By Annie Makoff Making Tax Digital The NAO is critical on MTD’s progress 15 Jun 2023 Find out about the National Audit Office’s report, and how accountants feel about it. The National Audit Office (NAO) this week published their long-awaited progress report into Making Tax Digital (MTD). The HMRC-driven MTD major transformation programme which was launched in 2015/16 to modernise the tax system had three main aims: maximise tax revenue, make sustainable cost savings and improve customer service. Under the programme, all UK businesses including sole traders and landlords will ultimately be required to keep digital tax records using MTD-compatible software and to submit quarterly returns to bring the system closer to real-time reporting. Stand for AAT Council We are searching for a diverse range of people from AAT’s membership to help us shape the future. Could that be you? Read more Although MTD was always going to be introduced in stages, it was originally intended to go live for all UK businesses, sole traders and landlords by 2020, with MTD for ITSA to be completed by 2018. But since then, it has been beset with delays due to system complexities, the Covid-19 pandemic and unrealistic timescales given the scale of the programme. MTD for VAT April 2019: MTD for VAT was launched after a one-year delay. It only applied to VAT-registered businesses with a VAT threshold of £85,000 and over. April 2022: MTD for VAT extended to cover all VAT-registered businesses, including those below the VAT threshold. MTD for Corporation Tax April 2026: MTD for Corporation Tax will now apply to businesses from 2026 – at the earliest – instead of 2024 as initially proposed. MTD for Income Tax Self Assessment (ITSA) April 2026: MTD for Income Tax will apply to self-employed individuals and landlords earning over £50,000, instead of the previously proposed 2024 date. April 2027: MTD for Income Tax will apply to self-employed individuals and landlords earning over £30,000. The NAO report identifies both the benefits and successes of the MTD programme to date as well as the challenges and wide-ranging on-going issues with the MTD programme as a whole. As such: The broad aim of the programme is well supported by stakeholders. However, the original 2020 completion date plan was unrealistic. HMRC took sensible steps to revise and review delivery plans for MTD. Brexit and Covid-19 pandemic contributed to delays as HMRC had to redeploy resources. Changes to MTD for VAT in 2019 cost more than expected. MTD for VAT has generated additional tax revenue. MTD for Self Assessment is eight years behind the original timetable and there are still ongoing, unresolved issues. The scale of the work is still uncertain. HMRC expects the programme will generate a positive return. So what are accountants’ and finance professionals’ views on the MTD roll-out? We spoke to stakeholders across the country to find out. The NAO has raised some important concerns – HMRC must change its approach while ensuring there are no more delays Jack Withrington, Head of Public Affairs and Public Policy, AAT Whilst AAT supports the MTD programme, we also strongly agree with the NAO report and its findings – in particular, that the timescales were unrealistic given the scale and scope of the MTD programme, which AAT had warned from the beginning. The NAO’s conclusions reflect a lot of what AAT members feel. For example, there have been frustrations from members who have moved heaven and earth to meet MTD deadlines, only for them to be pushed back. Similarly, members will recognise the concerns NAO has expressed about the costs for taxpayers, especially those on lower incomes. One of the most important conclusions from the NAO is the risk MTD now poses to the support of taxpayers and delivery partners. It is clear we can’t carry on with the status quo – businesses need certainty and HMRC need to be pragmatic and realistic around timetables, system implementation and support for the digitally excluded. AAT wants to see HMRC adopt a co-creation approach with software suppliers and vendors. With so much at stake, MTD needs the direct involvement and collaboration of industry experts. We also welcome HMRC’s efforts to reach out and listen more to the various businesses, sole traders and landlords that MTD affects in different ways. There is no silver bullet that will solve this problem but closer collaboration from HMRC is key. Verdict: HMRC should act quickly on the NAO recommendations and move forward with an MTD programme which is realistic and not cause any further delays. HMRC must take much more of a collaborative approach with stakeholders and software providers Karen Williams, MD for Accountancy, IRIS Software Group (IRIS) As the NAO report describes, MTD for VAT did not require large-scale changes for SMEs and since this is the only tax regime that has been mandated so far, there is still some way to go before we all start to see the benefits. The delivery of MTD for Income Tax however, has had some extremely ambitious target dates and the scale of change across HMRC internal systems, third party software and business processes were largely underestimated. There have been many delays – and whilst these were necessary, the impact on the industry as a whole has been extremely time-consuming and costly. A more collaborative approach to the design and implementation of MTD much earlier on, with all stakeholders involved, would have helped to uncover some of the obstacles while giving a clearer view of the scale of work involved. There have however already been some improvements from HMRC: it is taking a wider view on the strategic implementation of MTD and gaining stakeholder input much earlier on in the process. Hopefully this will continue, as it’s crucial to deliver a successful programme that will benefit all UK SMEs. Verdict: Delays have been costly and HMRC need to take much more of a collaborative approach with stakeholders and third party software going forward. MTD implementation has been a disaster – but the programme will provide long-term benefits Ashley Ritchie, founder, Campbell Ritchie Chartered Accountants In my opinion, MTD has been a disaster. Accountants and bookkeepers were excited by the idea initially and then realised the amount of time and money it would take to implement it. With the initial deadline in place for MTD ITSA, accountants/bookkeepers pushed ahead to get clients categorised and trained. A few clients local to me actually disengaged with smaller clients as they didn’t think they would be able to cope with the extra admin needed. When we were all ready to go and had advertised the scheme, HMRC announced thresholds would change and there would be a delay. HMRC just don’t have the staff to implement MTD. They’ve even closed the self-assessment phone lines for three months to cope with backlogs – this is even before MTD ITSA implementation. Although I can’t see MTD saving money in the short-term due to infrastructure needed, it will bring in more revenue in the long-term. MTD VAT has shown that HMRC will have a better view of income on a timelier basis and it also acts as a ‘big brother’: less money can be hidden by clients not wanting to declare all earnings. Verdict: MTD has been a disaster – but the programme will provide long-term benefits. MTD indecisiveness has caused confusion and uncertainty for businesses Neil Harries, Director, Harries Watkins Jones Chartered Accountants and T J English Ltd Whilst unrealistic goals have been an issue for HMRC, they have also had a considerable negative impact on both small businesses and their accountants. The constantly changing implementation dates have caused confusion for businesses already going through the difficulties of dealing with the impact of Brexit, Covid-19, the war in the Ukraine and high inflation. The small business sector needs certainty in these unstable times and the indecisiveness of MTD implementation has caused unnecessary further stresses. In essence, the principle behind MTD is welcomed and in theory should improve the efficiency for both taxpayer and HMRC alike. Naturally, compulsory electronic filing must be the way forward for all tax returns. Concern remains about the extent of the proposed reporting, which is way too onerous and costly for small businesses. As an example, the future introduction of quarterly reporting for income tax would create an unnecessary administrative burden for many small businesses. Many will be without the skills and resources to report themselves and will incur additional charges from their accountant for assistance with this. A further concern is that there remains a significant proportion of small business owners with poor digital literacy. To date, it would appear there has been inadequate consideration on this issue. Verdict: Constantly changing implementation dates has caused confusion and uncertainty for businesses. HMRC must provide better clarity and focus to help futureproof businesses Andrew Burman, Principal, Tax Transformation, Ryan The escalation in cost and delays to MTD shouldn’t come as a surprise to the accountancy sector. However, HMRC is not alone. We are seeing a similar slow direction of travel when it comes to the digitisation of tax from global authorities. Many tax authorities like HMRC have been caught out by the rapid change and digitisation of our economy and they have been trying to play catch-up for years. In addition, we are seeing tax authorities moving at different paces with different approaches, resulting in a lack of consistency and greater uncertainty across the board for global businesses. These businesses are calling out for clarity and focus, so they can work out what MTD and other initiatives mean for them and their organisations across the full spectrum of taxes. Crucially, they need guidance to be future fit and flexible, particularly when alleviating costs, speed of response and resolving any issues that may arise with meeting new requirements. Think of HMRC as a huge oil tanker – it’s very tough to change direction and even to plot a course. That’s in contrast to most businesses that are already way ahead in thinking how to transform their tax team into a speedboat, able to direct themselves and deal with change in advance of it happening. Verdict: HMRC must provide better clarity and focus to help future-proof businesses. Stand for AAT Council We are searching for a diverse range of people from AAT’s membership to help us shape the future. Could that be you? Read more Annie Makoff is a freelance journalist and editor.