Tag: HMRC

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

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.

Tax

MTD for ITSA Delayed Until 2026

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In a statement made by the Financial Secretary to the Treasury, Victoria Atkins MP, the timetable for Making Tax Digital for Income Tax Self Assessment will once again be delayed.

The mandation of MTD for ITSA is now planned to be introduced from April 2026, with businesses, self-employed individuals, and landlords with income over £50,000 mandated to join first.

An increase in the income threshold from £10,000 to £50,000 is universally welcome, although many continue to question why this is not aligned with the £85,000 VAT threshold or indeed restricted to VAT registered individuals only. For some, the relaxation of the rules do not go far enough to give this programme a fighting chance of success in April 2026 and we may yet be having the same expectation of delay two years from now.

The new £50,000 threshold is only a temporary reprieve. This will be reduced to £30,000 from April 2027 with those below that threshold being kept under review.

Also under review is the fate of partnerships whose inclusion has been deferred from April 2025 to an as yet unknown future date.

The minister also confirmed that the new MTD penalty regime, coming into force for VAT from 1 January 2023, will come into effect from April 2026 for those falling within MTD for ITSA. The Government will also look to apply this same penalty regime to all income tax payers, including those falling outside of MTD for ITSA, although no implementation date was stated for this.

Conspicuous by its absence was any mention of basis period reform and the planned change from the current year basis of taxation to the tax year basis with effect from 6 April 2024. With the transitional year only three months away, it seems that we shall be left with this significant procedural burden that was brought in only to resolve HMRC’s inability to correctly account for basis periods within their MTD for ITSA framework.

Indeed, if we are to see a new Government in office before April 2026 then, rather than witness the long-awaited “death of the tax return” as announced by former Chancellor George Osborne, we may yet see a subsequent Chancellor announce the death of MTD for ITSA which will, certainly in accountancy circles, be widely revered.

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.
Budget, PAYE, Tax

NIC Changes

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Employers’ class 1 NIC

The secondary class 1 NIC rates and thresholds (paid by employers) were not altered in the Spring Statement, and the rate is increasing from 13.8% to 15.05% on 6 April 2022. 

For 2022/23 the various secondary class 1 NIC thresholds are:

  Secondary class 1 NIC Thresholds
For most employees the employer pays at 15.05% on wages:
Per week:£175
Per month:£758
Per year:£9,100
If the employee is an apprentice or aged under 21 employer pays class 1 NIC at 15.05% on wages above:
Per week:£967
Per month:£4,189
Per year:£50,270
For new employees working at least 60% of their time in a Freeport site the employer can claim relief from class 1 NIC on wages up to: 
Per week:£481
Per month:£2,083
Per year:£25,000

Employees’ class 1 NIC 

The rates of primary class 1 NIC paid by employees are increasing on 6 April 2022 from 12% to 13.25% and from 2% to 3.25% for the upper rate.

The lower earnings limit (LEL) has not been changed from the proposed level for 2022/23, which will be: £123 per week, £533 per month, £6,396 per year. On earnings between the LEL and the primary threshold, the employee pays class NIC at 0%, thus receives NIC credit for those wages.

The upper earnings limit (UEL) has also not been changed by the Spring Statement, and will stay at the proposed thresholds for 2022/23 of £967 per week, £4,189 per month, £50,270 per year. On earnings above the UEL, the employee will pay class 1 NIC at 3.35% for 2022/23.

The complication introduced by the Spring Statement is that the primary threshold (PT) for class 1 NIC will change part way through the tax year on 6 July 2022. The employee will pay class 1 NIC at 13.25% on earnings between the LEL and the PT for 2022/23.  

Class 1 NIC primary thresholds 6 April to 5 July 2022 6 July 2022 to 5 April 2023 
Per week£190£242
Per month£823£1048
Per year£9,880£12,570

As NIC is paid according to the pay period, and is not cumulative, only nine months of earnings (from July 2022 to March 2023) will benefit from the higher PT.

Company directors tend to use an annual or quarterly earnings period. Those on quarterly pay will use the lower threshold for the first quarter to 5 July 2022, and the higher PT for the remainder of the year. Those on annual earnings period will use a PT of £11,908 for 2022/23 as specified in clause 4(2) of the National Insurance Contributions (Increase of Thresholds) Bill 2022.

Self-employed class 4 

The lower profits limit (LPL), from which class 4 NIC becomes payable, is also increased to align with the personal allowance of £12,570, but over two years. The upper profits limit is frozen at £50,270.

Tax Year Main rate Additional rateLPLUpper profits limit
2022/2310.25%3.25%£11,908£50,270
2023/2410.25%*3.25%*£12,570£50,270

* Including Health and Social Care levy

For 2022/23 the LPL will be £11,908, that is nine months of the increased level, to make it equivalent to the same NIC allowance enjoyed by employees. Although the self-employed individual will pay class 4 NIC at the main rate of 10.25%, which is three percentage points lower than the class 1 NIC paid on the same income band by an employee.  

Self-employed class 2 NIC

The class 2 NIC paid by the self-employed creates a contribution record for the individual, unlike the class 4 NIC, which is a pure tax. 

The class 2 small profits threshold (SPT) will remain in place from April 2022, but the individual will not be liable to pay class 2 NIC until their profits exceed the lower profits threshold for the tax year, which is aligned with the lower profits threshold for class 4 NIC.

Tax year Flat rate per week   Small profits threshold  Lower profits limit 
2022/23£3.15£6,725£11,908 
2023/24TBATBA £12,570

New class 2 NI credit 

Where the individual has annual profits between the SPT and the LPL, they will effectively build up a NI credit for that year, while paying zero class 2 NIC. Note that the taxpayer has to make profits at least equal to the SPT for the year in order to benefit from this class 2 NI credit. 

In order to receive the class 2 NI credit the taxpayer will have to submit a tax return, although if they have no other income in the year they will have no tax to pay. 

The introduction of the class 2 NI credit does not eliminate the need for voluntary class 2 NIC payments. Where the trading profits are less than the SPT the individual may still wish to pay voluntary class 2 NIC in order to maintain their contribution record and qualify for the state pension, as well as for other contributory benefits.