Jackie Hall

Written by: Jackie Hall

Jackie Hall


Making tax digital (MTD) for income tax should heed the lessons from MTD for VAT

The recent announcement that MTD will be introduced for income tax from April 2023 was not entirely unexpected. Originally due to come into force in April 2018, MTD for income tax was initially pushed back to 2020 and a pilot is currently running so that some of the simplest unincorporated businesses can adopt it early.

Once introduced, self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for MTD for income tax from their next accounting period beginning on or after 6 April 2023. An April 2023 mandatory start date feels more realistic than previous target dates, given the software development needed to deal with more complex businesses. With that in mind, it would be sensible to look back at the introduction of MTD for VAT and see what lessons might be learnt.

HMRC’s own review, published in March 2020, evaluated MTD for VAT in highly positive terms, indicating that the bigger picture shows the tax gap closing through the reduction of errors. But its own survey figures indicated that only half (51 per cent) of respondents felt processes were simplified or more efficient. It leaves you with the impression that HMRC still hasn’t appreciated quite what a challenge this transition has been for businesses and advisers.

In contrast, results of a survey published by the Chartered Institute of Taxation (CIOT) and Association of Tax Technicians (ATT) in January 2020 paint an entirely different picture, with 90 per cent of their respondents saying that MTD for VAT has not reduced errors at all, and that the cost of MTD compliance has exceeded government estimates. The report highlights the view that MTD is ‘far from achieving its goals’. It is fair to say that the conclusions to be drawn from these two reviews are as different as night and day.

All this is a long way from George Osborne’s promise, when he was Chancellor, to scrap the personal tax return.

It is almost three years until the mandatory adoption date for MTD for VAT, and the pilot for income tax will be running much longer than for VAT. It is to be hoped then that, as a result of the extended pilot and the lessons learnt from its adoption for VAT, the transition to MTD will be a smoother ride for businesses this time around.

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