Unanswered questions about Making Tax Digital for individuals
Susan Cattell looks at some of the unanswered questions about Making Tax Digital for individuals which ICAS has raised with HMRC.
Making Tax Digital for individuals
Making Tax Digital for business has been attracting attention recently. However, MTD will also affect individuals. They will have to use their online Personal Tax Accounts (PTAs) to deal with HMRC and HMRC intends to pre-populate data in these PTAs.
The ICAS response to the consultation “Making Tax Digital: Transforming the tax system through better use of information” raised questions about the details and timetable but many were not addressed in the response document published in January.
Given the timetable for MTD it is worrying that there is only limited information available and that questions remain unanswered. ICAS has submitted an updated list of questions to HMRC but due to pre-election purdah answers are not likely to be forthcoming in the short term.
What are HMRC’s communication plans for personal taxpayers and when will these be implemented?
There are already concerns that many individuals affected by MTD for business are unaware of, and unprepared for, the new regime. There is probably even less awareness of MTD for individuals.
Those who currently file SA returns on paper and expect to receive paper coding notices and P800s need to be told about the plans and the timetable for mandatory use of the PTA - and the options available to them.
Some may be willing and able to switch to online, with advance notice and perhaps some support, but others might want to appoint an agent or advise HMRC that they are digitally excluded.
What will be the interaction between the PTA and self assessment returns in the run up to 2020 and beyond?
The consultation document “Making Tax Digital: Transforming the tax system through better use of information” referred to delivering the ‘end of the tax return by 2020’ and (in the context of updating HMRC) expected that ‘the majority of customers will have transitioned by 2020’.
It was not clear exactly how and when the move from self-assessment (SA) tax returns to the PTA would take place, although there was an indication that SA returns would continue after 2018 (with the option of using the PTA instead). It seems unlikely that all information for every tax return will be capable of pre-population by 2020; gift aid payments, for example, are unlikely to be pre-populated by then and it will also take time before many company dividends can be covered. There will also be some income which HMRC will never be able to pre-populate; for example, foreign source income.
How will the PTA work (and interact with an SA return) when only some information can be pre-populated? How and when will those who have income which is not pre-populated need to notify HMRC of the details?
How will personal taxpayers make their end of year declaration and who will need to make one?
The consultation document pointed out that taxpayers will still have a statutory obligation to make sure that information is correct and complete and to report any income not included on an annual basis. There is information on the proposed ‘end of year’ process and declaration for businesses but not for personal taxpayers. Nor is it clear how the business process will interact with the personal side where someone has both business and non-business income.
Currently the deadline for personal tax returns is 31 October (paper returns) and 31 January (online); we assume that the deadline for an end of year declaration for individuals using their PTA is likely to be 31 January but this has not been confirmed. It seems that the date for an end of year business declaration could be different in some cases, which would present problems for taxpayers with both types of income.
Under the present regime taxpayers outside self assessment are not required to complete a return, although they should check their PAYE coding notices and ensure they notify HMRC of any changes to their circumstances. With the move to the PTA it is unclear whether these individuals will be obliged to check the pre-populated data and make an end of year declaration.
What will happen when pre-populated data is incorrect?
In spite of taxpayers being responsible for ensuring that their PTA account is correct, they will not be able to amend pre-populated data supplied by a third party. Instead, they will have to take up any incorrect data with the third party data provider. This approach was opposed by the majority of responses to the consultation and it is not clear how it will work in practice.
If a problem has not been resolved by the year end HMRC will make an estimated assessment using the information it believes to be correct – presumably this is likely to be based on the third party figures. Where this leads to more tax being due than the taxpayer believes to be correct it would be useful to know whether HMRC will allow payment to be postponed. It is also unclear how HMRC will ensure that third parties deal with queries in a timely manner. It would seem appropriate for a taxpayer to be able to appeal where they still do not agree with the third party figure after the query has been ‘resolved’.
How will pre-populated data be matched accurately to individuals?
For pre-population of PTAs to work it is essential that data from third parties is linked to the right taxpayer. It is reassuring that the response document to the consultation states that HMRC will only use third party information where it is confident it can correctly match it to the right taxpayer. What is unclear is how HMRC intends to do this and what information taxpayers will have to supply to anyone paying them income.
At an MTD conference some time ago it was indicated that it would only be possible to allocate bank and building society interest correctly by using National Insurance numbers. This raised the possibility that individuals might have to supply their NINO in order to open any interest-bearing account (not just an ISA) – but also might have to provide it to any third party who might pay them income (for example, a peer to peer lender or a company paying dividends). More recently, it appeared that HMRC might be considering other options. HMRC and third parties need to provide details of exactly what information will be required.
What will happen to taxpayers who want to use an agent?
The HMRC Charter states that HMRC accepts that ‘someone else can represent you’ and that HMRC will ‘respect your wish to have someone else deal with us on your behalf’.
So far this has been made difficult because agents have been excluded from viewing their clients' online accounts and their access has lagged behind in other respects. MTD needs to work effectively for those who choose to use an agent, rather than dealing with HMRC themselves.
When it happens, agent access to client information in PTAs will be via third party (not HMRC) software. The details of how this will work, and how data will be input are unclear. Currently, the focus is on digital record keeping for businesses and the position for personal tax is in danger of being overlooked. Agents should be talking to their software suppliers to ensure practical, timely solutions are available.