MTD pilot scheme

Voluntary sign-ups for HMRC’s Making Tax Digital (MTD) for Income Tax pilot has decreased from 877 in the pilot’s first year to only 26 in the 2020-21 tax year.

Accountancy firm, Saffrey Champness, obtained the data through a Freedom of Information (FOI) request. The data indicates that 1,015 taxpayers have voluntarily signed up for the pilot since it was launched in 2018. Out of the voluntary sign-ups, 218 are landlords with property income, and from 2021-22 year there were only six reported sign-ups.

This low participation rate has been worrying accountants due to concerns about the extent of the testing of the MTD system. 4.3m self-employed people and landlords are expected to use this when they are moved over to the new system in April 2024.

Why is turnout so low?

A reason for the low numbers could be that HMRC restricts the number of participants in the early stages of pilots such as this one, so they can ‘provide additional support to the first customers in the service before testing at scale’. However, despite this caveat, Zena Hanks, a partner at Saffery Champness, described the numbers as ‘stark’. Ms Hanks warned that the low take-up could result in problems if the MTD system goes live without a representative number of participants testing it first.

Ms Hanks went on to say:

‘…The relatively small number of participants involved in the pilot isn’t likely to fill people with confidence in the effectiveness of that testing, or indeed the results it has yielded thus far. While there may be benefits to HMRC keeping the number of guinea pigs in the Making Tax Digital Income Tax pilot fairly small, as any issues that arise can be handled with only a few taxpayers affected, it’s hardly a vote of confidence in the new system. Nor does it indicate much eagerness on the part of taxpayers and their agents to embrace the new system, given that by HMRC’s own calculation over one million sole traders and landlords are currently eligible for the pilot.’

MTD ITSA

Once MTD for Income Tax Self-Assessment (MTD ITSA) comes into effect, about a third of taxpayers who are signed up to self-assessment and have either income from a business or property exceeding £10,000 per year, will have to keep digital records. These will have to be filed to HMRC every quarter, using third-party software, replacing the traditional annual tax return.

Users of the new system will have to choose from a government-approved list of software providers. Some offer a free service, but tax specialists have warned these will likely only be suitable for those who have very basic tax affairs. Therefore, it is likely many people will have to pay for the use of their choice of software.

A spokesperson for HMRC said the following:

‘We are working closely with customers and software providers on the introduction of MTD ITSA. As part of this work, we are running a controlled pilot where we can guide users through the MTD process and evaluate their feedback.’

‘As we expand the pilot, we will continue to manage the pilot in a controlled way. This is best done working through software providers so we can test different sources of income in a planned and controlled manner. We will intentionally keep initial numbers low so we can provide additional support to the first customers in the service before testing at scale.’

MTD is described by HMRC as the first phase of the move towards a modern, digital tax service fit for the 21st century. Ultimately, it is designed to make the tax system more resilient and effective, to boost business productivity, and better support taxpayers.

As always, if you would like any further information regarding the above, please feel free to contact our offices by email info@williamsoncroft.co.uk.