Digital reporting delay provides time for rethink on thresholds and mandation

The Low Incomes Tax Reform Group (LITRG) welcome today’s announcement that the introduction of HMRC’s flagship Making Tax Digital for Income Tax policy will be further delayed by another two years at least. LITRG are also pleased that the government have listened to their concerns about mandating those with the lowest incomes into MTD and welcome the review announced today into how MTD might better meet the needs of those with annual income below £30,000.

LITRG is generally supportive of HMRC’s desire for businesses to use digital tools as part of the wider digital agenda. However, as the details of the ‘Making Tax Digital’ regime have emerged over the last couple of years, it has become clear that it is not an easy aim to achieve. For these reasons, LITRG do not believe mandation is the way to realise HMRC’s digital ambitions at this stage.  

Sharron West, Technical Officer at LITRG said: 

“We support today’s announcement that mandation of Making Tax Digital for Income Tax (MTD) will be deferred until at least 6 April 2026 and will have a phased introduction at that stage based on income. It has become increasingly clear that the 6 April 2024 start date, already delayed from April 2023, would be impossible to meet. We particularly welcome the announcement that there will be a government review of the needs of smaller businesses, especially those self-employed businesses and landlords with gross income below £30,000, before any mandation for this group takes place.    

“Since MTD was announced, we have said that an income threshold of £10,000 is far too low and brings businesses and landlords who are not liable for income tax into scope. We are delighted that the government recognise our concerns and will carry out this review. There can be little benefit to HMRC, or small businesses, in mandating them into MTD as it currently stands.” 

As well as using the time to carry out this review and also grow the pilot and test processes, LITRG would like to see HMRC revisit some of the key details of the new system to consider whether changes should be made, such as their decision not to provide free software for taxpayers with the simplest affairs. 

Sharron West explained: 

“The cost of the software that is required for MTD, together with the training time necessary to learn how to use a specific product, is a concern for many small businesses, particularly if they already maintain adequate business records in another format. The software market has so far not risen to the challenge of offering as many free software products as HMRC had hoped. HMRC are mandating digital record keeping and reporting and we believe the responsibility is with them to provide free software that allows small businesses and landlords to comply with their tax obligations and realise some of the benefits HMRC say MTD will bring them. HMRC should reverse their decision not to develop a suitable basic product.” 

LITRG would also like to see clear detailed guidance on claiming exemption from the MTD process made available in due course so as to allay any worries that some taxpayers may have about complying with MTD where they would expect to qualify for exemption. 

Sharron West added: 

“HMRC remain confident of the benefits of MTD to businesses and landlords, so if changes can be made to MTD to make it a better system then mandation should not be needed as people will naturally be drawn to it in their own time regardless of the MTD threshold. This was the case when online filing was introduced for Self Assessment.

“We urge HMRC to use this two-year delay wisely, consulting smaller businesses and landlords effectively on their needs and capabilities, and addressing the problems that have been identified, so as to avoid more uncertainty for businesses and landlords.”