.