OTS Latest Findings Recommend HMRC Block Implementing MTD

Previously, we published a guide on Making Tax Digital for landlords in preparation for the government bringing in new Making Tax Digital (MTD) guidance imminently.

It is our intention today to provide an update on our previous post to ensure you have all of the most relevant news around MTD at your disposal. The Office of Tax Simplification (OTS) is recommending that HMRC hold off on implementing MTD due to a number of major implications. We will discuss these implications in more detail throughout this article.

As an independent office of HM Treasury, the OTS was established on the 20th of July 2010 with the objective of identifying areas where the tax system could be simplified, as well as reducing the complexity of the tax system for individual taxpayers and businesses. These findings are then published for the Chancellor to consider before the next budget address.

Among the key takeaways from the most recent OTS report, Property income review: simplifying income tax for residential landlords, is that smaller businesses are likely to be disproportionately burdened by Making Tax Digital, quarterly reporting and the risk associated with these procedures. Additionally, the estimated impact of the exclusion of those requiring digital assistance was also a major concern, due to the fact that many respondents will find themselves directly affected by this matter.

There were 3,559 respondents to the survey that informs this most recent report, which is the highest response rate the OTS has ever received. For the review, members of the OTS team spoke at the Landlords Expo event and collected informal comments from a wide variety of members of the public.

One major concern that stands out is that nearly half of landlords will file for jointly owned properties, and it is unclear how this is possible under the current MTD proposal since only one party normally keeps records. Due to this concern, the OTS has recommended that HMRC should strive to implement a system to deal with MTD for Income Tax for jointly owned properties, for example, by making the jointly owned property the entity responsible for filing MTD.

The OTS stated in one of its recommendations that HMRC must be able to authorise MTD for Income Tax filing agents alongside tax agents so that MTD can be implemented. It is necessary to do this since letting agents and bookkeepers will maintain digital records on behalf of landlords and may be able to provide further support in making quarterly submissions on the landlord’s behalf.

Moreover, because of the fact that the £10,000 gross rent threshold has been set for landlords to be required to adopt MTD, there is evidence which suggests that if the gross rental limit is set so low, a landlord will likely make only a modest net profit if they do make any at all. In light of this, the OTS acknowledges that even if there would be an impact on the Exchequer as a result of raising the threshold, that could be outweighed by lower customer costs, higher levels of compliance, and better engagement between taxpayers and agents.

It is recommended by the OTS that HMRC consider raising the gross rental income threshold for landlords above £10,000 for the purposes of MTD for Income Tax, at least for the medium term, so as to reduce the burden on landlords.

In addition to the previous update, the OTS also recommends that HMRC publish comprehensive, detailed guidance on the practicalities of MTD for taxpayers and agents, well in advance of the deadline for implementing MTD. Currently, there is only limited guidance available and this contains inconsistent information.

It is recommended by the OTS that landlords should not be required to comply with MTD for Income Tax until these main points are addressed by HMRC and by a range of software providers associated with the successful implementation of making tax digital. It will also be necessary to allocate time for the testing of new systems before they are adopted widely.

If you found this article information then why not read our guide to creating a declaration of trust or how to avoid inheritance tax on property next?

Thandi Nicholls Ltd
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