Businesses will have an extra year to prepare for the digitisation of Income Tax Self Assessment (ITSA) after the government announced a delay of one year last week. This is due to the challenges faced by many businesses and HMRC as the country emerges from the pandemic.
Making Tax Digital (MTD) for ITSA will now be introduced in the tax year beginning in April 2024, one year later than planned. The government says this will give businesses more time to prepare and allow HMRC to deliver “a robust service”.
MTD for ITSA
MTD for ITSA will be mandatory for sole trader businesses and landlords with a business income of more than £10,000 per year in the tax year beginning in April 2024. This turnover threshold needs to take into account a taxpayer’s income from all their sole trader businesses, as well as their rental income. Once the £10,000 threshold is reached, HMRC will issue a notice to file under the MTD regulations.
If MTD for ITSA had been introduced for the tax year starting in April 2023, the turnover test would apply to figures showing in the 2021/2022 return submitted in January 2023 and possibly turnover reported in 2021/22. Due to the pandemic, many businesses and landlords had reduced turnover and rental income in these years.
With the starting date now changed to April 2024, the base year for testing the MTD turnover threshold will be the tax year 2022/23. It is hoped these figures will reflect normal trading not affected by the pandemic.
General partnerships (i.e., partnerships other than LLPs, mixed or corporate partnerships) will not need to join MTD for ITSA until the tax year starting in April 2025. The date for the other, more complex, types of partnerships has not yet been confirmed.
Penalties for late filing
The government announced a new system of penalties for the late filing and payment of tax for ITSA in March of this year. The new penalty system for those mandated for MTD for ITSA will now come into effect in the tax year starting in April 2024. For all other ITSA taxpayers, the new system will come into effect in the tax year beginning in April 2025.
As was the case with the rollout of MTD for VAT, eligible businesses and landlords have the opportunity to get used to MTD early by signing up for the pilot, which is already underway. This pilot will be expanded gradually during the 2022/23 tax year, ready for larger-scale testing in the 2023/24 tax year.
Lucy Frazer, Financial Secretary to the Treasury, said: “The government remains firmly committed to Making Tax Digital and building a tax system fit for the 21st century.”
However, she said, “the government recognises 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”.
If you have any queries in relation to Making Tax Digital for Income Tax Self Assessment, please contact us.
Warning: The above is merely general guidance and should not be relied upon as formal advice. The advice we give to each client will depend on their specific circumstances. We suggest you take professional advice before taking any action in relation to the issues discussed above.