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HMRC has recently published research on readiness for MTD for income tax self-assessment (“MTD for ITSA”) and VAT and a new compliance check factsheet has also been published setting out the potential penalties which will be charged if a business does not meet the necessary conditions of MTD for VAT. VAT Notice 700/22: Making Tax Digital for VAT has also been updated and the MTD for ITSA pilot is expected to open up from next month. HMRC is also sending reminder emails this week on MTD for VAT. Research on MTD readiness HMRC commissioned Ipsos Mori to conduct research on readiness for MTD for ITSA mandation, which is scheduled to commence in April 2024. The research consisted of a quantitative telephone survey of 2,200 businesses supported by 30 in-depth qualitative interviews. The research was used to provide a segmentation of the ITSA population to inform HMRC’s strategies for communication and support tailored to the needs of different groups. Six distinct groups have been formed by HMRC based on perception of readiness for MTD. This was based on their current practices, business structure, comfort using technology and life stage of the business. These are being discussed via various HMRC MTD sub-group forums which Chartered Accountants Ireland is participating in. According to HMRC, the key findings are as follows:- Readiness is affected by a number of key characteristics including age, business complexity, digital capability and record keeping practices; 67 percent of the research population are deemed “capable” by HMRC of meeting their MTD requirements based on these characteristics; Similar numbers of businesses (38 percent) reported that they will find their MTD obligations easy compared to those who said they will find it difficult (35 percent); and The research suggests areas in which the least prepared businesses may require further support, largely in the need for information on choosing suitable software, facilitating trial runs of MTD and allowing a grace period for first submissions. Research has also been published on readiness for MTD for VAT which took effect for businesses with turnover below £85,000 from 1 April 2022. This research was conducted by Yonder between June 2021 and January 2022. According to the survey results, there appeared to be a general lack of awareness of the specific requirements of MTD VAT. HMRC tells us that by the middle of May 2022, approximately 40 percent of those mandated to use MTD for VAT from April 2022 had signed up to do so. Businesses are not able to register until their final non-MTD VAT return has been filed hence it is expected that further tranches of businesses will sign up to MTD VAT in the coming months (depending on their VAT return stagger return period). MTD for VAT penalties The new compliance check factsheet on MTD for VAT penalties sets out long awaited information and guidance on the penalties that apply for failure to comply with MTD for VAT. Note that the new factsheet only deals with MTD for VAT penalties and does not deal either with the default surcharges rules or the new VAT points based late submission and payment penalty system that begin to take effect from 1 January 2023. These rules were originally scheduled to commence from 1 April 2022 but were delayed nine months as recommended by Chartered Accountants Ireland. A filing penalty of up to £400 for every return filed can be applied to a business that does not sign up to MTD for VAT and continues to file its VAT return in a way that does not use MTD compliant functional compatible software. At a recent meeting with HMRC, HMRC stated that these penalties will begin to be charged later this year once all VAT records have been transferred by HMRC to its new database. A penalty of between £5 and £15 can be charged for every day of failure to comply with the MTD for VAT digital record keeping requirements (including the digital links requirement). Chartered Accountants Ireland continues to express the need for a soft landing for the smallest businesses in respect of MTD for VAT and remains concerned about a number of aspects of MTD for ITSA, including the low £10,000 turnover exemption, and the lack of both available MTD for ITSA compatible software and the trial roadmap which was due to be published in Spring 2022. MTD for VAT bulk emails Later this week, HMRC is expected to begin sending reminder emails on MTD for VAT to businesses with turnover below £85,000. It is expected that further emails will also be sent to the same population in July and August. MTD for ITSA pilot HMRC has issued a message to agents updating them on the MTD for ITSA pilot in the latest Agent Update. HMRC plans to extend the MTD for ITSA pilot by opening it up to more of the self-employed and landlords from 1 July 2022. HMRC are keen to say that anyone taking part will be able to test MTD ITSA before April 2024, including their own internal processes for managing MTD for ITSA. The message asks agents to think about which of their clients may be eligible to join the pilot for 2022/23. HMRC wants agents to consider how the pilot provides an opportunity to test MTD for ITSA with their clients early in addition to playing a key role in testing the new system before mandation in 2024.  Taxpayers with the following income types will be able to join the MTD ITSA pilot scheme from July 2022:- self-employment (including multiple self-employments); UK property; Gift Aid; Pay As You Earn income, including employment income and occupational pensions (excluding those with a coded-out liability);  UK interest; and   UK dividends.   Taxpayers will need to have an accounting period that aligns to the tax year (6 April to 5 April) to join the 2022/23 pilot and have MTD-compatible software. However, it remains concerning that only three software packages are available and no full roadmap for this pilot has been published as yet which HMRC had promised for Spring 2022. HMRC has stated that from 6 July it will be testing the first quarterly submission for 2022/23 for taxpayers already in the pilot, after which it aims to open up the pilot more widely to those with income types listed above. More information will be available in subsequent Agent Updates after HMRC has carried out initial stage 1 testing of core income types for the first quarterly submission. Chartered Accountants Ireland continues to discuss MTD with HMRC and will keep members updated.

Agent Update: issue 97 is now available and contains the latest guidance and information for tax agents and advisers. This edition of the Agent Update includes:- the increase in some National Insurance Contributions thresholds from 6 July 2022; residency and the remittance basis charge; changes to VAT penalties; P11D and P11D(b) filing and payment deadlines next month; and Making Tax Digital (MTD) for Income Tax Self-Assessment – do you have clients who may want to join the pilot?