A new survey on Making Tax Digital (MTD) shows taxpayers have an alarming lack of readiness and enthusiasm for the changeover and a lack of awareness that MTD for Income Tax begins in less than two years.
HM Revenue & Customs (HMRC) commissioned pollsters Ipsos to undertake new research to explore the preparedness of Income Tax Self-Assessment (ITSA) customers, in the lead-up to the MTD switch in April 2024.
Lack of understanding of a big problem
The latest survey came after earlier research found half of the businesses did not understand their reporting obligations under the extension of Making Tax Digital for VAT, even in January of this year.
Understanding of the specific requirements of Making Tax Digital was lower than general awareness.
In fact, only over half of those surveyed (51 per cent) were aware of MTD and knew of at least one requirement, but alarmingly, 12 per cent provided no correct responses on requirements and nearly four in 10 (37 per cent) could not identify any requirements at all.
The survey had some surprising findings. It found:
- Around four in 10 said they would find it difficult to start reporting quarterly income tax when the rules come in.
- Using compatible software was a problem for 35 per cent of respondents.
- 40 per cent said the switch would be easy and they recognised the benefits of the change.
The lack of experience with MTD software was highlighted as a big problem.
A big majority (86 per cent) of those facing MTD for ITSA had turnover, property income or combined turnover and property income below the VAT threshold, therefore, they had no previous experience of using the software.
How will landlords be affected?
Unincorporated businesses and landlords with annual turnover or gross income above £10,000 will need to follow the rules for MTD for Income Tax Self-Assessment (ITSA) from their next accounting period starting on or after 6 April 2024.
But according to the survey, landlords, particularly those with one or two properties, spent minimal time and effort on their obligations and felt MTD would result in more time and higher costs.
The report also showed that because it is a new system, taxpayers were looking for leniency when submitting their first returns, particularly if previously they had a long history of submitting correct and punctual annual tax returns.
More clarity is needed from HMRC
Andrew Jackson, Vice-Chair of the joint CIOT and ATT digitalisation and agent services committee, said: “We have encouraged HMRC to publish more detailed guidance about the Making Tax Digital process, as there are seemingly more questions than answers at the moment. HMRC must spell out what they are going to do to improve awareness and bring out all the necessary guidance they can urgently.