Quarterly Reporting for MTD is "disproportionate"
22/05/2023

ICAEW Calls for Review of Making Tax Digital for Income Tax Reporting Requirements

The Institute of Chartered Accountants in England and Wales (ICAEW), the largest representative body for accountants, has expressed concerns over the current quarterly reporting obligations for sole traders and landlords under Making Tax Digital for Income Tax (MTD ITSA). They argue that the requirement is burdensome and lacks justification.

ICAEW has engaged in discussions with HM Revenue and Customs (HMRC) regarding the delayed implementation of MTD ITSA and is urging a reconsideration of the reporting framework.

The criticism primarily revolves around the administrative costs associated with quarterly updates, which may not necessarily achieve HMRC's objective of enhancing record quality. Even when individuals maintain digital records regularly, the additional compliance burdens of ensuring completeness and meeting specific quarterly deadlines can be challenging, particularly when involving bookkeepers or agents.

ICAEW proposes that, initially, annual reporting should be implemented when MTD ITSA becomes mandatory. They suggest that HMRC should introduce requirements for maintaining digital records and submitting income details directly from software, while retaining the current annual reporting cycle. Quarterly reporting could be considered in the future, once the annual system is established and if it leads to a significant improvement in record keeping.

ICAEW highlights that quarterly updates provide limited assurance about the quality of underlying digital records. By conducting a review of the reporting rules, HMRC can allow the system to become established and evaluate the effectiveness of annual reporting. This approach would enable HMRC to assess the impact of digital record-keeping requirements and software usage separately from the impact of quarterly reporting. Furthermore, it would alleviate implementation challenges, such as multiple agents, supporting the project's delivery by 2026.

The extended timeline until 2026 presents an opportunity for HMRC to simplify the reporting rules by revisiting the requirements. ICAEW fully supports the digitalization of businesses and practices, with many members focusing on the broader adoption of digitalization rather than MTD specifically.

ICAEW emphasizes the need to return to the project's original aim of simplifying tax procedures, urging HMRC to reconsider and rebrand MTD ITSA accordingly. To regain support from businesses, the project should focus on delivering productivity benefits through software adoption and digital record-keeping, ultimately simplifying taxpayers' compliance with their obligations.

ICAEW also raises concerns about the feasibility of setting up and running an adequate pilot given the complexities associated with multiple agents and reporting income from jointly held property. The government announced a review of MTD ITSA in December, alongside the deferral of its start date to April 2026. Initially, the reporting obligation would affect individuals with an income between £30,000 and £50,000, encompassing 900,000 taxpayers, instead of the original plan to include sole traders and landlords with income over £10,000, affecting up to four million taxpayers.

HMRC is expected to present recommendations to the financial secretary to the Treasury in June, following these consultations with ICAEW and other stakeholders.