Making Tax Digital for income tax delayed until 2024

Implementation of Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) has been delayed from April 2024 until April 2026.

Under MTD, businesses, self-employed people and landlords will be required:

• to operate MTD from 6 April 2026 in relation to their trading and property income (not profits) chargeable to Income Tax and Class 4 NICs if their gross income from these income sources for a tax year exceeds £30,000

• to keep their records digitally (for ITSA purposes only),provide digital quarterly updates and provide their ITSA return information to HMRC through MTD compatible software

MTD was due to begin for ITSA in April 2024, but the government recognises the challenges that Covid-19 has had on businesses, and that more time is needed to recover from the disruption.

Therefore, MTD for ITSA will start in the tax year 2026/27.

General partnerships will not be required to join the project until later.

More complex partnerships will be required to join MTD at a future date to be confirmed.

See our dedicated Making Tax Digital page.

New businesses will be required to join MTD ITSA from the April after they file their first self assessment tax return.

Those within scope of MTD will need to keep digital records and use software to provide HMRC with quarterly updates. Everyone will file to the same quarter dates irrespective of their accounting period, i.e. quarters to 5 April, July, October and January with an option to elect to report to 31 March, 30 June, 30 September and 31 December.

An End of Period Statement will finalise the reporting, equivalent to the self-employment and property pages of the self assessment tax return.

A later start for MTD for ITSA provides more time for those required to join to make the necessary preparations and for HMRC to prepare, providing extra time for pilot testing.

MTD for VAT purposes began in 2019 for those with taxable turnover above the VAT threshold (£85,000 per annum). VAT-registered businesses with taxable turnover below the threshold needed to have joined MTD for their first tax return from April 2022.

Links to HMRC papers on MTD for ITSA

The rules are contained in The Income Tax (Digital Requirements) Regulations 2021.

HMRC has published various papers (some now superseded by delays):

• Extension of Making Tax Digital for Income Tax to Businesses and Landlords
• Making Tax Digital for Income Tax will now be introduced in April 2024 (superseded)
• Making Tax Digital for Income Tax for businesses: step by step
• Stakeholder communications pack
• Costs and benefits of MTD next steps
• Apply for an exemption from MTD for ITSA
• Check when to sign up for MTD

Exemptions

Certain entitles are exempt from joining MTD ISA. These include: trusts, estates, trustees of registered pension schemes, non-resident companies, charitable trusts, trustees of exempt unauthorised unit trusts, underwriting businesses of members of Lloyds, holders of shares in real estate investment trusts, and participants in open ended investment companies.

Remittance basis taxpayers are exempt as regards their foreign income, but not in respect of any UK source income.

You can also apply to HMRC for an exemption from joining MTD ITSA where certain conditions apply, i.e.

• it’s not practical for you to use software to keep digital records or submit them — this may be due to your age, disability, location or another reason
• you are a practising member of a religious society (or order) whose beliefs are incompatible with using electronic communications or keeping electronic records

Penalties

Back in March 2021 the government proposed a new system of penalties for late filing and late payment of tax for ITSA. This was then included in Finance Act 2021, Schedule 24.

This penalty regime will now apply to those who join MTD for ITSA in April 2026, and for all other ITSA taxpayers from a later date.

HMRC has issued detailed guidance on penalties for late payment.

Basis period rules

The government also recently consulted on a reform of the basis period rules for how profits of the self-employed are assessed. See our separate article on this.

Many respondents called for more time, and so this reform will also be delayed and will not come into force 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.

MTD for corporation tax

MTD for CT will not take place until around 2030, although a voluntary pilot is expected to begin in 2024.

This will be the most challenging aspect of MTD due to the complex accounting systems of companies.

Contact us

If you would like to discuss how you can prepare for MTD, please contact a member of our Cloud Accounting Team or your usual Bishop Fleming advisor.