MTD ITSA regulations amended but concerns remain

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The government has laid regulations (SI 2024/167) confirming the latest timetable for Making Tax Digital Income Tax Self Assessment (MTD ITSA). A notice which sets out the contents of quarterly updates has also been published. Further notices covering software and for joint property owners will be published at a later date.  

As well as changing the start date, the regulations incorporate changes announced in December 2022 and at Autumn Statement 2023 following the small business review. 

ICAEW’s Tax Faculty responded to a consultation on the draft regulations in ICAEW REP 08/24. The only significant further change introduced by the final regulations is that the submission deadline for MTD ITSA quarterly updates will now be the seventh of the month to align with the VAT deadline (previously the fifth of the month).  

Uncertainty remains over the requirements for maintaining digital records, including the level of detail required, and what the requirement for digital links within functional compatible software will mean in practice. 

ICAEW and PAC concerns 

ICAEW continues to have wider concerns about MTD ITSA including:

• the administration burden and complexity that arises from the requirement for quarterly submissions;
• unresolved design and implementation issues, as well as whether a meaningful pilot will be possible in 2025/26 in advance of the April 2026 start date;
• HMRC’s capacity to provide the customer support that will be needed to support the change;
• whether a sufficient range of suitable software products (including some that meet the government’s commitment to free products) will be available; and
• how the late submission penalty regime will apply in practice. 

These concerns were partly reflected in the Public Accounts Committee (PAC) report on MTD. The government has now responded to that report. 

Caroline Miskin, Senior Technical Manager ICAEW Tax Faculty, says:

“The government responses to PAC are not particularly reassuring. It is disappointing that the government has rejected the recommendation that HMRC should ensure that all its future proposals for digitalising the tax system start with what taxpayers need and are demonstrably better for them than existing arrangements. There are other considerations but that is where it should start.” 

The government acknowledges that: “A programme of MTD’s scale and complexity carries inherent risk. Its delivery roadmap to mandation presents an ambitious but realistic timetable. Successful delivery remains contingent on external software developers building MTD products, and engagement from the agent community to support customer readiness; it also assumes stability in HMRC’s resource and internal capacity to deliver MTD.” 

Miskin comments: “The scale and complexity of MTD ITSA have been consistently underestimated since 2015. HMRC has developed a much more detailed delivery plan, but it remains to be seen whether that plan, with its contingencies, is realistic.”

Costs 

HMRC has also published an updated Tax Information and Impact Note (TIIN). HMRC’s estimate of transitional costs has been reduced from £330 per business to £320. Ongoing costs are now estimated at £110 per year, per business, compared to the previous estimate of £35. 

The exchequer impact (additional revenue) included in the public finances is: 2025/26 £25m; 2026/27 £120m; 2027/28 £465m; and 2028/29 £780m.

Research reports

HMRC has also published some research reports:

Next steps

HMRC expects to relaunch the private beta pilot for MTD ITSA in April 2024. The criteria for joining the pilot and additional guidance are expected to be published soon.

A webinar from ICAEW’s Tax Faculty on 24 April 2024 (free to all) will cover the latest information and guidance. See also ICAEW’s dedicated MTD webpage. 

ICAEW’s Tax Faculty is recognised internationally as a leading authority and source of expertise on taxation. The faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.