Day: November 14, 2023

DMS Posts, Tax

Making Tax Digital delay: everything you need to know

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In this short guide, we’ll explain what the Making Tax Digital (MTD) delay means for businesses, accountants, and bookkeepers, and why you should still prepare for the legislation now.

What is the Making Tax Digital delay?

In December 2022, HMRC announced a delay in Making Tax Digital for Income Tax. Instead of launching in April 2024, the first phase of MTD for ITSA will begin in April 2026, for sole traders and landlords earning above £50,000. You can read the full statement to parliament here.

What is the new start date for MTD for ITSA?

Based on HMRC’s latest announcement, MTD for ITSA will follow a phased approach from April 2026.

Sole traders and landlords earning above £50,000 will need to comply with ITSA rules from April 2026.

Sole traders and landlords earning above £30,000 will follow in April 2027.

Our Making Tax Digital timeline includes information on all other MTD start dates.

Why was MTD delayed?

According to HMRC, MTD for ITSA was delayed to ease the pressure on businesses given the current economic climate. It was also stated that the delay would give businesses more time to adapt to new ways of working.

What changes have been made to MTD for ITSA?

HMRC will now introduce MTD for Income Tax with a phased approach, with multiple income thresholds.

From April 2026, sole traders and landlords earning above £50,000 annually will need to follow ITSA rules.

From April 2027, sole traders and landlords earning above £30,000 annually will follow.

General partnerships and smaller businesses earning less than £30,000 annually are yet to be mandated. We’ll be sure to report on this as soon as the dates are announced.

Has the MTD penalty system been delayed?

Taxpayers will be subject to the new Making Tax Digital penalty system once they’re mandated to join MTD.

For VAT-registered businesses already filing MTD for VAT returns, the new penalty system is already in place.

When sole traders and landlords earning above £50,000 are mandated for MTD for ITSA in April 2026, they will also be subject to the new penalty system.

Is Making Tax Digital going to happen?

Absolutely. Despite the slowdown in pace, digital transformation is still the direction of travel.

Making Tax Digital can help businesses run more efficiently, use resources more effectively, and save time on day-to-day admin. But right now, businesses are facing considerable challenges in light of economic uncertainty and will benefit from a little extra time to prepare.

Pushing the deadline back gives businesses and accounting practices more time to get confident about the legislation and learn how to use cloud-based accounting software to improve their overall business health.

Who is affected by the MTD for ITSA delay?

Self-employed individuals and landlords are impacted by the MTD for ITSA delay.

Sole traders and landlords earning above £50,000 annually will need to comply with ITSA rules from April 2026. Sole traders and landlords earning above £30,000 annually will follow in 2027.

General partnerships and those earning below £30,000 annually are yet to be mandated.

All this means is that the earliest ITSA rules will be mandated is April 2026 – so businesses, accountants, and bookkeepers have plenty of time to learn the new system and find ITSA-compatible software.

It’s also worth bearing in mind that, whilst thresholds have been established, you can voluntarily sign up to MTD for ITSA at any point once a public sign up process has been established and you’re using MTD for ITSA approved software.

Should you still prepare for MTD for ITSA now?

Definitely. Businesses, accountants, and bookkeepers should see the delay as an opportunity to find the right tools and hone their digital skills ahead of the deadline. Instead of pressing pause on your MTD preparations, use this time to learn how you can reap the most rewards from cloud-based software.

Don’t miss out on the benefits of digitalisation

Embracing digitalisation isn’t just about MTD compliance – tools and software can help you run a healthier business by demystifying your financial position with forecasts, reports, and live feeds.

Accountants and bookkeepers will also be able to provide real-time advice and guidance based on live data in their clients’ software. So both accounting practices and businesses benefit from having clear and accurate data, thanks to cloud-based software.

What’s more, some cloud-based accounting software packages allow you to integrate multiple tools and platforms. So you can join the dots between all kinds of business functions – such as project management, payroll, and financial planning. This means less hopping between tabs and more time spent focusing on your business.

DMS Posts, Tax

Government announces phased mandation of Making Tax Digital for ITSA

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Understanding that self-employed individuals and landlords are currently facing a challenging economic environment, and the transition to Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) represents a significant change to taxpayers and HMRC for how self-employment and property income is reported, the government is giving a longer period to prepare for MTD. The mandatory use of software is therefore being phased in from April 2026, rather than April 2024.

From April 2026, self-employed individuals and landlords with an income of more than £50,000 will be required to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software. Those with an income of between £30,000 and £50,000 will need to do this from April 2027. Most customers will be able to join voluntarily beforehand meaning they can eliminate common errors and save time managing their tax affairs.

The government has also announced a review into the needs of smaller businesses, and particularly those under the £30,000 income threshold. The review will consider how MTD for ITSA can be shaped to meet the needs of these smaller businesses and the best way for them to fulfil their Income Tax obligations. It will also inform the approach for any further roll out of MTD for ITSA after April 2027.

Mandation of MTD for ITSA will not be extended to general partnerships in 2025 as previously announced. The government remains committed to introducing MTD for ITSA to partnerships in line with its vision set out in the government’s tax administration strategy.

Victoria Atkins, Financial Secretary to the Treasury, said:

It is right to take the time to work together to maximise the benefits of Making Tax Digital for small businesses by implementing the change gradually. It is important to ensure this works for everyone: taxpayers, tax agents, software developers, as well as HMRC.

Smaller businesses in particular should be able to experience the benefits of increased digitalisation of Income Tax in a way which meets their needs. That is why we are also today announcing a review to establish the best way to achieve this.

Jim Harra, Chief Executive and First Permanent Secretary, HM Revenue and Customs, said:

HMRC remains committed to the delivery of Making Tax Digital as a critical part of our strategy for digitalising and modernising the tax system, but we want to make sure we get this right and deliver it effectively.

A phased approach to mandating MTD for Income Tax will allow us to work together with our partners to make sure that our self-employed and landlord customers can make the most of the opportunities this will bring.

The announcement relates to MTD for ITSA only. Making Tax Digital for VAT has already been implemented and is demonstrating the benefits to businesses and the tax system of digital ways of working.

Further information

A copy of the Written Ministerial Statement made by Victoria Atkins, Financial Secretary to the Treasury, on 19 December 2022 is available on UK Parliament: Written questions, answers and statements.

Under MTD for ITSA, businesses, self-employed individuals and landlords will keep digital records, and send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software. In response they will receive an estimated tax calculation based on the information provided to help them budget for their tax. At the end of the year, they can add any non-business information and finalise their tax affairs using MTD-compatible software. This will replace the need for a Self Assessment tax return.

GOV.UK guidance on Making Tax Digital for Income Tax will be updated shortly.

Before today’s announcement, MTD for ITSA was mandated from April 2024 for customers with a total gross income over £10,000 from self-employment and property in a tax year, with partnerships mandated from 2025.