‘Fresh thinking’ needed in regard to MTD for ITSA

The Institute of Chartered Accountants in England and Wales (ICAEW) has written to HMRC regarding how Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) can be better shaped to suit the needs of small property businesses and the self-employed.

On 19 December 2022, HMRC announced the deferral of MTD for ITSA’s start date and an informal review into the initiative.

The ICAEW has written to HMRC to outline key points that it believes should be considered before the implementation of MTD for ITSA. These include rethinking the ‘disproportionate’ administrative burden associated with quarterly updates; decoupling the requirements to maintain digital records and to submit details of income from self-employment and property directly from software; and refocusing the MTD for ITSA initiative on digital record keeping and filing from software.

HMRC intends to make its final recommendations on MTD for ITSA to the Financial Secretary to the Treasury in June 2023.

The government announced the review of making tax digital income tax self assessment (MTD ITSA) on 19 December 2022, alongside the deferral of its start date. HMRC expects to make recommendations to the Financial Secretary to the Treasury in June.

The review is informal and no consultation document has been published. HMRC has engaged with a wide range of taxpayers, agents and representative bodies. ICAEW’s Tax Faculty staff met with HMRC and hosted a separate roundtable with the MTD team and 11 ICAEW members in practice in April.

Following these meetings, ICAEW has written to HMRC to summarise the key points. These include:

  • The review gives an opportunity for fresh thinking on MTD ITSA policy.
  • This fresh thinking needs to be applied to all taxpayers, not just those with turnover below £30,000.
  • The project should be refocused on what can realistically be delivered in 2026, and on digital record keeping and filing from software.
  • The administrative burden associated with quarterly updates is disproportionate and needs a rethink.
  • The requirements to maintain digital records and to submit details of income from self-employment and property directly from software could be decoupled from quarterly updates, with the current annual reporting cycle being maintained.