A third (35%) said it would be difficult to use MTD-compatible software while 39% said they would have trouble sending quarterly summaries of income tax to HMRC.
Four in 10 taxpayers thought complying would be ‘easy’ and could recognise the benefits of Making Tax Digital, despite some reservations.
The majority of respondents (86%) had turnover, property income or combined turnover and property income below the VAT threshold, meaning most had no prior MTD experience.
Unincorporated businesses and landlords with annual turnover or gross income above £10,000 will need to follow the rules for MTD for Income Tax Self Assessment (ITSA) from their next accounting period starting on or after 6 April 2024.
Landlords, particularly those with one or two properties spent minimal time and effort on their obligations, and felt MTD would result in more time and higher costs.
Another concern was that only 17% of the respondents currently used accounting or record keeping software, although more than half of income tax for self assessment users (54%) were already keeping records at least quarterly.
Unsurprisingly, taxpayers who used paper record keeping, rarely updated their records and spent minimal time on their obligations, or who found recordkeeping difficult, were the least receptive to the changes.
The largest and most complex businesses – namely partnerships – were either already completing MTD for VAT or keeping digital records quarterly, and so felt the move should be easy.
The more confident taxpayers were about using technology to manage their finances, the easier they thought MTD would be, and the more they were able to recognise the benefits. However, there is clearly still a communications issue as there was a clear demographic variation on aptitude with software usage.
The researchers stressed that life stage was a critical factor; ‘the older the customer, the more likely they were to find complying with MTD difficult’, the report said.
It also appeared that taxpayers expected to receive substantial support from HMRC when transitioning to the new system.
‘For the rollout of MTD for ITSA to be a success, customers emphasised the need for leniency while they submitted their first digital returns (particularly important for those who had a long history of submitting correct and punctual tax returns) and requested that HMRC play an active role in helping them to choose software,’ the report said.
Andrew Jackson, vice-chair of the joint CIOT and ATT digitalisation and agent services committee, said: ‘The survey results show an alarming lack of readiness and enthusiasm for MTD, fuelled largely by a lack of awareness that MTD for Income Tax begins in less than two years’ time.
'This is why we have encouraged HMRC to publish more detailed guidance about the Making Tax Digital process, as there are seemingly more questions than answers at the moment. HMRC must spell out what they are going to do to improve awareness and bring out all the necessary guidance they can urgently.’
As with all Making Tax Digital programmes so far, HMRC will not be developing or providing any software for MTD for ITSA and taxpayers will have to use commercial software when they file their quarterly returns.
