Last week, HM Revenue & Customs (HMRC) announced that Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) and the basis period reforms for taxation of unincorporated businesses’ trading profits will now not be implemented before April 2024.
We anticipate that the basis period proposals may be covered in the Budget on 27 October, as they have been met with some opposition.
These decisions come in response to ‘stakeholder feedback’ and as a result of recognising the impact that the pandemic has had on UK businesses and those running them.
The 12-month deferral gives all involved additional time to prepare; those required to join more of a chance to get to grips with the digitalisation of Income Tax, and HMRC an opportunity to run pilots, undertake robust testing and (hopefully) to deliver a good user experience.
Pilots are already underway and will likely be opened up to more eligible taxpayers during 2022/23 tax year.
As it stands, MTD for ITSA will be mandated for businesses and landlords with a business income exceeding £10,000 annually from the tax year beginning in April 2024.
Those required to comply must keep digital records and use MTD-compatible software to update HMRC on a quarterly basis, followed by a ‘final declaration’.
HMRC will use the quarterly updates to provide taxpayers with an estimated tax bill. In theory, this should give them ample opportunity to plan ahead and budget if necessary.
General partnerships will not be required to comply with MTD for ITSA until the following tax year, commencing in April 2025. Other partnerships are yet to be notified of a ‘joining’ date.
The Government remain confident in the ‘wider benefits’ that a digital tax system will bring customers and, regardless of delays, affirm that a ‘21st Century’ tax system is still the end goal.
MTD for VAT was introduced back in April 2019 and, shortly, the second phase of this will see a final cohort of taxpayers required to comply with the rules from April 2022.
If you need support to understand and accommodate changing administrative requirements, in response to the roll-out of Making Tax Digital, our team can help.