The Government has announced a two-year delay and further changes to the rollout of its Making Tax Digital for Income Tax initiative.
The delayed implementation of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) means it will now be phased in from April 2026 for a smaller number of businesses, rather than the original launch date of April 2024.
The move will give self-employed workers, sole traders and landlords more time to prepare for the upcoming changes.
What is changing?
From the new start date, instead of MTD for ITSA applying to all self-employed workers and landlords with property and/or business income of more than £10,000, it will now only apply to those with income exceeding £50,000.
As per the original plan, they will have 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 also need to comply with this from April 2027. However, all taxpayers will be able to join voluntarily beforehand if they wish to eliminate common errors and save time managing their tax affairs.
What about smaller businesses?
The Government has also announced a review into the needs of smaller businesses originally due to use the system in 2024, particularly those under the £30,000 income threshold.
The review will consider how MTD for ITSA can be shaped to meet their requirements and the best way for them to fulfil their Income Tax obligations. It will also inform the approach for any further rollout of MTD for ITSA after April 2027.
MTD for ITSA will not be extended to general partnerships in 2025, as previously announced. However, the Government says it “remains committed to introducing MTD for ITSA to partnerships in line with its vision set out in the Tax Administration Strategy”.
Under the original plans, MTD would also be extended to Corporation Tax, but the Government is yet to confirm when this final phase will begin.
Why has the implementation of MTD for ITSA been delayed?
The announcement comes days after a recent survey found a huge majority of Chartered Institute of Taxation (CIOT) and Association of Taxation Technicians (ATT) members said it cannot be successfully introduced in its current form on 6 April 2024.
The joint CIOT and ATT survey found 97 per cent of the 322 professionals questioned said the top three reasons for concern about the digital project are:
- Taxpayer awareness: 94 per cent believe this is a problem
- Taxpayers’ ability to comply: 94 per cent are concerned
- Cost burden on clients: 92 per cent are worried about this and 83 per cent are concerned they won’t be able to charge for all their professional time in dealing with MTD ITSA
You must use software that works with Making Tax Digital for Income Tax, which will allow you to:
- Create and store digital records of each of your business transactions
- Send updates of the totals of your business income and expenses every quarter
- Confirm end-of-period statements
Now the Government says that it understands that self-employed individuals and landlords are currently facing a challenging economic environment, and the transition to MTD for ITSA represents a significant change to taxpayers and HMRC on how self-employment and property income is reported.
Need help with preparing for MTD for ITSA? Contact us today.