Making Tax Digital for Income Tax Self Assessment (MTD for ITSA), postponed to April 2024

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA), postponed to April 2024

A government announcement was made on the 23 September, outlining a postponement in the Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) reforms - due to come into force from April 2023, affecting over four million Sole traders and individuals with income above £10,000 from a property business.  General partnerships were also expected to be in MTD for ITSA from 6 April 2023, with their commencement date also being delayed.

Representations previously made to the Government by professional bodies stated that the digitalisation of income tax and basis of period reforms were being implemented too quickly.   Now that a postponement has been announced it is essential that HMRC use this extra time to ensure experiences from the pilot stages are applied to achieve a successful outcome when the new legislation does come into force.   This is critical if MTD for ITSA is to deliver benefits to both businesses and government.

The Government stated that the reasons for the delay were:

“The Government recognises the challenges faced by many UK businesses as the country emerges from the pandemic over the last year. In recognition of this and of stakeholder feedback, we will now be introducing MTD ITSA a year later, in April 2024 instead of April 2023.”

“A later start for MTD for ITSA provides more time for those required to join to make the necessary preparations and for HMRC to deliver the most robust service possible, affording additional time for testing in the pilot.”

A full explanation of the postponement was given by Lucy Frazer, the Financial Secretary to the Treasury in a written ministerial statement given on 23 September.

MTD postponed start dates

For sole traders and landlords with business/property income above £10,000 : MTD for ITSA has been delayed to start in the tax year beginning April 2024. Previously due to start in April 2023.

• For general partnerships with income above £10,000, MTD for ITSA will now start in the tax year beginning April 2025. Previously due to start at the same time as the general MTD for ITSA scheme in April 2023.
• The date at which other types of partnerships of a more complex nature (e.g. limited liability (LLPs), mixed or corporate) will be required to join will is still to be confirmed.

Basis period reform postponements

Basis period reform has also been delayed and will not come into effect prior to April 2024 at the earliest, with the transition year “not coming into effect earlier than 2023”. Previously the reforms had been due to take effect in the tax year 2022/23.

The basis period reforms are an attempt by the government to align business accounting periods to the tax year (6 April to 5 April).

Whilst official legislation is awaited for the basis period reforms, the following has been announced “Please note that this potential change is still in the consultation stage to which the government will provide an update in due course.”

MTD Penalty regime

In March 2021, the government announced a new, fairer system of penalties to be introduced by HMRC for both the late filing and late payment of tax for ITSA. The postponement announcement means that this new penalty point system will also be delayed.  

• Therefore for those who file under MTD for ITSA, the new penalty regime will now come into effect from April 2024, and for those who continue to file under ITSA from April 2025.
• The changes will apply to VAT customers for accounting periods beginning on or after 1 April 2022.

Details of the changes to the penalty regime together with an explanation of the points system can be found here. 

MTD for VAT deadline for those below the VAT threshold

There was nothing in the government statement on 23 September, about the MTD for VAT, which means all VAT-registered businesses must use MTD for VAT as of April 2022 (including any that have voluntarily registered for VAT yet are below the threshold).

Therefore, it can only be assumed that nothing has changed and there won’t be an extension to the MTD for VAT deadline for voluntarily VAT-registered businesses.

There was legislation laid before parliament for this on 7 September, and a detailed policy paper Extension of Making Tax digital for VAT gives more information. 

MTD for Corporation Tax

There was nothing in the government statement about MTD for Corporation Tax.  MTD for Corporation Tax applies to incorporated businesses that pay corporation tax.   

However, HMRC confirmed in a consultation document, that MTD for Corporation Tax will not happen before 2026.

Be prepared

Business owners do not need to wait for the new legislation to come into force to start taking a digital approach, if you invest in making the changes today, you will get the benefits now and will be ready for MTD when it arrives, if you wish to discuss further please contact us.

Further information can be found on the Gov.UK press release : Businesses get more time to prepare for digital tax changes