The department expects a ‘competitive market’ for providers, including various free options
The government is confident that small businesses and individuals with “straightforward tax affairs” will not have to pay for software as part of the digitisation of income tax self-assessments.
After several delays – including a recent decision to push back implementation by a further year – HM Revenue and Customs’ Making Tax Digital programme is set to finally expand to cover income tax self-assessment (ITSA) payments in April 2024. Self-employed people, small businesses and landlords that are registered for ITSA and generate annual business or property income in excess of £10,000 have until then to switch to the online system.
Doing so requires the use of a compatible software program; there are currently seven that have been approved by HMRC, three of which offer a free version. A further five are currently in development.
By comparison, the Making Tax Digital for VAT scheme, which has been in effect since 2019, offers users a choice of well over 500 certified compatible tools, including 21 free options.
The government’s minister for efficiency and transformation, Lord Theodore Agnew, said that “HMRC expects a similarly competitive market for MTD for Income Tax Self Assessment” as that which has developed for VAT payments.
“HMRC works closely with the software industry to ensure that businesses have access to products that suit their budgets and needs,” he said. “The introduction of Making Tax Digital for VAT has resulted in a competitive software market. Many businesses that were already using subscription-based accounting software before MTD saw their products upgraded for MTD compatibility for free. Several free and low-cost software products are available.”
The minister added that, for the digitisation of income tax, those with uncomplicated needs should be able to switch the online system without having to pay for new software products or subscriptions.
“The government remains committed to working with software suppliers to ensure there are free MTD for Income Tax Self Assessment software products for businesses with straightforward tax affairs,” added.
Of the seven software applications currently approved for the new digital ITSA regime, two are designed purely for use by businesses or individuals themselves, while one is specifically for professional tax agents working on behalf of clients. The other four can be used by either businesses or their appointed agents.
Individuals and businesses that make self-assessed payments have until 6 April 2024 to make the switch to the online system, while the deadline for general partnerships is April 2025. More complex partnership models will follow at some – as-yet-unspecified – point thereafter.
Agnew’s comments were made in answer to a written parliamentary question from non-affiliated life peer Lord Taylor of Warwick.