With the news that HMRC is aiming to expand the trial for Making Tax Digital for income tax Self-Assessment (“MTD for income”) from next Monday 22 April, we take a look at recent developments in this area. The Institute still has many reservations about this project and will continue to represent members views on MTD for income tax when in attendance at HMRC forum meetings in this space. Feedback can be sent at any time to tax@charteredaccountants.ie.  Amended MTD regulations  As previously announced, MTD for income tax will commence for unincorporated businesses and landlords with business and/or property income over £50,000 from April 2026. Those with income over £30,000 are mandated from April 2027. In December 2023, HMRC consulted on the amended draft MTD for income tax regulations which Chartered Accountants Ireland responded to.  Following this consultation, The Income Tax (Digital Requirements) (Amendment) Regulations 2024 have now been laid. These, alongside the earlier regulations which they amended, set out the requirements which must be complied with, including the use of MTD-compatible software to keep and preserve business records digitally and the sending of quarterly updates of these records to HMRC. Note that the deadline for submitting quarterly MTD for income tax returns will now be the 7th day of the month after the relevant tax year quarter end, amended as recommended in the Institute’s consultation response in order to align with the VAT return filing deadline for those within VAT Stagger 1.   An Update Notice has also been published which sets out the information which will need to be sent to HMRC quarterly using MTD-compatible software. The update information that must be provided in a quarterly update period is dependent on the relevant person’s business or businesses. HMRC will also publish the Software Notice and Notice for joint property owners in the Spring, alongside detailed guidance for each. More information is also still to be published on the digital record keeping and digital links requirements.   MTD trial  HMRC’s aim in 2024/25 is to expand the current MTD for income tax trial by encouraging agents to consider which clients can sign up and then to sign them up to participate in the expanded private beta testing trial in 2024/25. This month, HMRC will be sending further communications regarding the MTD for income tax trial to its entire agent mailing list. Overall, this involves a three-armed email campaign which will provide several opportunities for agents to learn more about the testing and how to sign up.   HMRC began sending these comms last month. The next email will then be sent at launch, which will signpost agents towards the updated GOV.UK pages on compatible software, eligibility criteria, and sign-up pages.   However, as of 10 April 2024, there still remains a very limited number of software packages that are available to participate in the trial with just five vendors confirmed, although many are in development, some of which may become available during 2024/25 or later. The Institute recommends that agents carefully consider the advantages and disadvantages of signing up clients to participate in the trial.  HMRC has also now published detailed guidance in respect of the penalty regime which will apply when trial participants testing MTD for income tax make late submissions. These changes to penalties only apply during the testing phase and must be agreed to before a taxpayer can be signed up to participate in the trial.  Broadly, agents who wish to develop a list of clients that are eligible to join the expanded trial in 2024/25 should follow the below steps when considering their options:  Step 1 - assess client suitability – this can be done by using an eligibility checker to triage/filter which clients are eligible to participate.  Step 2 - discuss this with the client and get their agreement before going back into the service to actually sign them up.  Note that full client approval is needed to then progress onwards and sign the client up to participate.  The cost of MTD  HMRC has also sent the following message about the cost of MTD:  “We have also published an updated Tax Information and Impact Note (TIIN), to accompany the Regulations. Among other impacts, this sets out the latest projected exchequer benefits, operational costs, and customer cost impacts of MTD ITSA. Since we published the last TIIN in September 2021, we have updated the assumptions within the customer costs model. We have also reviewed the methodology and cost assumptions with tax professional bodies and the Administrative Burdens Advisory Board (ABAB).   We recognise that there are transitional costs for business in moving to MTD. Both these, and the continuing costs will vary depending on factors such as size, complexity, and digital capability of the business.   Continuing costs     Once implemented, MTD expansion is estimated to increase the total net continuing costs of complying with the tax system for all mandated businesses by £196m per year - about £110 per year, per business. This compares to a previous net cost estimate in 2021 of £152m per year, or about £35 per year, per business. A range of assumptions have been updated since the last estimates, including uplifting costs and wage rates in line with inflation, re-examining time spent undertaking tasks, reviewing the price of software products, and using the latest evidence on record keeping practices.   Transitional costs     The decision to increase the previous £10,000 income threshold to £30,000 means there is a smaller, more digitally able population within scope. We have therefore reduced our per-business estimate for the transitional costs, in comparison to the estimates published in our last TIIN.   We estimate the transitional costs for all mandated businesses will total £561m, which equates to about £320 per business. This compares to £1,383m (about £330 per business) in our 2021 figures. Although the reduction in population size means transitional and continuing costs are lower overall than previously estimated, we recognise that the continuing customer costs per business are significantly higher. We are confident that these updated estimates in the TIIN present a more granular and informed position. These remain estimates, not a definitive statement of costs, but we have used the most robust methodology possible to estimate and set them out in a realistic and straightforward way. ABAB have also advised that they are comfortable with the revised assumptions.   We also know that, whilst there are costs in using MTD, we expect there to be benefits in the future. For example, using compatible software will reduce opportunities for error and help businesses and landlords get their tax affairs right first time. Evidence from MTD VAT also points to the use of compatible software encouraging businesses to digitalise other elements of their business due to productivity benefits. We are committed to extending these benefits to business, self-employed individuals and landlords who are registered for Self Assessment from April 2026. The government will continue to keep the decision on whether to mandate businesses and landlords with income below £30,000 to use MTD ITSA under review, although this group can still sign up voluntarily.”  Turnover less than £30,000 population  As announced at the 2023 Autumn Statement, for now, HMRC is not extending MTD for income tax to unincorporated business and landlords with turnover less than £30,000. In February 2024 HMRC published externally commissioned qualitative research conducted with small businesses with turnover between £10,000 and £30,000 per year. Key findings from the research are set out in detail at section 1.3 of the report.  Government response to November 2023 Public Accounts Committee ("PAC") report  In February, the Government published its response to the recommendations in the PAC’s report of November 2023 on Progress with Making Tax Digital.   The PAC’s findings were based on a report by the National Audit Office (NAO) in 2023, in addition to oral evidence provided in June 2023 by members of HMRC’s Executive Committee.   Both the NAO and PAC’s work on MTD provides important scrutiny and perspective on the programme, hence the Government’s response sets out how it is addressing each of the PAC’s recommendations.   According to HMRC, the response underlines the focus on having a clear and widely understood roadmap for delivery, further explains the position on a range of wider issues, including the assessment of HMRC’s view of its benefits, and provides details of its approach to working with the software industry.   Several of the PAC's recommendations are underpinned by evidence of work that has already been implemented or which is underway with the overall aim of accelerating towards expanding the testing programme in 2024/25, so that HMRC can fully test its IT functionality well ahead of April 2026. 

In response to the consultation on the draft updated MTD for Income Tax legislation, the Institute took the opportunity to highlight its ongoing concerns in relation to this project, including the need to uplift the exemption limit. In addition, the lack of available software and small numbers currently participating in the trial are worrying. The Institute’s Northern Ireland Tax Committee was responding to the consultation opened last month into the draft legislation which has been updated to reflect the changes announced in December 2022 and as part of the Small Business Review in November 2023.  Key recommendations also featured in the Institute’s response include the following:- HMRC should seek to develop the detailed guidance on MTD for Income Tax after a period of consultation with stakeholders - this should contain practical worked examples/case studies of different scenarios and should carefully distinguish between the digital recording keeping requirements and functional compatible software requirements;  This guidance should be published in a timely manner in advance of the commencement date;  HMRC should work at pace and aim to publish the final MTD for Income Tax legislation, associated notices, and more detailed guidance as a matter of urgency;   The tax year from which new sources of trading or property income falling within MTD for Income Tax should be reported should be amended to the next tax year after acquiring that new source of income;   The quarterly filing deadline should be set as the seventh day of the next month to align with the VAT return filing deadline;   Unincorporated businesses should be able to move out of MTD for Income Tax in the next tax year where, turnover has fallen below the exemption limit and by a significant percentage; and   HMRC should undertake a detailed matching exercise to remove any anomalies so that quarterly update information matches that reported on the relevant self-assessment returns for trading and property income. 

As a result of the changes to Making Tax Digital (“MTD”) for income tax, details of which were published at the 2023 Autumn Statement, HMRC has published draft regulations (and associated notices) for consultation. The consultation is open until 12 January 2024. By way of reminder, MTD for income tax will be mandated from 6 April 2026 for unincorporated businesses and landlords with turnover over £50,000, whilst those with turnover over £30,000 are mandated from 6 April 2027. The turnover between £10,000 and £30,000 population are not currently mandated, however HMRC has advised that the position in relation to these smaller businesses and landlords is still under review.  The draft regulations amend the Income Tax (Digital Requirements) Regulations 2021 which provide the statutory legislative framework for MTD for income tax.   Amendments included in the draft regulations and notices reflect recent government decisions included within the outcome of the MTD small business review. They also reflect the government announcement in December 2022 on the introduction of the phased mandation schedule for MTD for income tax.  The following specific changes are reflected in the draft regulations:-  the revised MTD mandation dates and thresholds announced in December 2022;  changes which aim to improve the design of quarterly updates;  the removal of end of period statements;  easements for landlords with jointly owned property; and  exemptions for specific groups.  This a technical consultation, focused on ensuring that the draft regulations and notices achieve their intended policy purpose. Please contact makingtaxdigitalconsultations@hmrc.gov.uk if you have any questions on the draft regulations and notices. Responses to the consultation should also be submitted to the same e-mail address.  Last week HMRC also published a media article on MTD for income tax which aims to raise awareness across a broad audience. The article is a part of the Guardian newspaper’s ‘Business Transformation’ pull-out. In addition, a new video was also launched featuring MTD’s new Programme Director, Craig Ogilvie.