MTD Income Tax Self-Assessment (ITSA) delayed to 2024

MTD Income Tax Self-Assessment (ITSA) delayed to 2024

The government has delayed the start of Making Tax Digital (MTD) Income Tax Self-Assessment (ITSA) to 6 April 2024, with MTD for general partnerships postponed to 2025. The change to the tax year basis has also been delayed until at least April 2024. The Government has announced this delay to allow businesses more time to recover from the pandemic.

Why begin preparing for MTD now?

There are clear benefits to business owners by preparing now for MTD, despite the delay. Completing digital accounts and filing every quarter, will mean far more certainty for businesses. The change over to digital allows business owners to have a much better understanding of their businesses.  You will be aware of your tax liabilities at a much earlier stage and you’ll be able to manage cashflow and decision making in a more informed way than ever before.

By preparing now, you can overcome any challenges now with the transition, before the new rules come into force – meaning when the rules do come into force, you and your business are better placed to have a smooth transition.

What’s the turnover threshold for inclusion into MTD?

The turnover for inclusion into the MTD ITSA regime remains at only £10,000 per year, much to disappointment of many who were lobbying for a much higher entry threshold.

As the turnover threshold must include the taxpayer’s income from all their sole-trader businesses, plus their rental income, HMRC needs to pull together several figures from the taxpayer’s self-assessment tax returns. Only when the tax return totals reach the £10,000 threshold will HMRC issue a notice to file under the MTD regulations.

When will MTD ITSA begin and what’s the base year for testing?

As MTD ITSA will now start in April 2024 the base year for testing the MTD turnover threshold will be the tax year 2022/23. The turnover figures for that year should not be distorted by Covid-related grants, and hopefully will reflect normal trading beyond the pandemic for most businesses. 

How could the changing of the tax year basis affect your business?

When the consultation on changing to the tax year basis of assessment was released in July 2021, doubts were raised on whether there was sufficient time to introduce such a fundamental change to tax law before the mandation of MTD ITSA.

It was apparent that HMRC wanted all unincorporated businesses to switch to the tax year basis before the introduction of MTD ITSA in 2023, but this would make 2022/23 the difficult transitional year.

For businesses with an accounting year end that doesn’t approximate to the tax year, more than 12 months of profits would be assessed in 2022/23. This would have a knock-on effect for a wide range of allowances and charges, including NIC, student loan repayments and capital allowances, to name a few. There was just not enough time to write amendments to regulations in all the areas affected before April 2022.    

What’s more using the tax year basis would bring forward the start of MTD ITSA for businesses with a 31 March year end, from 1 April 2024 to 6 April 2023 – which came as a big shock for many accountants and businesses.

The written statement from the new financial secretary to the Treasury, confirmed the change to the tax year basis will not come into effect before April 2024, with a transition year no earlier than 2023.

What are the next stages of MTD?

There is no indication of when other more complex partnerships will have to join MTD, and we don’t know if the MTD for corporation tax project will start as planned in 2026 or not.

Our advice

The delay in the deadline will be welcomed by many business owners as there is now more time to recover from the pandemic and prepare for the changes ahead. Our advice, however, is not to delay your preparation for the changes, but to press head, giving you time to transition more smoothly, iron out any problems and be fully ready for when the changes happen.

If you’d like help with preparing for MTD ITSA, then contact us today at our offices in Liverpool, Wirral or Chester.