Making Tax Digital Announcement

In a surprise turnaround, the requirement for an end of period statement (EOPS) has been dropped, removing the fifth report of full year earnings. This means there will now only be four quarterly reports, reducing the administrative burden.

The decision follows a review of the impact of MTD for income tax self assessment (ITSA), the new digital reporting system for earnings for landlords, sole traders and the self employed.

During the review, stakeholders highlighted a need to amend the design of quarterly updates to make it easier to amend or correct errors throughout the tax year. The government agreed that this would simplify and improve the design of quarterly updates, and agreed to make this change.

Rather than a total for the three-month period covered within the update, each update will be a cumulative total of income and expenses accumulated during the tax year to-date. This will remove the need for taxpayers to resubmit a previous update where corrections to previously submitted figures are required.

Alison Kerrey, chair of the joint CIOT/ATT digitalisation & agent services committee, said: ‘For some time, we had called for quarterly reports to be submitted on a cumulative basis, rather than making taxpayers resubmit previous reports to correct errors or make amendments, so this change is most welcome. Likewise, the need to submit EOPS was widely seen as simply adding confusion, as well as an unnecessary administrative burden, onto taxpayers.

MTD will be introduced in two phases, starting with those earning over £50,000 from April 2026 and above £30,000 from April 2027.

The government is keeping an open mind on whether to extend mandatory MTD reporting for those earning less than £30,000 and said it would keep this ‘under review’. The original plan was to set the entry threshold at £10,000. In the longer term, partnerships will have to report under MTD but no start date has been decided.

‘Relieving small businesses and landlords from the requirements is a welcome move, which will save those affected potentially hundreds of pounds in compliance costs,’ said Kerrey. ‘It also ensures that any further expansion is delayed until MTD for ITSA has had time to bed in, and gives HMRC, taxpayers, and their advisers, some much-needed breathing space to get used to the change.’

So far there has been limited testing of the new system. There will be a much larger beta trial of the new MTD system, which needs to be developed. HMRC plans to launch a large-scale beta public beta testing programme beginning in 2025.

‘Taking the time needed to get this right, through closer joint-working between HMRC and external partners, will provide an improved overall experience for customers using MTD and their agents,’ HMRC said.

Consultation on all the changes will be announced shortly.

When it is fully operational, up to 1.7 million sole traders and landlords will have to use compatible software to keep digital records and send quarterly updates to HMRC, so that tax records are kept up to date and reflect their current situation.

The changes announced in the Autumn Statement are designed to simplify the requirements for all taxpayers providing quarterly updates, and for taxpayers with more complex affairs, such as landlords with jointly-owned property.

‘Despite the announcements, there is still real concern as to whether MTD for ITSA and HMRC will be fully ready for a 2026 start, and whether the projected financial benefits of the project and ease to the taxpayers, will materialise.’

MTD will continue to support the use of three-line accounts for taxpayers with annual turnover from self-employment or property income that is below the VAT registration threshold of £85,000. This will remove the need to categorise expenses when completing quarterly updates.

The biggest change is dropping the fifth year-end report.

Under the original proposals, once the end of period statement (EOPS) declaration was completed for each business income source, taxpayers would have needed to submit a final declaration presenting a finalised position across all income sources, equivalent to the current income tax return. 

The government acknowledged that the EOPS declaration was ‘potentially confusing for users and duplicates information provided through the final declaration’ and will remove this requirement.

Landlords with jointly-owned property will be able to choose not to submit quarterly updates of their expenses which relate to jointly owned properties. These records will still need to be submitted before they finalise their tax position for the year. They will also be able to keep less detailed digital records in relation to these properties to simplify the transfer of records between joint owners.  

HMRC is also working on developing a solution to allow taxpayers to be represented by more than one tax agent.

There will be an MTD exemption for some taxpayers, including those without a National Insurance number.

There will also be a change to the penalty system for volunteers signing up to the system during the trial period. Legislation in Autumn Finance Bill 2023 will ensure taxpayers who join MTD from 6 April 2024, will be subject to HMRC’s new penalty regime for the late filing of tax returns and late payment of tax, which is based on a traffic light system.