Making Tax Digital – our survey says

3 Aug 2023

In June and July this year the CIOT and ATT surveyed our members on their experiences of and attitudes towards Making Tax Digital (MTD).

The survey questions were designed to inform us of the issues members have faced with MTD for VAT so far, as well as assisting with our ongoing discussions with HMRC with respect to MTD for Income Tax Self-Assessment (MTD for ITSA).

In total we received 517 responses – thank you for your contribution if you were one of those responding.

The survey results

The results of the survey are available here. A summary of the key points arising is set out below.

Our survey asked several specific questions as well as giving members the chance to express their views by adding free form comments. Whilst it has not been possible to reproduce all of these comments in the survey results, they have been carefully read by our technical teams and have been shared in full with HMRC. We have also highlighted some key themes emerging from these comments below.

Basic principles of MTD

In their free-form comments, many members expressed concern over the basic principles of MTD, expressing doubts over the perceived benefits and costs of the project and the approach taken.

For example:

‘Whilst MTD-IT probably does make sense on a conceptual level, the version currently envisaged is fundamentally flawed. What is required is a re-visit to the drawing board and then starting over from first principles again, not endless deferrals whilst HMRC attempt the Sisyphean task of squaring an impossible circle.’

‘There is no doubt that HMRC see MTD as being this great panacea but it will be a huge change and one which really needs a long time to bed in. Everyone needs to be able to see the benefit of MTD - not just HMRC. HMRC should fully sort out their own current basic admin and staffing issues before implementing something as seismic as this.’

‘I don't see how quarterly reporting for small businesses who are not VAT registered is going to do much for closing the tax gap. I generally feel the cost of it outweighs the benefits with regards to the smaller businesses.’

Another key theme emerging from the comments was that MTD should not be a priority given HMRC’s current service levels.

‘HMRC have bigger problems with levels of staff and taxpayer satisfaction that need addressing before implementing these changes.’

‘Very pleased that this is deferred but still unrealistic and HMRC should divert funds into trying to improve general service levels and phone lines and not pursue MTD further until this has been done.’

December’s deferral announcement

In December 2022 it was announced that the rollout of MTD for ITSA would be delayed, and would first be implemented for self-employed individuals and landlords with income over £50,000 from April 2026, followed by those with income over £30,000 from April 2027. A further ‘small business’ review is currently being undertaken to decide whether and how to extend this to those with income under £30,000.

Our survey results showed a mixed response to this announcement:

Despite generally welcoming the deferral, nearly 70% of those responding said that April 2026 is still unrealistic for the roll out of MTD for ITSA.
Prior to the deferral, the top three concerns identified by respondents were HMRC capacity / resources, cost to clients and the ability of MTD to close the tax gap.
The new mandation thresholds increased optimism about the successful rollout of MTD for ITSA in 38% of those responding. However, 43% indicated this had made no difference to their optimism.
75% of respondents were greatly opposed to MTD for ITSA being mandated for those with income under £30,000, with only 5% indicating they would be in favour of this.
If MTD for ITSA were rolled out to those with income under £30,000, 87% of those responding thought quarterly updates would not be useful, and 81% that quarterly tax estimates would not be useful.

The free-form comments also reflected concerns over December’s announcement, with many feeling that this did not go far enough, for example:

‘My view is unchanged - MTD is an expensive use of public funds and a pointless project. MTD for VAT has not made any difference for my clients.’

‘I would recommend that mandation is dropped and the service is made available to taxpayers who want to use it, as was the case with the successful implementation on online tax returns.’

‘HMRC should roll out MTD for ITSA starting with those businesses who are VAT Registered. These businesses are already used to quarterly reporting and many have software. Once the system is working with this group they could then expand the roll out.’

By contrast, others reported frustration that they had put in significant amounts of work to prepare themselves and clients, only to have yet another deferral:

‘Although tight and there would be a significant amount of work required from agent, a significant amount of time had been spent by agents preparing for this deadline and informing clients. With the delay significant costs incurred by agents are lost and there will be an even bigger uphill climb in 2026 to convince clients that they need to engage in the process.’

Impact on agents

Our survey uncovered the following views on how MTD affects the agent-client relationship and wider trust in the tax system:

28% of those responding said that increases in costs / administrative burdens of MTD for ITSA would be a decisive factor in deciding whether to engage or continue to engage a client. Overall, around 90% said it would be an influencing factor.
The majority (55%) of those responding felt that less than 10% of their clients would use an additional agent (such as a bookkeeper) to assist them with MTD for ITSA.
For those clients who were likely to use another agent, this would most likely be for digital record keeping.
81% of those responding foresaw problems with another agent being involved in the process, with main areas of concern being reliance on the other agent, errors in figures / calculations and HMRC authorisation.
79% of those responding indicated that the proposals for MTD for ITSA have adversely affected their trust in the tax system generally, with 56% saying that the impact has been significant.

Experiences of MTD for VAT

Our survey also sought views on the rollout of MTD for VAT and the impact this may have had since its introduction.

Members generally reported either neutral or positive experiences of complying with MTD for VAT, for example 69% saying filing VAT returns was fairly or very easy.
The main areas of concern were utilising the Agent Services Account (43% saying this was very or fairly difficult) and obtaining assistance from HMRC (45% saying this was very difficult and 22% fairly difficult).
However, MTD for VAT was felt to have had minimal positive impacts, with only 15% of those responding noting any increase in productivity for their practice and only 10% any increase in client productivity.
MTD for VAT was also felt to have minimal impact on accuracy of returns, with 81% saying this had stayed about the same, and 7% indicating this had actually decreased.
By contrast, costs of VAT compliance were felt to have increased under MTD, with 29% reporting significant increases for clients, and 23% reporting significant increases for their practice / organisation.

Freeform comments also highlighted that MTD for VAT has had minimal impact, and that the challenges of MTD for ITSA are likely to be much more pronounced.

‘MTD for VAT has not made any difference for my clients. Record keeping for my clients is largely the same. Records are generally kept digitally through evolution and the MTD processes has added nothing of value.’

‘VAT is already a quarterly (or monthly) reporting tax with few accounting adjustments required assuming the client's bookkeeping is up to standard. MTD for ITSA however is a different matter with a multitude of potential adjustments required for computing the trading income for tax purposes.’

‘The change for VAT isn’t that different to what they were previously used to. The results of the VAT rollout cannot be used to indicate the potential success of MTD ITSA, the change here is far greater with taxpayers who are not used to quarterly reporting / digital record keeping.’