Why AAT thinks delaying MTD for ITSA is the right call

Adam Harper, Director of Professional Standards & Policy, analyses the delay in MTD for ITSA and says the UK authorities must use the hiatus to increase understanding.

The week before Christmas was a busy time for government announcements. The biggest, at least from the accountancy profession’s viewpoint, was the news that HMRC has decided to extend the time period for the transition to Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA). In summary, the Government has said that “The mandatory use of software is … being phased in from April 2026, rather than April 2024.” 

The Government also announced a review into the needs of smaller businesses, and particularly those under the £30,000 income threshold. “The review will consider how MTD for ITSA can be shaped to meet the needs of these smaller businesses and the best way for them to fulfil their Income Tax obligations.”

Bolstering business confidence

Governments are often criticised for U-turns and delays, but in this case, the decision aligns with our long-held view that a cautious approach to such a major change would help all stakeholders.  

HMRC has cited the ‘challenging economic environment’ as part of the reason for the delay, and it’s hard not to have some sympathy with this approach – UK businesses of all sizes are under enormous pressure from inflation, low growth and energy price fluctuations. Smaller businesses in particular are suffering, so delaying the introduction of what many believed would be an onerous and expensive obligation has to have some merit. Business confidence is a fickle thing and anything that threatens it should be very carefully considered – so the decision to adopt a phased approach and engage in wider consultation has merit.

More time to educate

The decision does make sense in a number of ways. We have been concerned about the level of understanding of and engagement with the changes that MTD will entail among those affected. That was borne out by a survey we conducted last year, which revealed that “Most AAT Licensed Accountants (85%) believe the current ITSA registration process is not well understood or only understood with the help of an accountant or other professional.”

Therefore, pushing the implementation back should – if done properly – allow regulators and other stakeholders sufficient time to better explain not just the mechanics of transition but also the underlying benefits that taxpayers should hopefully accrue.

And make no mistake, accountants will be central to the success of MTD. We have been clear in our support of using intermediaries to smooth the transition and this decision only adds weight to the idea that accountants have both the skills and appetite to take clients through the MTD journey.  

Indeed, our consultation last year revealed a membership determined to play its part, with an overwhelming 95% of AAT Licensed Accountants expressing a desire to register their clients for ITSA. As we said at the time, ‘This demonstrates a significant appetite for greater intermediary involvement and support for the registration process’.

Success stories

And for that to succeed, it would help if the UK authorities took our advice and looked beyond British shores to where other territories have successfully transitioned to a digital tax system. Singapore is the example often cited, and as such has become the ‘gold standard’. Singapore’s success in registering landlords in particular is something that HMRC can learn from given the extra timeframe allowed. It’s a sign of a strong and confident country that can look to others and learn from their experience.

Conclusion

Finally, an extension should hopefully allow software companies the time to develop solutions that truly meet the needs of taxpayers in the new digital environment. There’s widespread agreement that ‘baking in’ MTD-compliant tools and services will have an enormous impact on the scheme’s success.  

Software vendors are a vital part of this transition and we would like to see them engage proactively with regulators and professional bodies to ensure taxpayers suffer minimal disruption and aren’t subject to unnecessary delays or price hikes as they go online.  

This is the latest step in what is sure to be a journey of twists and turns. We remain committed supporters of the drivers behind MTD and will do whatever we can to make it a success. For that reason we are keen to consult not only with our members but also with the very businesses and traders who will be most affected by the changes of the next few years. As the New Year dawns, our doors remain open.  

Adam Harper is AAT's Director of Professional Standards & Policy..