MTD for income tax delay “welcome” but concerns remain, industry argues

MTD for income tax delay “welcome” but concerns remain, industry argues

The postponement must not distract from the "unmanageable" requirements of MTD

Fresh delays to the Making Tax Digital (MTD) for income tax offer welcome breathing room for businesses, but uncertainty and implementation concerns remain, sources have said.

Announced via a written statement to the House of Commons on September 23, the roll-out of the programme has now been pushed back to April 2024. This is the latest in a series of delays, with the implementation having originally been slated for 2018.

“While we appreciate the efforts made by government to simplify and harmonise reporting deadlines and welcome the additional time to prepare, our concerns regarding workload impact on small businesses and accountants due to MTD are still valid,” says Glenn Collins, head of policy, technical and strategic engagement at the Association for Chartered Certified Accountants (ACCA).

“There remain concerns around the levels of support required by SMEs and the ability of small accountancy practices to meet the workflow needs of regular reporting unmanageable software costs and the low threshold for reporting under MTD.”

While roughly 1.2 million businesses (those with a taxable income exceeding £85,000) have been operating under the MTD rules since April 2019, the 2024 implementation will see the compliance requirement extend to the remaining number. Broadly, the rules require businesses to keep digital records of their sales and purchases, and use software to submit their VAT returns to HMRC.

However, this forthcoming deadline may be cause for concern for many businesses, with a recent study carried out by The Accountancy Partnership revealing that around a third of UK SMEs are still using paper-based systems for VAT returns. In addition, one in 10 store essential documents in a drawer or shoebox, it found.

Similarly concerning figures emerged following the initial rollout of MTD for VAT in 2019, with some 120,000 businesses (around 10 percent) failing to meet the deadline.

“The level of detail HMRC requires as part of MTD quarterly reporting could create a ‘bottleneck’ around deadlines as well as unmanageable workloads for accountants and small businesses. This could seriously affect broader compliance and late filing rates,” adds Collins.

“Over the next 12 months, we would like to see HMRC use this time to reassess its proposal carefully in order to reduce the burden placed on businesses and accountants.”

Concerns were also expressed by Katharine Arthur, partner and head of private client at haysmacintyre, with her warning that the postponement will likely to be damaging and urging HMRC to issue no further delays.

“It’s welcome to see HMRC listen to the relevant trade bodies, however, there does come a point when taxpayers need certainty over a fixed starting date and the government can’t keep just kicking the can down the road,” she said.

“With MTD estimated to bring in billions more to the Treasury’s coffers, its implementation is becoming increasingly necessary given the huge Covid-related holes in the public finances.”

However, some have reacted more favourably to the delay, with Michael Izza, CEO at the Institute for Chartered Accountants in England & Wales (ICAEW) describing it as “welcome news”.

“The previous start date was far too soon and risked causing serious damage to the UK tax system,” he said.

“The new start date will allow businesses more time to prepare and their advisers more time to ensure their clients are ready.”

The ICAEW has also expressed its approval of the basis period reform not coming into effect before April 2024, and that more complex partnerships will not be included in this before April 2025.

“While we still believe reform of basis period rules should be dropped, this is a welcome development,” says Frank Haskew, the ICAEW’s head of tax.

“Changing [complex partnerships’] basis period rules would result in a considerable increase in uncertainty and cost, not least because of a need to submit year-end tax figures based on estimates which will then need to be amended to reflect the actual outcome.”

Resources & Whitepapers

Why Professional Services Firms Should Ditch Folders and Embrace Metadata

Professional Services Why Professional Services Firms Should Ditch Folders and Embrace Metadata

8m

Why Professional Services Firms Should Ditch Folde...

In the past decade, the professional services industry has transformed significantly. Digital disruptions, increased competition, and changing market ...

View resource
2 Vital keys to Remaining Competitive for Professional Services Firms

2 Vital keys to Remaining Competitive for Professional Services Firms

12m

2 Vital keys to Remaining Competitive for Professi...

In recent months, professional services firms are facing more pressure than ever to deliver value to clients. Often, clients look at the firms own inf...

View resource
Turn Accounts Payable into a value-engine

Accounting Firms Turn Accounts Payable into a value-engine

7m

Turn Accounts Payable into a value-engine

In a world of instant results and automated workloads, the potential for AP to drive insights and transform results is enormous. But, if you’re still ...

View resource
Digital Links: A guide to MTD in 2021

Making Tax Digital Digital Links: A guide to MTD in 2021

8m

Digital Links: A guide to MTD in 2021

The first phase of Making Tax Digital (MTD) saw the requirement for the digital submission of the VAT Return using compliant software. That’s now behi...

View resource