A new survey on Making Tax Digital (MTD) shows that taxpayers have a lack of both readiness and enthusiasm for the changeover, coupled with a lack of awareness that MTD for Income Tax Self-Assessment (ITSA) will become mandatory in under two years.
HM Revenue & Customs (HMRC) commissioned pollsters IPSOS to explore the preparedness of ITSA customers, ahead of the transition 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 that they recognised the benefits of the change.
Indeed, the survey appears to identify the lack of experience with MTD software as a big problem.
A large majority (86 per cent) of those facing MTD for ITSA had turnover, property income or combined turnover and property income below the VAT threshold and, therefore, 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 abide by the rules for MTD for Income Tax Self-Assessment (ITSA) from their next accounting period starting on or after 6 April 2024.
According to the survey, landlords, and particularly those with one or two properties, spent minimal time and effort on their obligations and felt MTD would consume more time and result in higher costs. We concur with this view.
The report also showed that, because it is a new system, taxpayers were looking for leniency when submitting their first returns and more-so if they had a history of accurate and punctual annual tax returns.
When MTD for VAT was introduced, taxpayers were given a “soft-landing” in respect of filing penalties, and we hope that something similar is provided for this next phase.
More clarity needed from HMRC
MTD for ITSA represents a significant change for landlords, many of whom will need to prepare themselves to comply with the new requirements.
Accidental, or first-time landlords sometimes do not realise that they are, for all intents and purposes, running a business just like any other self-employed individual; hence many are blissfully unaware that MTD for ITSA will apply to them.
Worth noting is that buy-to-let, furnished holiday lets, commercial property and overseas property will all be caught by the regime and that, where you are receiving other sole trader income alongside the rental income, or where you own multiple properties, the £10,000 threshold is cumulative.
There are, however, still lots of questions floating around about how MTD for ITSA will work in practice and, without doubt, HMRC must publish additional guidance and provide clarity on key issues, if it is to stand any chance of improving awareness and facilitating compliance.
For example, the very common situation where more than one taxpayer owns a single property or portfolio of properties (without forming a trading partnership) has yet to be resolved, at present the figures are simply pro-rated between their Self-Assessment Tax Returns.
Despite a lack of guidance at present, landlords would benefit from speaking to their accountant about what is known about MTD for ITSA so far.
How can George Hay help?
Adopting new systems and processes in order to be compliant can be daunting, but less so if you take a proactive approach to doing so and seek the right professional support along the way.
If you are a landlord needing support with MTD compliance, or you just want to discuss the benefits of a new way of working, our team of chartered accountants and business advisers are here to help.
Contact us today to arrange a free initial consultation, where we can discuss your requirements in more detail.