Making Tax Digital (MTD), the government initiative for online income tax self-assessment (ITSA), has been delayed by a further year due to the challenges many businesses have experienced due to the pandemic.

MTD will not be mandatory for self-employed individuals and landlords until accounting periods commencing on or after 6 April 2024. The start date for general partnerships (those with only individuals as partners) will now be from April 2025, with the date for other types of partnerships still to be confirmed. The planned April 2026 commencement date for MTD for corporation tax now also seems uncertain.

Knock-on effect

The one-year delay means that:

  • The reform of the basis period rules for unincorporated businesses has been pushed back until at least April 2024, with the transition year no earlier than 2023 – so yet another change that now appears less certain than previously.
  • The new penalties for late payments and late submissions will now no longer apply to the self-employed and landlords (mandated to use MTD for ITSA) until April 2024, with other ITSA taxpayers included a year later.

No change

Although the delay will be welcomed by the majority of businesses, a delay is all it is. There is no change to the entry point (taxable turnover from self-employment and/or income from property over £10,000), nor to the requirement to keep digital records and provide quarterly returns using third-party software to HMRC.

HMRC has estimated the average transitional cost of becoming digital as £330, with an annual cost of £35 per business, although that assumes no new hardware will be required.

The delay will mean that more software packages are available before MTD for ITSA comes in, and there will be more opportunity to join the pilot scheme. If you are self-employed or a landlord, you should make the most of the extra time to ensure your business is ready come April 2024.

How MTD ITSA will work?

MTD ITSA will initially apply to the self-employed and landlords with total annual turnover exceeding £10,000. There is no exclusion if you have, say, £6,000 of trading income and £6,000 of rental income.

  • Income and expenditure will have to be recorded digitally. Spreadsheets are fine, but, if you do it yourself, MTD-compatible software will be needed to submit quarterly updates.
  • A quarterly summary of income and expenses must be sent to HMRC, with a final declaration replacing the self-assessment tax return.
  • There will be a new penalty system and no soft landing. However, a late filing penalty will not apply until four quarterly submissions are late.

The biggest impact will be for those currently maintaining paper records. A move to spreadsheets should not be too onerous, however, and it will then be straightforward to use these as a basis for the filing requirements.

How can we help you?

If you are thinking of moving to a software package, be warned there are currently only seven providers of suitable software. HMRC has issued guidance on MTD ITSA and of course we’re here to help you.