The end of the tax return  

MTD was first announced on 18 March 2015 by then Chancellor, George Osborne, as part of his 2015 Spring Budget. Promising “a revolutionary simplification of tax collection ... starting next year”, Osborne said that he would “abolish the annual tax return altogether”. 

In December 2015, a new document from HMRC, Making tax digital, explained that “most businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account”. HMRC said that MTD income tax would be phased in from April 2018 and committed to a full roll out by 2020.  

Implementing MTD VAT 

A change to the timetable was announced in July 2017, with the government shifting the focus to MTD VAT. The government committed to and achieved (with a few carve outs and soft landings) a start date for MTD VAT of April 2019 for businesses with turnover above the VAT threshold. MTD VAT became mandatory for all businesses from April 2022. It was not until late 2022 that HMRC transferred the final VAT records, closed the old VAT portal and enforced compliance. 

MTD for income tax delayed 

MTD for income tax has proved to be much more challenging. In July 2020, the government set a new start date of April 2023 for unincorporated businesses and landlords with gross income over £10,000 per year. In September 2021, the government pushed the start date back to April 2024, and in December 2022, the plan changed again, with the start date delayed a further two years and the scope narrowed, as explained below.  

Current plans 

At the Autumn Budget 2024, the current government confirmed that it would continue with the previous government’s plans to begin phasing in MTD income tax for sole traders and landlords from:  

• 6 April 2026, where their annual turnover exceeds £50,000; and
• 6 April 2027, where their annual turnover exceeds £30,000. 

It also announced that it would go further by applying MTD income tax to sole traders and landlords with turnover of more than £20,000 by the end of this parliament.  

Partnerships were removed from the scope in December 2022 and there is no date for them to be included. There has been little or no recent mention of MTD corporation tax.  

Work still to do 

HMRC has much to do before the start date. This includes raising awareness and supporting agents and unrepresented taxpayers, migrating taxpayers’ records to its new platform, and delivering penalty reform.  

A key concern for ICAEW is that processes are fully tested, and any issues resolved, before the start date. Progress is being made with the sign-up and quarterly update processes, but the situation looks less clear for the crucial year-end final tax return processes that establish the income tax liability. Although the vast majority of taxpayers are eligible to join the testing, some restrictions remain. For example, taxpayers with a self assessment debt or payment plan, or with an ongoing compliance check, cannot join yet.  

Taxpayers and agents need to be able to choose from a suitable range of software. A worrying development has been HMRC’s announcement that it may not provide a service for the end of year submission. This may mean that taxpayers and agents need to acquire a commercial software product (or products) that covers all necessary sections of the tax return. This may increase costs and make choosing between different products offering different functionality very difficult. 

Challenges for agents 

MTD income tax also poses a significant challenge for agents, requiring many to rethink the work they do for clients and how and when they do it.  

In a series of articles, Rebecca Benneyworth, chair of the Tax Faculty’s Technical and Oversight Committee, explains the likely impact on agents and makes suggestions for how agents can begin to prepare. In her latest article, Rebecca encourages agents to get involved in testing MTD income tax. 

ICAEW’s view 

Caroline Miskin, Senior Technical Manager – Digital Taxation, says: “ICAEW supports the digitalisation of accounting records and HMRC’s ambition to digitalise the tax system. We have consistently opposed the quarterly update element of the MTD for income tax requirements as we consider that it adds significant cost for no significant benefit. We have always suggested that the familiar annual reporting cycle for income tax be retained, but with the MTD digital record requirements. Indeed, MTD income tax might already have been delivered had this been the design. Nevertheless, the requirements are due to start in just over a year and preparation by agents and taxpayers is key.” 

Further information 

• ICAEW’s MTD hub includes a video explaining what MTD is and links to a quiz, guidance, articles, podcasts and webinars available to watch on demand.