Background
The government announced last week that Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) will be introduced a year later than planned, and will now commence in April 2024.
The MTD initiative is an attempt to help businesses and individuals reduce errors leading to the overpayments and underpayments of tax, and also to cut down on tax evasion, by the use of digital record keeping. MTD was first introduced in 2019 for VAT for a number of VAT registered business with an extension to ITSA originally planned for April 2023.
In a written statement issued on 23 September 2021 the government confirmed that MTD for ITSA will now be introduced from April 2024 for sole-traders and landlords. General partnerships will not be required to join MTD for ITSA until April 2025.
The statement also indicated that any potential reform of basis period rules will now not take place until April 2024 at the earliest.
Detail
Under this latest announcement, MTD for ITSA will be mandated for sole-traders and landlords with yearly income (turnover plus gross rental income) of over £10,000. These businesses will have to keep their accounting records digitally and use MTD compliant accounting software to update HMRC on a quarterly basis, from April 2024. A final end of period statement will then be submitted to complete the individual’s annual tax affairs. Under MTD for ITSA the timing of tax payments will remain unchanged even though the frequency of reporting is changing. The existing system of payments on account and balancing payments on 31 January are expected to stay in place for the time being.
The time frame for implementing MTD for ITSA had been set for April 2023 but this has now been extended by a further 12 months to April 2024. HMRC have acknowledged the challenges faced by business following the pandemic and this was a major factor in the decision to delay the implementation to 2024.
Alongside MTD, the government were also considering aligning the current basis period for taxing businesses profits with the tax year and this was due to commence in April 2023. Those plans have now also been postponed to April 2024.
The postponement of MTD for ITSA does not affect the timetable for MTD for VAT. All VAT registered businesses (regardless of their taxable turnover) will have to follow the MTD rules for their VAT returns from April 2022.
The government also confirmed that there are no plans for trusts, estates, trustees of registered pension schemes and non-resident companies to join MTD for ITSA and the introduction of MTD for corporation tax will not take place before 2026.
This postponement which has now been set in legislation does give qualifying sole-traders and landlords certainty over the move to digital record keeping. More details will be provided in future Muras Matters but in the meantime if you would like more information on how the move to digital record keeping will affect you please contact our Tax Director Jenny Marks.
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