Accountants voice concerns over UK’s new digital tax system for the self-employed

Accountants and software developers have raised concerns over trials of the UK’s new digital tax system, due to roll out to millions of self-employed people in 2024, after HM Revenue & Customs revealed it there were only nine people participating in the pilot project.

The UK tax authority confirmed the figure to the Financial Times after a Freedom of Information request from accountants Saffery Champness showed a sharp drop in the number of volunteers to test the new software since the trial began there. three years ago.

Enrollment numbers have fallen from a peak of 900 people in 2018-19, the pilot’s first year, to just nine currently taking part, according to HMRC.

The low turnout has raised concerns about the extent of testing of a system that 4.3 million self-employed and homeowners will have to use when they switch in April 2024 to the new tax regime, known as the name of Making Tax Digital for Income Tax.

Stuart Miller, product compliance and industry engagement manager at software vendor Xero, said the trial size was far too small. “Until there are a significant number of taxpayers included in the pilot project, it is difficult to determine how fully robust the system will be.”

Zena Hanks, a partner at Saffery Champness, described the numbers as “austere”. She warned that there could be problems when commissioning the system if the number of people who tested it was too small to be representative.

“I’m afraid what we’ll have in the end is an incredible system for nine people,” she added.

Under the new system, around a third of taxpayers who are self-assessed and whose income from a business and/or property exceeds £10,000 a year will be required to keep digital records of their income and expenditure. These will need to be filed with HMRC every quarter, using third-party software, rather than submitting an annual tax return.

Software vendors and tax professionals said several factors made it difficult to attract volunteers to join the pilot, including HMRC’s decision to limit it to volunteers who only have land or business income. Anyone who received state Covid support was also excluded, which tax experts say excluded a large number of self-employed people.

Anish Mehta, managing partner at Apari, one of the HMRC-approved software providers for the new system, said more people were willing to take part in the trial, but HMRC’s eligibility criteria were ” still very narrow. He added: “The service is untested until you let more people in.”

HMRC said it had always planned to keep the initial numbers in the pilot low so that it could “provide further support to the first customers of the service before testing at scale”. He added that he plans to open the trial to more people from April, two years before launch.

Emma Rawson, technical officer at the Association of Tax Technicians, a professional body, said there was also a lack of awareness of the new system. Many freelancers she spoke to hadn’t heard of the change and were “rather horrified to learn that they would have to buy software in a few years.” [to do their taxes]”.

Users of the new system will have to choose from a list of government-approved software vendors. Some offer a free service, but tax experts have warned they will only be suitable for people with the most basic tax affairs and expect many people will have to pay.

This article has been amended since publication to clarify that anyone who is self-assessing and has a combined income from a business or property of more than £10,000 a year will be required to keep digital records.

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