HMRC opens Making Tax Digital Income Tax pilot to all self-employed

HMRC has entered into a new phase today as it moves out of its nearly year-long limited testing period for its Making Tax Digital Income Tax pilot.

Brian Palmer, tax policy advisor at AAT, explains that it is now offering the self-employed a chance to join the pilot as we edge closer to 2020, when the MTD initiative will be rolled out for all taxes.

So far only a soft launch has taken place, but this is still encouraging given the fact the VAT pilot for MTD is expected to start next month, since businesses will be mandated to use the system from April 2019 to meet their VAT obligations.

Those who choose to join the pilot will be able to start filing quarterly updates of their trading income and expenditure figures through the Making Tax Digital system.

As for other groups, it is expected that unincorporated landlords will be able to follow in the pilot next month.

Software for MTD

HMRC has also highlighted certain software providers with MTD-compliant products capable of filing the quarterly updates required for Income Tax purposes.

Rhino and IRIS feature on this list, and while HMRC has not revealed any other names, they say there is likely to be other recommended software providers in the future.

It is not surprising that there are few Income Tax MTD-compliant products available at the moment since last July a ministerial announcement postponed mandation for all except those who are VAT registered with a turnover of above £85,000.

As a result of this delay, these software providers switched their resource to ensure that their products will be able to file MTD-compliant VAT returns.

Many providers say they feel confident that they will be able to offer products by the start of the VAT-MTD private testing phase, which is likely to be in April this year.

What impact does this have on accountants?

Given that there are only two Income Tax update filing solutions available at the moment and mandation has meant the focus is on VAT, it is unlikely that there will be a rush for the self-employed to on-board for Income Tax purposes.

However, Palmer anticipates that if the VAT MTD pilot is successful and its mandation goes well, then self-employed businesses will gradually join the Income Tax pilot.

He points out, however, that this is all based on a greater range and depth of Income Tax MTD-compliant software becoming available to the self-employed.

As confidence grows within businesses involved in the pilot, the hope is that accountants and tax advisors might decide that self-employed start-ups should be on-boarded straight into MTD, avoiding any need to transition from the current regime when mandation eventually arrives.

While there is still a long way to go with MTD, audiences can take comfort in this announcement that it is starting to move forwards in the right direction.