HMRC has announced1 that, from April 2023, self-employed businesses and landlords with turnover above £10,000 per year will be required to keep digital records and submit income tax updates every three months instead of filing annual self-assessment tax returns.
The Low Incomes Tax Reform Group (LITRG) is urging HMRC to make effective use of the next three years, running full pilots and supporting taxpayers in making the transition to the new system.
HMRC are currently running a small scale pilot with self-employed businesses and landlords, and plan to scale the pilot up from April 2021. This is part of HMRC’s Making Tax Digital (MTD) programme which began in April 2018 with a VAT pilot and forms a core part of HMRC’s 10 year tax administration strategy2, published today, to modernise the UK tax system.
Victoria Todd, Head of LITRG said:
“We recognise the many benefits that a primarily digital system will bring for individuals and business as well as for HMRC. However, it is important that those who require assistance to transact digitally and individuals who are digitally excluded continue to have their needs met.
“MTD for income tax represents a huge change for self-employed individuals and landlords and we are pleased that the enormity of this has been recognised by introducing the requirement from 2023 rather than sooner. However, a lot of work needs to be done before then to ensure individuals are ready and that appropriate software is available.
“The current MTD income tax pilot involves a very small number of people. We welcome HMRC’s commitment to scale this pilot up to involve more people but it is also important that they do this quickly so that a whole cycle, including the end of period final declaration, can be completed as part of the pilot and any changes made before April 2023. The enhanced pilot should also include individuals who have more than one source of income, such as employment and self-employment income.
The legislation that supports MTD for VAT and Income Tax contains exemptions from the requirements including where it is not reasonably practicable for someone to use digital tools to keep business records or submit returns digitally because of age, disability, remoteness of location or for any other reason.
Victoria Todd, Head of LITRG continued:
“HMRC must do more to promote these exemptions for MTD for VAT. As the pilot for income tax grows, HMRC must make the exemptions clear in guidance and ensure that individuals and HMRC staff know about them. In addition, HMRC should ensure those who want to transact digitally but who need some assistance to do so, have access to appropriate help and support.
“One longstanding concern we have with both MTD for VAT and income tax relates to software requirements. Although some free software is available from commercial providers, it is often very basic and there has been a lack of accessible software available for VAT3.
"At present, very little software is available for the MTD for income tax pilot4 and this must be addressed if the pilot is to be successfully scaled-up.
"We continue to urge HMRC to provide their own free, basic software that small businesses and landlords can use to help them comply with their obligations.”
Notes for editors
1. The Making Tax Digital announcement can be found here - https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital#making-tax-digital-for-income-tax
2. HMRC's tax administration strategy can be read here - https://www.gov.uk/government/publications/tax-administration-strategy/building-a-trusted-modern-tax-administration-system
3. See Relief available for taxpayers struggling to find accessible software for new tax rules (LITRG Press release - 19 June 2019) - https://www.litrg.org.uk/latest-news/news/190619-press-release-relief-available-taxpayers-struggling-find-accessible-software
4. There are presently only six software options that are compatable with Making Tax Digital for Income Tax - https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax
5. Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998, LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
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