The Treasury has set out a roadmap for Making Tax Digital, alongside its long-term plans for tax administration reform, as part of the package of measures to be included in Finance Bill 2020-21.
At present, businesses above the VAT threshold of £85,000 are covered by the system, which requires them to keep digital records and provide VAT returns through software. Since it was introduced in 2019 more than 1.4m businesses have joined the programme, submitting over 6m returns.
From April 2022, the programme will be extended to all VAT registered businesses with turnover below the VAT threshold, and from April 2023, it will apply to taxpayers who file income tax self-assessment tax returns for business or property income over £10,000 annually.
Announcing the move in a written statement Jesse Norman, financial secretary to the Treasury, said the Government was ‘setting out its vision for a trusted, modern tax administration system that is fit for the 21st century and keeps pace with the many countries already operating digital tax regimes.’
Norman said: ‘This timetable allows businesses, landlords and agents time to plan, and gives software providers enough notice to bring new Making Tax Digital products to market, including free software for businesses with the simplest tax affairs.
‘HMRC will expand its pilot service from April 2021 to allow businesses and landlords to test the full end-to-end service before the requirement to join,’ Norman said.
The government will also consult in the autumn on the detail of extending Making Tax Digital to incorporated businesses with corporate tax obligations.
Tina Riches, chair of the joint CIOT and ATT digitalisation and agent services committee, described the extension of Making Tax Digital for VAT to voluntarily VAT registered businesses as ‘the logical next step’, pointing out that around 300,000 such businesses are already signed up while the remaining 700,000 or so businesses now have a timetable to get ready for the change.
However Riches cautioned: ‘There is still much to be done to ensure that the expected benefits of Making Tax Digital are delivered in a cost-effective way.
‘In a January 2020 survey of businesses and their advisers by CIOT and the ATT nearly 90% of respondents said that Making Tax Digital for VAT had not reduced errors and just 14% of respondents said there had been an increase in productivity in their organisation as a result of Making Tax Digital for VAT.
‘The survey also showed that the costs of Making Tax Digital compliance had far exceeded government estimates.’
Regarding the extension to income tax self-assessment, Riches said: ‘There are currently only six software products that are compatible with Making Tax Digital for income tax self-assessment, and a small number of businesses in the current pilot.
‘Both these numbers need to increase substantially, together with an ability for people with more complex affairs, including partnerships and their partners, to participate, if there is to be an effective pilot of the regime before it becomes mandatory in April 2023.’
IPSE (the Association of Independent Professionals and the Self-Employed) has said that the government must not let Making Tax Digital make tax even more complex for freelancers by increasing the frequency of reporting.
Andy Chamberlain, IPSE director of policy, said: ‘Although this would give the government a more accurate view of incomes, for freelancers, for whom every minute of admin is valuable earning time lost, this could be a significant added burden.
‘The aim of Making Tax Digital is to make tax simpler for taxpayers and HMRC: it’s not clear to us how more frequent reporting will achieve this.’
HMRC communications pack on Making Tax Digital is here.
By Pat Sweet