Making Tax Digital (MTD) for Income Tax Plans Delayed

The Treasury recently announced that their plans for Making Tax Digital (MTD) for Self-Assessment have been postponed by two years. Initially intended to be implemented in April 2024, the regime is now proposed to be in place from April 2026.

We’re not surprised by this delay given the wider economic challenges facing the UK after Brexit, Covid-19 and the war in Ukraine. Additionally, past experiences with the MTD for VAT roll-out led us to believe that delays and postponements to the initially “advertised” date would be inevitable.

The MTD for Income Tax is a wider-reaching phase of HMRC’s digital roll out and, therefore, will affect a greater number of businesses and individuals.

Who will be affected?

Businesses run by self-employed individuals and landlords with turnover greater than £50,000 will be affected by the MTD for income tax regime from April 2026. This threshold will drop to £30,000 in April 2027. If you have, for example, a self-employed business and a property business and the aggregate turnover is greater than the thresholds, you will be affected.

This does not yet affect partnerships (although that is coming), trusts and estates.

There are also exemptions available for those with a “digital exclusion” meaning that it is reasonably impractical for you to use digital tools to keep digital records or submit quarterly returns. This can be due to age, disability, remoteness of location or any other reason. If this applies, you must apply to HMRC to claim the exemption.

I think I’m affected, what does this mean?

We will identify and support our affected clients in due course.

However, if you believe this affects you, based on the information currently provided via pilot schemes and pending legislation, you will firstly have to migrate your accounting record-keeping to a digital format. We will work closely with our affected clients to identify compatible software solutions once more information becomes available. It is unlikely that a spreadsheet will be sufficient.

This compatible software may come at a cost, although we are seeing many providers introducing a scaled back version of their software for free.

The good news is this is likely to see the end of the annual tax return rush in January.

However, the bad news is that this will become a quarterly requirement.

You will be required to submit at least quarterly to HMRC directly from your compatible software. The quarterly submissions will follow the UK fiscal year (6th April - 5th April), although this may change in due course. These quarterly updates will provide you with an estimate of your tax liability although will not take into account any reliefs you may be able to claim. There won’t be any penalties for inaccuracies as there will be no “declaration” by the taxpayer.

At the end of each tax year, you will then be required to submit an End of Period Statement (EOPS) for each business that you own. This is where the more complex calculation of reliefs and allowances will be submitted to HMRC.

You then make a “final declaration” each year by the current tax deadline (31st January following the end of the tax year). You will use the software to review your information and HMRC’s final tax estimate before legally declaring that the information is correct to the best of your knowledge. This applies to individuals rather than businesses so there will be one per taxpayer, much like the current regime.

How can you prepare?

Clients who have their bookkeeping carried out by us will already be compliant in terms of digitising their records.

But for those who aren’t, you should review your current admin processes. Ask yourself whether your current processes are compliant and what you need to change to make them compliant.

You may wish to adjust your accounting reference period to align with the fiscal year for an easier transition.

Although the delays have been announced, you should start to consider your requirements as early as possible in order to be compliant in advance of the “live” date.

Of course, we will be formally extending our offer of assistance to clients in due course. We are consulting with software providers and reviewing requirements to ensure our clients benefit from a cost-effective solution to the inevitable headache that MTD for Income Tax will bring them!