Making Tax Digital and the driver issue

Gary Jacobs

WELL, IT’S COMING TO THE end of the tax return season. Many of you late guys may have heard that you now have until February to do your returns. However, be aware you will pay interest on late payments (that wasn’t in the HMRC press release of course!).

You may have heard me say many times that in the very near future, sole trader drivers can no longer just turn up once a year with a box of receipts when MTD digitises the tax process. We will have to do returns every quarter with a fifth final return at the end.

It is due to go fully live on 6 April 2024 for sole traders after the government postponed the scheme by a year in September 2021.

This will happen (the pilot has been going on since 2018), but not without a lot of pain and torment, with tens of thousands expected but just nine people currently taking part in the pilot scheme. Professional bodies are calling for more information on how HMRC plans to get it right in time.

As MTD’s first accountancy practice (Eazitax in effect turned the on button to the portal), we have been immersed in it from the very start. At first, it felt like a massive futuristic shift, like moving from vinyl to Spotify.

But, after all talk and no action for five years, it now is more like the government’s version of hide and seek. A Freedom of Information request from a top 20 firm just reported in the Financial Times revealed the dramatic fall in MTD pilot participants.

The test scheme’s first year in 2018/19 saw 877 people register for the pilot, but that number has now plummeted, as confirmed by HMRC.

While the figures are stark, the drop-off can be explained by a tightening of the criteria limiting participation to ‘very simple’ businesses with sole trader income in 2019/20 (that’s us folks) which saw more than five hundred people removed. Those numbers were thinned out still further by the exclusion of those who had received Covid support grants.

Our involvement in the MTD pilotsince before its formal inception meant at one stage our firm had four clients: drivers with relatively straightforward needs operating within the scheme. But once they received the self-employed income support scheme (SEISS Grant) they were no longer eligible.

It seems HMRC promised something they in hindsight had no real idea how

to deliver. The whole MTD scheme has been marred by delays and confusion. Here’s MTD as it stands today:

MTD for VAT MTD VAT is being offered to all businesses voluntarily registered for VAT for their first VAT return period starting on or after April 1, 2022. HMRC has reported that around 100,000 businesses that should already be complying with MTD VAT have not signed up yet.

Alongside HMRC’s new record-keeping and MTD filing requirements for VAT, there is also a new set of late filing and late payment penalty rules. The new rules were put into law by the Finance Act 2021. The penalties now work around filing obligation dates, imposing penalty points for when a business misses a filing obligation date. In this case points do not mean prizes, they mean fines.

MTD for tax returns Following a consultation published late last year, the start date is almost certainly April 6, 2024. It will apply to unincorporated businesses (that’s sole traders to you and me) with total business income above £10,000 per year.

There will be quarterly reports which will look similar to the self-employed pages of the traditional tax return. The first accounting periods affected by MTD for self-assessment will be those beginning on or after April 6, 2023.

Note that the pilot MTD for self-assessment is ongoing but restricted to: u UK residents registered for self-assessment with all returns and payments up to date u A sole trader with income from one business only u Not reporting income from any other source.

Without obvious incentives to get people into the pilot, it is doubtful that HMRC will hit their targets and have an adequate system in place by April 2024. What this means to driver sole traders is more discomfort and confusion in the period leading up to digitisation.

Gary Jacobs is a director of Eazitax, an industry specialist accountancy practice. He sat on the original HMRC Conditionality panel and is currently involved with the major trade bodies in The Conditionality Campaign. Eazitax.co.uk/conditionality #conditionalitycuppa

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