Category: DMS Posts

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.

DMS Posts, Tax

Penalty points and penalties if you submit your VAT Return late

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From 1 January 2023, you’ll get penalty points if you submit a VAT Return late (including nil payment returns). Find out how points work and how to avoid a £200 penalty.

For VAT accounting periods starting on or after 1 January 2023, late submission penalties apply if you submit your VAT Return late.

The VAT default surcharge is being replaced by new penalties for returns that are submitted late and VAT which is paid late. The way interest is charged is also changing.

These changes affect everyone who submits VAT Returns, including a nil or repayment return. 

How late submission penalties work

You must send a VAT Return by the deadline for your accounting period. Your accounting period is when you need to send a return to HMRC, for example, quarterly.

Late submission penalties work on a points-based system.

For each return you submit late you will receive a penalty point.

Once you’ve reached a penalty point threshold, you’ll receive a £200 penalty and a further £200 penalty for each subsequent late submission while you’re at the threshold.

The penalty point threshold for your accounting period

The penalty point threshold is set by your accounting period. The threshold is the maximum points you can receive.

Accounting periodPenalty points threshold
Annually2
Quarterly4
Monthly5

Penalty example for a business making quarterly returns

A company submits their VAT Return quarterly. This means their penalty point threshold is 4.

They already have 3 penalty points because they submitted 3 previous returns late.

They submit their next return late and get a fourth penalty point. Because they’ve reached the penalty point threshold, they receive a £200 penalty.

The company submits their next return on time. They stay at threshold of 4 penalty points but do not get a £200 penalty.

The company submits their next return late. As they’re still at the penalty point threshold of 4 points, they receive another £200 penalty.

If you use a non-standard accounting period

If you have agreement from HMRC to use non-standard accounting periods, different rules apply.

Accounting periodPenalty points thresholdRules that apply
Over 20 weeks2Annual
Over 8 weeks and no more than 20 weeks4Quarterly
8 weeks or less5Monthly

How changes to your business affect penalty points

Changing your accounting period

If you’ve agreed with HMRC to change how often you submit returns, we will adjust your threshold and penalty points.   

This is how we will adjust your penalty points threshold:

Previous accounting periodPrevious penalty point thresholdNew accounting periodNew penalty point threshold
Annual2Quarterly4
Annual2Monthly5
Quarterly4Annual2
Quarterly4Monthly5
Monthly5Annual2
Monthly5Quarterly4

If you have existing penalty points, this is how we will adjust your penalty points:

Previous accounting periodNew accounting periodPenalty points adjustment
AnnualQuarterly+ 2 points
AnnualMonthly+ 3 points
QuarterlyAnnual– 2 points
QuarterlyMonthly+ 1 point
MonthlyAnnual– 3 points
MonthlyQuarterly-1 point

When you change your accounting period:

  • we’ll set your penalty points to zero if the adjustment gives you a minus figure
  • we will not make an adjustment if you have zero points

You cannot appeal adjustments to your penalty points.  

When you change from a non-standard accounting period to the equivalent standard period, your points will not change.

Non-standard accounting periodEquivalent standard accounting period
Over 20 weeksAnnual
Over 8 weeks and no more than 20 weeksQuarterly
8 weeks or lessMonthly

Taking over a business

If you take over a VAT-registered business as a ‘going concern’ any penalty points built-up by the business will not be transferred to your VAT registration number. This will be the case even if the VAT registration number is transferred from the previous owner to yourself.

Find out more about what ‘going concern’ for VAT means in paragraphs 1.3 and 1.4 of VAT Notice 700/9.

VAT groups and penalty points

If the representative member of a VAT group changes, any penalty points they’ve built-up are transferred to the new representative member.

The VAT groups’ penalty points total does not change if a person:

  • joins the group, even if the joining member had penalty points
  • leaves the group (the leaving member does not take points with them)

VAT Returns not affected

The late submission penalty rules do not apply to your:

  • first VAT return if you’re newly VAT registered
  • final VAT return after you cancel your VAT registration
  • one-off returns that cover a period other than a month, quarter or year

For example, you might make a one-off return covering a four-month period because you changed from submitting quarterly to annually.

DMS Posts, Other

Changes at Companies House: corporate transparency and companies register reform

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The Government is planning the most significant changes to the role and powers of Companies House since the register was first created in 1844. 

The proposed changes are part of a package of reforms to increase corporate transparency, improve business transactions and tackle economic crime which the Government has been consulting on since 2019.

What’s been proposed?

Over the last couple of years, there have been several Government consultations (see Further information below) on the proposed changes. Key proposals include:

  • Identity verification: introducing compulsory identity verification for all directors, People with Significant Control and those filing information on behalf of a company. The Government has proposed that once identity verification has been introduced, all company directors will have to verify their identity with Companies House before they can incorporate and a director’s appointment will not have legal effect until their identity has been verified.
  • Reforms to Companies House powers: Companies House will have stronger powers to query, seek evidence for, amend or remove information and to share it with law enforcement partners when certain conditions are met. Currently, Companies House is required to accept documents which are filed in good faith and place them on the register. One of the most important changes is to give Companies House the power to query information being filed and ask for evidence to support this, where appropriate. The Government issued a further consultation about how this power would work in practice which closed in February.
  • Register of Directors: it is proposed to remove the requirement for companies to keep their own Register of Directors so that the register held by Companies House will become the single, verified source of information for this. The Government is also considering the position on some of the other registers, such as the Register of Secretaries and the Register of People with Significant Control (although it has said it is unlikely to remove the requirement to keep a Register of Members).
  • Protecting personal information: this includes improving the processes for removing personal information from the register, including people’s signatures, the day of date of birth and residential addresses.
  • Company accounts: the Government has consulted on how to improve the way financial information is filed with Companies House. This includes requiring accounts to be delivered digitally and to be fully tagged. It is also proposed that the timescales for filing accounts will be shortened.
  • Ban on corporate directors: the Government legislated in 2015 to ban the use of corporate directors but these provisions were never brought into force. The Government now proposes to implement the ban, but with a ‘principles’ based exemption. This would mean that a company will only be able to appoint a corporate director if all the corporate director’s directors are natural persons whose identities have been verified by Companies House.

Who will the proposals apply to?

It is intended that any entities that are subject to the transparency provisions of the Companies Act 2006 will be caught (including registered companies, LLPs and limited partnerships).

Next steps

As these proposals are so wide-ranging and many will require legislation to implement, the Government has said it intends to publish a comprehensive set of proposals and will proceed to legislate ‘when Parliamentary time allows’. Funding will be required, particularly to implement the major changes to Companies House. However, the Government has indicated that it is committed to reform and we are likely to see at least some of the changes in the next few years.

Further information

The Government’s response to the consultation on corporate transparency and register reform can be found here.

You can also see the links below for the relevant Government consultations (which are now closed):

Current Companies House filing deadlines

The automatic extensions granted by the Corporate Insolvency and Governance Act have now come to an end for filing deadlines that fall after 5 April 2021. The Government had previously extended some deadlines to relieve the burden on businesses during the coronavirus outbreak.

As a reminder, some of the key Companies House filing deadlines are below:

  • First Annual Accounts: 21 months after the date the company is registered with Companies House;
  • Annual Accounts: 9 months after the company’s financial year ends;
  • Confirmation Statement: dated a year after either the date the company was incorporated or the date you filed your last confirmation statement. You have 14 days from the date of the confirmation statement to file it with Companies House;
  • Charges: within 21 days from when the charge is created;
  • Resolutions: all special resolutions and certain ordinary resolutions must be filed at Companies House within 15 days of being passed;
  • Changes to directors and company secretaries, for example new appointments, resignations or changes to their personal details: within 14 days of the change;
  • Changes to the ‘people with significant control’ (PSC) register, or a PSC’s personal details like a new address: within 14 days of the change; and
  • Allotment of shares: within 30 days of issuance.
DMS Posts, PAYE, Tax

Sunak aligns NIC and income tax in Spring Statement

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The Chancellor is

aligning the class 1 national insurance contributions primary threshold with the personal allowance of £12,570. 

As I predicted it is impossible to implement this change in payrolls run for April 2022, as it takes time to rewrite payroll software, but it will come into force from 6 July 2022. 

Note that the secondary class 1 NIC threshold, where employers start paying class 1 NIC, will not be raised to align with the primary threshold. Employers will pay class 1 NIC at 15.05% on most employees’ salaries above £9,100 from 6 April 2022. Different secondary class 1 NIC thresholds apply for apprentices and freelance employees. 

Self-employed NICs

The Chancellor has gone further than I expected, with plans to align the thresholds where the self-employed start paying class 2 NIC and class 4 NIC, with the personal allowance, but not immediately. 

The class 4 NIC lower profits limit will rise to £11,908 for 2022/23 and then be aligned with the personal allowance of £12,570 from 6 April 2023. This two-step increase is presumably implemented to shadow the delayed rise in class 1 NIC from 6 July 2022.

Class 2 NIC is currently payable once the individual’s profits for the year exceed the small profits threshold of £6,515. This relatively low payment threshold exists to allow self-employed individuals with small profits to build up a contribution record for the state pension and other benefits. 

From 2022/23 the threshold for paying class 2 NIC will be aligned with that for paying Class 4 NIC: £11,908 for 2022/23, then £12,570 for 2023/24. However, this large step up could leave many low-profit traders with no national insurance contributions for many tax years. 

To solve this problem from 6 April 2022 self-employed traders with profits below the lower profits limit will be treated as if they had paid class 2 NIC, but in fact they will make no actual NICs payment.  

The Government has already published a draft National Insurance (Increase of Thresholds) Bill 2022, which will bring these changes into effect. This Bill will be fast-tracked through Parliament.    

Employment allowance 

In a sop to small businesses the employment allowance will rise from £4,000 to £5,000 from 6 April 2022. This allowance can only be claimed by employers that had a class 1 NIC liability of no more than £100,000 in the previous tax year. The increase will allow an eligible employer to pay one extra person on the national minimum wage without having to pay employer’s class 1 NIC.

The detail in the Spring Statement also confirmed that the employment allowance will cover the employers’ liability for the Health and Social Care levy.   

Basic rate cut 

The promised cut in the basic rate of income tax from 20% to 19%, is slated to apply from 6 April 2024, but that is a long way off. As the past month has shown, the world can change significantly in a few weeks, and I wouldn’t like to predict where we will be in the spring of 2024.

In his Mais lecture last month Chancellor Rishi Sunak set out the principles that underpin his tax policy. At the core is a desire to cut taxes, but only where those cuts can be funded, and he restated that belief in his Spring Statement. 

To find out how much the tax cuts are all going to cost you need to dig into the Spring Statement 2022 policy costings document. For example, the increases in NIC thresholds to align with the personal allowance will cost £26.345bn over five years to 2026/27. 

The costings document sets out three additional sources of income for the Treasury:

  • HMRC compliance (tax enquiries): £3.156bn
  • DWP compliance (benefit fraud and error): £2.24bn
  • Student loans (frozen thresholds increased interest): £35.215bn

The conclusion must be that the next generation will be funding today’s tax cuts by paying handsomely in increased student loan repayments.   

Autumn plans 

Perhaps further detail on how the tax and NIC cuts will be funded will be revealed in the Autumn Budget. In Sunak’s 12-page Tax Plan was a vague reference to reforming tax reliefs and allowances and an aspiration to make the tax system “simpler, fairer and more efficient”.