Unincorporated businesses have heaved a sigh of relief after learning that the implementation of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) would be deferred by one year, to April 2024.

Affected businesses, including the self-employed and landlords, will now have an extra 12 months breathing space to prepare for the changes, which is welcome considering the impact that the pandemic has had.

It’s worth remembering that the MTD regime is comprised of different taxes, and that the extension of the MTD for VAT rules will still be going ahead in April 2022.

What are the changes?

MTD for ITSA implementation date

The self-employed and landlords with a gross income from their business or property of more than £10,000 per annum will need to follow the MTD for ITSA rules from 6 April 2024.

It will not be necessary for general partnerships to join MTD for ITSA until the tax year beginning 6 April 2025, while the date other types of partnerships will be required to join is yet to be confirmed.

MTD for ITSA penalty system

The Government introduced a more favourable system of penalties for the late filing and late payment of tax under MTD for ITSA in March 2021.

This penalty scheme applies to those who are required to comply with MTD for ITSA and will now also come into force in the tax year beginning April 2024 for the self-employed and landlords, and April 2025 for all other ITSA taxpayers.

MTD for ITSA pilot schemes underway

There will be the chance to explore the benefits and challenges of MTD for ITSA early if you are an eligible business or landlord, via the Government’s pilot scheme. This is already underway and will be increasingly expanded during the 2022/23 tax year, in preparation for testing on a much larger population in the 2023/24 tax year.

How can you prepare for these changes?

It’s vital that businesses use compliant software, such as HMRC approved cloud accounting software or a set of compatible software programs that can connect to HMRC systems via its Application Programming Interface (API).

The software must be able to:

  • Keep records in a digital form
  • Preserve digital records in a digital form
  • Create a VAT or tax return from the digital records held in functional compatible software and provide HMRC with this information digitally
  • Provide HMRC with VAT and tax data on a voluntary basis
  • Receive information from HMRC via the API platform, to confirm that the business has complied.

Spreadsheets and bridging software will still be acceptable, and we can support you with this should it be the solution you are leaning toward.

Will you be ready, when MTD for ITSA arrives?

MTD is the first step in HMRC’s shift towards an innovative, digital tax service, enabling businesses to operate efficiently, and competitively, in an ever-evolving modern world.

Although the initiative has been postponed by a year, taxpayers must still take action to ensure they are fully prepared in advance. Businesses failing to abide by the new rules will face penalties.

If you will be affected, you should implement a suitable and HMRC-approved cloud accounting solution and migrate your information across to the new systems in plenty of time.

This may require additional training and changes to existing accounting processes and procedures and so starting a dialogue with your accountant or adviser about readying yourself for MTD for ITSA, at the earliest opportunity, would be prudent.

How can George Hay help?

Cloud accounting is, by now, a concept that most businesses should be familiar with and something that those who aren’t should be thinking about seriously.

The benefits that intuitive digital systems and tools deliver are multifarious and extend way beyond basic compliance.

They are not intended to be a fleeting solution to keep you on HMRC’s good side, but to be the gateway to a new and enduring approach to meeting your obligations in respect of tax administration and running your business more effectively.

To speak to us about identifying and implementing the right cloud accounting software for your business, and about how we can spend more time providing you with valuable analytical insight as a result, contact us today.

Link: Businesses get more time to prepare for digital tax changes

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