At the same time, the threshold was raised, substantially decreasing the initial cohort, and early in 2023, HMRC paused the pilot programme for newcomers—meaning nobody can now sign-up to MTD ITSA.
In this article, we gaze into the crystal ball and try to imagine what MTD will look like from this point onwards to help you prepare for an uncertain future. However, none of this should be considered cast-iron facts and should be taken with a pinch of salt.
The story so far
That very first timeline for MTD was announced back in 2015, with the publication of the optimistically entitled “Making tax easier: The end of the tax return”. The goal was a fully digital UK tax system in less than five years:
2016: Personal Tax Accounts (so taxpayers can manage their tax affairs online).
2018: Income Tax and Class 4 NICs.
2019: VAT.
2020: Corporation Tax.
Initially, things seemed to be going well. Personal Tax Accounts arrived in December 2015, squeezing in ahead of the 2016 planned delivery date.
The pilot programme for Income Tax launched in April of 2017 and in fact, has remained in place since, making Income Tax one of the longest-running MTD schemes—even if it was only in 2022 that major vendors like Xero produced software able to use it.
Alas, the world conspired against HMRC. Events like Brexit derailed projects.
Furthermore, HMRC was busy consulting the public and businesses about MTD. It became clear the existing approach was too aggressive.
Phased introductions
It’s very difficult to determine the future direction of MTD because, quite simply, nobody in the government or HMRC is talking about it right now.
But the rollout of MTD for VAT provides clues we can use to guess the future shape of MTD ITSA, and then MTD for Corporation Tax (CT).
A key trend was that initially ambitious plans transformed into phased, gradual rollouts that took years to apply.
While MTD for VAT began in April 2019, it wouldn’t be until April 2022 that its rollout was finally completed and, essentially, it became just one more compliance requirement for those registering for VAT.
And now, with the latest postponement at the end of 2022, it seems MTD ITSA is following this pattern of a phased rollout. Each phase is seemingly designed to shrink the number of sign-ups, thereby relieving stress on those involved in the accounting—from accountants to HMRC itself.
MTD ITSA’s initial £10,000 earnings threshold has been lifted to £50,000 for the first cohort in 2026.
This is then lowered to £30,000 for the second cohort in 2027. There will be additional cohorts after this (HMRC is currently consulting on how to proceed), and this could mean MTD ITSA’s rollout is unlikely to complete until as late as 2030.
Somewhere along the line, general partnerships will once again be included, too.
Other questions remain to be answered, such as if digital linking requirements will once again be lessened for a short period, as with MTD for VAT.
And will HMRC offer the vaunted free software for MTD ITSA?
This wasn’t offered for MTD for VAT because, HMRC said, businesses should be able to afford the software. But MTD ITSA is all about individuals, who might baulk at paying to do something that can currently be done for free. It’ll certainly be difficult to imagine, say, a retiree being happy to pay for software to declare pension income.
MTD for Corporation Tax
As mentioned, we have little information about MTD ITSA’s rollout.
But what we know is a Library of Alexandria compared to how little we know about the shape MTD for Corporation Tax (CT) will take.
Once pencilled in for introduction as soon as 2026 (with a pilot pencilled in for 2024), following MTD ITSA’s postponement it’s now possible the full rollout of MTD for CT might not be completed within this decade.
What’s curious about MTD for CT is that there may well be different versions for different kinds of business—and this is where a phased introduction might occur.
In HMRC’s response to a consultation around MTD for CT, several groups were identified as raising concerns.
For example, charities and non-profits might simply be exempt from MTD for CT because of the administrative burden. Alternatively, the need for quarterly reporting might be eased for certain kinds of businesses, although other MTD requirements like digital record keeping would be retained.
There was also discussion that a threshold of anywhere between £10,000 and £100,000 per annum could be applied. Again, it isn’t difficult to imagine this being a phased introduction across a number of years, with larger businesses asked to join first—with the idea being they can best afford to weather the transition and also already have experience of MTD for VAT.
MTD: What’s really changed?
Although it’s been a tricky rollout this far, MTD is considered a success by HMRC. It’s already narrowed the tax gap for VAT, and continues to do so.
In other words, the MTD initiative is not going anywhere, despite the postponements. Accountancy practices are well advised to use the extra time before the introduction of MTD ITSA to continue their organic progress towards digitalisation—and taking their clients with them.
Gradual change is always easier than sudden, forced change required to meet a deadline. It allows more time for mistakes and to ensure things are perfect for you.
Above all, however, digitalisation is an easy win in terms of competitiveness. This has always been true, since the introduction of the spreadsheet back in the 1970s. Any accountant or bookkeeper prepared to embrace technology is always richly rewarded in cost savings.
At a time when online-only tax agents are undercutting the high street, any advantage needs to be grabbed with both hands.
Going digital needs to be considered on a process-by-process basis, potentially using return on investment as a measure. AutoEntry can save up to 90% of the processing time when it comes to data entry from receipts and invoices, for example. It’s not just a step forward when it comes to digitising a practice. It’s a leap forward, and one of the lower-hanging fruits when it comes to any digitalisation process.
Practices should be looking for end-to-end solutions, covering everything from the initial client engagement, to choosing the very best accounting software. In our world of MTD, joined-up thinking is the basic requirement to prepare for the future.
