Last updated: 20 Dec 2022 03:30 Posted in:
Following a recent government announcement, self-employed individuals and landlords will have more time to prepare for Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA).
Financial Secretary, Victoria Atkins MP, issued a written statement confirming the changes on Monday 19 December.
The transition to MTD for ITSA represents a “significant change for taxpayers, their agents and HMRC” for how self-employment and property income is reported. Since “businesses and self-employed individuals are currently facing a challenging economic environment” as it is, the government is extending the period to prepare for MTD. Therefore, the mandatory use of software is being phased in from April 2026. This reflects a significant change of implementation as previously all reporters were due to come into scope of MTD for ITSA in 2024.
From April 2026, self-employed individuals and landlords with an income of more than £50,000 will be required 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 need to do this from April 2027. Most customers will be able to join voluntarily beforehand meaning they can eliminate common errors and save time managing their tax affairs.
The government has also announced a review into the needs of smaller businesses, and particularly those under the £30,000 income threshold. The review will consider how MTD for ITSA can be shaped to meet the needs of these smaller businesses and the best way for them to fulfil their Income Tax obligations. It will also inform the approach for any further roll out of MTD for ITSA after April 2027.
“Smaller businesses in particular should be able to experience the benefits of increased digitalisation of Income Tax in a way which meets their needs. That is why we are also today announcing a review to establish the best way to achieve this,” Atkins wrote.
Following the phased approach, the government will not extend MTD for ITSA to general partnerships in 2025 as previously announced. The government remains committed to introducing MTD for ITSA to partnerships in line with its vision set out in the Tax Administration Strategy. However, the decision on when they might join the scheme will be taken at a later date, as for those on less than £30,000.
The new penalty system, harmonising late submission and late payment penalties for Income Tax Self-Assessment with those for VAT, will come into effect for taxpayers when they become mandated to join MTD. The government will introduce the new penalty system for Income Tax Self-Assessment taxpayers outside the scope of MTD after its introduction for MTD taxpayers.
AIA Director of Operations, David Potts, who represents AIA members at HMRC's Agent Support Group, said "AIA welcomes this delayed implementation of MTD for ITSA, which will give our members additional time to prepare their clients. We look forward to continuing to work with HMRC to ensure agents views are represented in key decisions made to introduce the ongoing MTD programme.”
MTD for ITSA guidance on GOV.UK will be updated shortly.
Read the press release on GOV.UK.
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