Two-thirds of Making Tax Digital clients haven’t registered, Freedom of Information request by Azets finds

More than 580,000 people who should have registered for Making Tax Digital (MTD) for Income Tax have failed to do so, according to the results of a Freedom of Information (FOI) request from accountancy and business advisory group Azets.

HMRC data shows that 864,000 individuals and landlords should have registered for MTD for Income Tax by April 6 of this year, but as of May 20 just 282,637 had done so, HMRC said in response to the request.

Fraser Campbell is the UK head of accounts and business advisory services at Azets, which has offices in Leeds, Bradford and York, where it employs 335 people.

He said: “MTD for Income Tax represents the most significant change in the personal tax system in nearly 30 years – but two-thirds of those who should be registered aren’t.

“There are a multitude of reasons why people may not have signed up – they may not be aware of the changes, they may have simply forgotten about it or they may be in denial that they need to register.

“Whatever their reason, not signing up creates potential problems in the future.

“HMRC has said there are no penalties for missing a quarterly return date for this year, but people are setting themselves up for stress, trouble and, potentially, fines by not taking action to register and keep up to date with the quarterly filings now.

“HMRC requires an end of tax year declaration which requires the data from the four quarters to be aggregated.

“By not registering now and by delaying it further, anyone who is in scope of MTD will need to catch up with this year’s four filings at the same time as next year’s quarterly filings become due, as well as their annual declaration, so they’ll have to potentially file nine returns over the same 12-month period/”

The introduction of MTD this April brought the personal tax system closer to real-time and is expected to affect 2.9m people by 2028.

It introduced quarterly digital record keeping and reporting obligations for hundreds of thousands of landlords, sole traders and the self-employed, who previously only had to submit one tax return a year.

Following its introduction, qualifying individuals and businesses have been required to keep digital records, use MTD-compatible software and submit updates every quarter, as well as a final declaration.

The final declaration replaces the existing self-assessment tax return and can only be submitted using MTD compatible software.

Taxpayers will no longer be able to file using HMRCs self-assessment portal.

Fraser said: “Anyone who is eligible for MTD for Income Tax should register for it now.

“Doing so will mean they will have to change their processes and use software that is MTD compliant, but there are advantages too as people will have access to near real-time digital information about their business performance and projected tax bills for the first time.

“This will mean they will have accurate financial information that they can discuss with their tax adviser, which should make forward tax planning and forecasting and the year-end process a lot smoother.”

Azets’ tips for landlords, sole traders and the self-employed for the new MTD regime include:

• Check now to see if you fall under the new reporting obligations.
• Those with gross income above £50,000 per year must comply; the threshold will drop in subsequent years so start preparations if you are likely to qualify for MTD in 2027, when the threshold drops to £30,000, or 2028, when the threshold drops to £20,000.
• Ensure that your – or your accountant’s – software is HMRC approved so it is compatible with MTD.
• Start using MTD-compliant software now.
• Check whether you’re exempt – you might be, so check on the HMRC website or seek expert advice.

Fraser said: “Preparation, planning and taking advice at the right time are key for compliance and staying on top of the UK’s ever-evolving tax landscape.

“Anyone with queries or concerns about MTD should speak to an advisor now to understand whether they’re eligible and what they need to do to comply.”

Azets, the UK’s specialist business advisor to SMEs, is leading the sector in preparing clients for a smooth and compliant MTD transition through technology as well as advice, training and workshops via more than 1,000 advisers.

The firm’s dedicated MTD portal for advice can be viewed here: https://www.azets.com/en-uk/services/tax/making-tax-digital-for-income-tax.

Image caption: Fraser Campbell – UK head of accounts and business advisory services at Azets. Azets has three offices in Yorkshire, in Leeds, Bradford and York, where it employs 335 people.