As we mark the 10th anniversary of Making Tax Digital (MTD), it is an opportune moment to reflect on its progression, the transformative changes it promises for the tax landscape, and the obstacles that lie ahead ...
The journey of Making Tax Digital has been one of both promise and challenge!
MTD was conceived as a revolutionary step away from the cumbersome annual tax return, ushering in a new era of efficient and streamlined tax management. This initiative has fundamentally altered the way businesses, self-employed individuals, and landlords interact with HMRC, aiming for a modernised approach to tax administration.
"This integrates seamlessly with today's digital economy!"
Announced by then-Chancellor George Osborne on the 18th of March 2015 as part of the Spring Budget, MTD proposed a sweeping simplification of the tax collection system. The original promise was that tax returns would be abolished altogether, simplifying compliance for millions of taxpayers.
Making Tax Digital was designed to ensure that most businesses would digitise their tax affairs, with updates filed quarterly through a dedicated digital tax account. This ambitious endeavour was expected to be implemented in phases beginning in April 2018 and reaching full compliance by the end of 2020.
There was a lot of initial enthusiasm, but the road to full implementation has been fraught with challenges. The first definitive change came in July 2017, when the government pivoted its focus towards MTD for VAT, which began rolling out in April 2019 for businesses above the VAT threshold. Full mandatory compliance came into effect in April 2022.
"Yet the anticipated smooth rollout of MTD for Income Tax has encountered substantial delays!"
Originally slated for implementation in 2023, the most recent announcements indicate that the government plans to begin phasing in MTD for income tax for sole traders and landlords over the next few years, starting in April 2026 for those with annual incomes exceeding £50,000, and extending to others with income over £20,000 by the end of the current parliamentary term.
While these developments may seem promising, there are numerous challenges that remain. For example, the accounting software industry is working hard to integrate MTD, but much concern has arisen over the goalposts constantly moving.
In addition, the removal of partnerships from the MTD framework has generated further uncertainty, especially given the critical role they play in the UK's economic landscape. With no clear timeline for inclusion, many tax professionals are left scratching their heads, wondering what HMRC are thinking!
As the 10-year mark of Making Tax Digital beckons, I feel that HMRC needs a comprehensive strategy to ensure a successful transition. This should include raising awareness among taxpayers, enhancing support mechanisms for agents and unrepresented individuals, and ensuring the successful migration of tax records onto new platforms.
The journey of Making Tax Digital has been one of both promise and challenge, though the next few years will undoubtedly be interesting.
Until next time ...
ROGER EDDOWES Business Godparent
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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