Delay to Making Tax Digital!

  • Pat Nown
  • 24 September 2021 15:25

HMRC has announced that the start of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) will be delayed by one year.

The mandatory introduction of MTD for IT for sole trader businesses and landlords with ‘turnover’ (gross business income) over £10,000 per annum will now begin in the tax year beginning in April 2024. The revised launch date is reflected in the Regulations laid today which sets out the technical details of how MTD for ITSA will work.

HMRC have stated that this announcement does not affect the MTD for Income Tax pilot, which will continue as planned.

General partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025, while the date other types of partnerships will be required to join will be confirmed in the future.

In a written parliamentary statement which preceded the announcement, Lucy Frazer, Financial Secretary to the Treasury, said:

‘..we recognise that, as we emerge from the pandemic, it’s critical that everyone has enough time to prepare for the change, which is why we’re giving people an extra year to do so.’

The announcement means that the new system of penalties for the late filing and late payment of tax for ITSA, legislated for in Finance Act 2021 will also be delayed. For those who are mandated for MTD for ITSA , this will now come into effect in the tax year beginning in April 2024, and in the tax year beginning in April 2025 for all other ITSA taxpayers.

 

Tax year change?

It is curious that throughout the HMRC press release the phrase ‘in the tax year beginning in April 2024 etc ‘ is used rather than 6 April 2024. No doubt this will fuel speculation about whether HMRC are considering moving the start of the tax year to 1 April following the recent publication of an OTS Report ‘The UK tax year end date: exploring the potential for change’.

The report examines in detail the costs, benefits, and practicalities of moving to a 31 March end of tax year (in overview terms also looks at a 31 December alternative). There are strong arguments for the move to reduce the administrative burden of MTD for ITSA particularly for those who are both property landlords and self- employed who may have to

‘..submit quarterly income and expenses reports for each business type (trading and rental), so 8 reports for the year as well as final reports which will include, for example, accounting adjustments for each annual accounting period for each business type, a further 2 reports and an annual crystallisation return (equivalent to the current Self-Assessment tax return) 2.49 This would amount to 11 reports in total each year, rather than the current one annual Self-Assessment tax return’

The Written Parliamentary statement also states:

‘The Government has also recently consulted on a reform of the complex basis period rules that govern how self-employed profits are allocated to tax years. Many respondents said that the reform was a sensible simplification but asked for more time to implement the changes. In recognition of these concerns, these changes will not come into effect before April 2024, with a transition year not coming into effect earlier than 2023. The Government will respond to the consultation in due course providing the next steps.’

One thing is certain, the pace of tax law change shows no sign of slowing down, next pit stop Budget 2021 – October 27th !

We would like to provide you with further information with some useful links below:

OTS Report

MTD Regulations

 

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