MDT for income tax deferral “welcome”, but concerns remain, industry says
Further delays in Making Tax Digital (MTD) for income tax provide welcome respite for businesses, but uncertainty and implementation issues remain, sources say.
Announced via a written statement to the House of Commons on September 23, the rollout of the program has now been postponed to April 2024. This is the latest in a series of delays, with implementation initially scheduled for 2018.
âWhile we appreciate the government’s efforts to simplify and harmonize reporting deadlines and accommodate the extra time to prepare, our concerns about the impact of the workload on small businesses and accountants due to MTD are still valid, âsaid Glenn Collins, head of policy, technical and strategic engagement at the Association of Chartered Chartered Accountants (ACCA).
âConcerns remain about the levels of support required by SMEs and the ability of small accounting firms to meet the workflow needs of regular reporting unmanageable software costs and the low threshold for reporting under MTD. “
While around 1.2 million businesses (those with taxable income above Â£ 85,000) have been operating under BAT rules since April 2019, the 2024 implementation will see the compliance requirement expand to the remaining number. Generally speaking, the rules require businesses to keep digital records of their sales and purchases and to use software to submit their VAT returns to HMRC.
However, this upcoming deadline may worry many businesses, with a recent study by The Accountancy Partnership revealing that around a third of UK SMEs still use paper systems for VAT returns. In addition, one in ten people store essential documents in a drawer or shoebox, she found.
Likewise, worrying figures emerged following the initial deployment of MTD for VAT in 2019, with some 120,000 companies (around 10%) not meeting the deadline.
âThe level of detail required by HMRC as part of MTD’s quarterly reports could create a ‘bottleneck’ around deadlines as well as unmanageable workloads for accountants and small businesses. This could seriously affect broad compliance and late filing rates, âCollins adds.
“Over the next 12 months, we would like HMRC to use this time to carefully reassess its proposal to reduce the burden on businesses and accountants.”
Concerns were also expressed by Katharine Arthur, partner and private client manager at haysmacintyre, with her warning that the postponement is likely to be damaging and urging HMRC not to issue any further delays.
“It is welcome to see HMRC listening to relevant trade bodies, however, there comes a time when taxpayers need certainty about a fixed departure date and the government cannot continue to kick the road. “she said.
âWith MTD expected to bring billions more to the treasury coffers, its implementation is becoming more and more necessary given the huge holes linked to Covid in public finances. “
However, some reacted more favorably to the delay, with Michael Izza, CEO of the Institute for Chartered Accountants in England and Wales (ICAEW) describing it as “welcome news”.
“The previous start date was far too early and risked causing serious damage to the UK tax system,” he said.
âThe new start date will give businesses more time to prepare and their advisors more time to make sure their clients are ready. “
The ICAEW has also expressed its approval that the reform of the base period does not come into effect until April 2024, and that more complex partnerships are not included until April 2025.
âWhile we still believe that the reform of the base period rules should be abandoned, this is a welcome development,â said Frank Haskew, ICAEW’s chief tax officer.
“Changing [complex partnershipsâ] the base period rules would lead to a considerable increase in uncertainty and costs, not least due to the need to submit year-end tax figures based on estimates which would then need to be amended to reflect the result real.