Breaking news today, 19th December 2022. Making Tax Digital for Income Tax Self Assessment (MTDfITSA) Postponed to April 2026.
Gov.uk – Government announces phased mandation of Making Tax Digital for ITSA
The original date was April 2024, from which time:
- Sole Traders and Landlords would be mandated
- Partnerships and partners would be mandated 12 months later, April 2025
- £10,000 turnover based exemption
Mandated taxpayers would be compelled to:
- Keep Digital Records
- Submit Quarterly Interim Returns to HMRC digitally one month after quarter end
- Submit final returns to HMRC by 31 January after the end of the tax year – two returns, one for business, one overall
- Minimum of six returns – four quarterly and two year end – maybe more
We had an inkling last week that there would be a deferral, when HMRC inadvertently updated their website to this effect before taking the update down. We now have the official announcement from HM Treasury.
What we have learned today is:
- A two-year delay until April 2026 for mandatory MTD ITSA filing – turnover over £50,000
- Those earning more than £30,000 mandated to join the scheme in April 2027, ie three year delay
- The situation for landlords and sole traders earning less than £30,000 will be reviewed to see if MTD ITSA can be shaped to meet the needs of smaller businesses;
- Partnerships will not be brought into MTD for ITSA as previously planned in 2025. (“decision to be taken at a later date”)
There was a certain degree of inevitability around this delay, as HMRC have struggled to launch the technical legislation and specifications, in turn meaning the commercial software industry has been very much on the back foot. Likewise, HMRC themselves don’t have a great record with IT and systems, and it was a big ask for them to get their systems in place and working reliably by then. Finally, doubtless HMRC are having the same difficulties with staffing as most other organisations, witness the delays in getting calls or post answered, so it is unlikely they had the organisational capacity to take this on at present.
Hopefully with this deferral HMRC can get to grips with the two system regime that was proposed, with a classic traditional Self Assessment remaining in place for non mandated taxpayers, and a completely different system of “End of Period Update” and “Crystallisation Return” for mandated taxpayers. Two fundamentally different regimes, albeit generating the same tax calculations, is a recipe for confusion – perhaps this can be simplified and the end of year aspects aligned?
And what of Making Tax Digital for Corporation Tax and VAT? Well, MTD for VAT is already in place, although HMRC have recently dropped the “MTD” part to make it just “VAT” as it’s no longer a new set of obligations. MTD for Corporation Tax was due to come in “no earlier than 2026” – no mention has been made of this, so it’s been kicked into the long grass presumably.
As a firm, whilst we have been communicating the requirements and the original time-scales to our clients and contacts, we intentionally had planned to leave detailed work until this coming summer, anticipating that a deferral was possible, if not likely. That said, the direction of travel – digital records – is clear albeit at a slower pace. Anyone who has taken the effort to adopt a system like FreeAgent, Xero or similar has not wasted their time. If you are wavering, there is still merit in getting digital records in place sooner rather than later, so you are ready for the the new time-scales, and indeed digitalisation brings other benefits as well.