Businesses get more time to prepare for digital tax changes

Businesses will have an extra year to prepare for the digitalisation of income tax, HM Revenue and Customs (HMRC) has announced today.

Recognising the challenges faced by many UK businesses and their representatives as the country emerges from the pandemic, and having listened to stakeholder feedback, the government will introduce Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) a year later than planned, in the tax year beginning in April 2024.

A later start for MTD for ITSA gives those required to join more time to prepare and for HMRC to deliver a robust service, with additional time for customer testing in the pilot.

Forming part of the government’s ambition to become one of the most digitally advanced tax authorities in the world, Making Tax Digital is the first phase of HMRC’s move towards a modern, digital tax service fit for the 21^st century.

It supports businesses through their digitalisation journey and provides a digital service that many have come to expect in their everyday lives.

Lucy Frazer, Financial Secretary to the Treasury, said:

“The digital tax system we are building will be more efficient, make it easier for customers to get tax right, and bring wider benefits in increased productivity.

“But we recognise that, as we emerge from the pandemic, it’s critical that everyone has enough time to prepare for the change, which is why we’re giving people an extra year to do so.

“We remain firmly committed to Making Tax Digital and building a tax system fit for the 21^stcentury.”

MTD for ITSA will be mandated for businesses and landlords with a business income over £10,000 per annum in the tax year beginning in April 2024.

General partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025, while the date other types of partnerships will be required to join will be confirmed in the future.

In March 2020, the government announced a new, fairer system of penalties for the late filing and late payment of tax for ITSA. The new penalty system for those who are mandated for MTD for ITSA will now come into effect in the tax year beginning in April 2024, and in the tax year beginning in April 2025 for all other ITSA taxpayers.

For many businesses, MTD is a natural extension of the way they already operate. Evidence shows that many businesses currently operating MTD are already experiencing wider benefits and reductions in input errors.

Eligible businesses and landlords will have the opportunity to gain the benefits of MTD early by signing up to the pilot, which is already underway and will be gradually expanded during 2022-23 ready for larger scale testing in 2023-24.

Collaboration with tax professionals and customers has been key in the development of MTD and HMRC has worked closely with partners in the business and tax communities on the proposed design and scope of MTD for ITSA.

The laying of regulations today sets out the technical details of how MTD for ITSA will work, and its new launch date – giving certainty to businesses.