Businesspeople are unprepared and unenthusiastic about how they meet their income tax obligations under Making Tax Digital (MTD), a new survey has found.
Run by global market research group Ipsos, the survey suggested that "awareness of MTD in general, and MTD for income tax self-assessment (ITSA) specifically was low in qualitative interviews".
Commissioned by HMRC, Ipsos conducted 30 "in-depth, qualitative interviews" and a telephone survey of 2,200 taxpayers eligible for MTD ITSA.
Its research found that 35% of the population thought it would be difficult to use MTD-compatible software, while 39% said they would find it hard to send quarterly summaries to HMRC.
In comparison, less than half (41%) thought complying with MTD would be easy and could recognise the benefits of the programme.
Limited experience with MTD
MTD ITSA will require people with annual business or property income above £10,000 to keep their records and file their returns with specialist software from April 2024.
HMRC says MTD will make it easier for people to file their taxes without making mistakes that cost the Treasury billions of pounds in lost tax revenue each year.
The Government kicked off its tax digitisation scheme with MTD for VAT for VAT-registered businesses over the £85,000 turnover threshold in 2019 before rolling it out to all in April 2022.
However, while most VAT-registered businesses will either be used to their new obligations or are quickly learning, 86% of ITSA taxpayers had no experience of MTD through the VAT scheme, according to Ipsos.
In the report, Ipsos said:
"Customers' primary concern was therefore with finding, choosing, and using MTD-compatible software.
"They stressed the importance of trial periods to understand what MTD looked like in practice and to feel confident with the new system."
Taxpayers unsure of MTD benefits
Taxpayers are divided on whether MTD ITSA will benefit them in the ways HMRC claims it will, the research found.
In its telephone survey, Ipsos found that 39% thought submitting quarterly returns as MTD ITSA requires would be difficult, compared to 43% who thought it would be easy and 11% who were indifferent.
A further 35% said MTD-compatible software would be hard to use, compared to 38% who thought they could handle the change.
Questions surrounding record-keeping revealed 45% of respondents still use paper, while only 17% use software.
Calls for HMRC to do more
MTD has come under fire in the past for a lack of guidance and support for businesses that will have to invest money in compatible software.
Andrew Jackson, vice-chair of the agent services committee, which represents the Chartered Institute of Taxation and Association of Taxation Technicians, said:
"The survey results show an alarming lack of readiness and enthusiasm for MTD, fuelled largely by a lack of awareness that MTD for income tax begins in less than two years' time.
"This is why 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."
In the interviews, Ipsos found that taxpayers emphasised the need for leniency while they submitted their first digital returns and requested that HMRC play an active role in helping them to choose software.
One respondent said:
"I'd have no idea where to start with choosing software. I would rather HMRC say, ‘this is what you use, here you are, and this is the training you'll need'."
"If HMRC are introducing a compulsory system, then they need to provide a zero-cost solution."
Talk to us about MTD ITSA.