Hailed as the flagship HMRC project that would eliminate the annual self assessment tax return, Making Tax Digital (MTD) has been fraught with issues, overspend and delays. It was George Osborne in a Budget in 2015 who introduced MTD as a Government initiative to update the UK’s tax system. It was intended that MTD would result in a fully digital tax system with tax payers making quarterly electronic submissions and accounting records being held digitally.
Phase One – VAT
The first stage of MTD concentrated on VAT. All VAT returns, supported by digital records, have to be filed online through MTD compatible software. In reality this means submitting exactly the same data as previously submitted on your VAT return but just through a new VAT system at HMRC. Whilst HMRC mandate that the records supporting the VAT return submissions should be held digitally there is no requirement to submit these digital records to them and certainly no policing, except perhaps if there is a VAT inspection, of the new system to ensure that digital records are being kept. To the cynical expert, phase one being Making Tax Digital for VAT delivered no new functionality or mandatory requirements and appears to be merely a technological replacement for an existing working system.
Phase Two – Self Assessment
Phase Two of the MTD project is centred around the self employed and landlords submitting their accounting information to HMRC on a quarterly basis with an end of year return to sweep up any issues, errors or omissions. It was in scoping out this phase that the wheels started to full off this project. HMRC had spectacularly misunderstood the complexities of the digitalisation of the self assessment tax system and how those caught within the self assessment regime (at least 11 million) would transition from the old to the new system.
Originally the scope of Phase Two was to be mandated to almost all self employed people and landlords with just a “below £10,000 threshold” to qualify for exclusion from the MTD regime. However as part of yet another delay to the implementation date for MTD for self assessment, announced in December 2022, HMRC increased the qualification threshold to £50,000 of income for both the self employed and landlords.
The current state of MTD
At the time of writing the next phase of MTD has been delayed until 2026 and the project stands at an overspend of at least £1 billion with very little to show in the way of tangible deliverables for this huge outlay. With a cost of living crisis and a likely change in Government approaching, it is difficult to see how this project could survive through to successful implementation. Suffice to say that it is impossible to give specific details about how and when MTD may impact your reporting responsibilities at this stage. All that can be said is that as it hasn’t happened yet or isn’t likely to happen soon then don’t worry about it for now. As to what the requirements for compliance will be, it is doubtful that these will be publicised until HMRC has worked out exactly what they are!
However no book on accounting and tax for the self employed could be written at this time without a mention of Making Tax Digital. Hence this brief section is included for completion.