The results of a survey commissioned by HM Revenue & Customs reveal a worrying lack of preparedness among business people about MTD for Income Tax Self Assessment (MTD for ITSA).
Under MTD for ITSA, unincorporated businesses and landlords with annual gross income over £10,000 will need to follow new rules from their next accounting period starting on or after 6 April 2024. General partnerships will be required to join a year later, from 6 April 2025. Those within the rules will be required to:
- maintain financial records in a digital format;
- submit returns to HMRC digitally, on a quarterly basis, showing summary income and expenditure information;
- submit an end of period statement annually; and
- submit a declaration annually.
The survey concluded that "awareness of MTD was low", and that engagement with MTD would probably be shaped by taxpayers':
- current practices - with those who use paper-based methods, infrequently kept records, spent minimal time on their records or who found record keeping difficult being least receptive to the changes;
- structure - with larger and more complex businesses (including those already in MTD for VAT) being more positive about MTD for ITSA;
- comfort using technology - the survey found this is strongly correlated with taxpayers' age; and
- life stage - the results showed that older taxpayers are more likely to find complying with MTD for ITSA difficult.
Key results from the survey included the following:
- 35% thought it would be difficult to use MTD-compatible software, whilst only 38% thought it would be 'easy';
- 45% of respondents still use paper records; only 17% use software;
- 29% disagreed with the statement that digital record keeping will make it quicker and easier to submit information;
- 43% agreed that submitting the new quarterly summaries to HMRC would be 'easy' whilst an almost equal proportion, 39%, thought this would be 'difficult';
- 42% disagreed with the suggestion that quarterly summaries would ease the end of year tax burden; a further 20% of respondents were neutral and only a third of respondents, 34%, agreed;
- a similar proportion, 41% disagreed that calculating quarterly summaries would 'give greater financial certainty'
- only 54% of those surveyed keep records at least quarterly, therefore almost half don't keep records frequently enough to meet the new quarterly reporting requirement; and, by contrast
- 63% of the survey population found existing recordkeeping and HMRC reporting requirements 'easy' to comply with.
The survey results essentially reflect what the professional bodies and their members have been telling HMRC for some time; more must be done to raise awareness among taxpayers of the purpose, requirements and benefits of MTD for ITSA. Key to this is better engagement with agents, taxpayers, and the software industry.