Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) will now not be mandatory until 6 April 2026. It will only affect sole traders and landlords. Furthermore, then only for those with annual turnover of more than £50,000.
The MTD ITSA rules currently will not affect limited companies or those who are 'self-employed' through their limited company. In the future, limited companies may be forced into system, though there is no date from when this may apply.
The First Secretary to the Treasury, Victoria Atkins, issued a written statement on Monday 19 December 2022 regarding Making Tax Digital for Income Tax Self-Assessment.
MTD ITSA was to be mandatory, from 6 April 2024, for all self-employed individuals and landlords who receive aggregate gross trading income and / or rental income over £10,000 pa.
MTD ITSA will be biggest changes in the Self Assessment tax system for individuals in a quarter of a century. It has been reported in the Times that the postponement is because the HMRC computer system is not ready. HMRC has failed to publicise widely the requirement of MTD ITSA.
It was only in September 2021 that the deadline for launching MTD ITSA was put back from April 2023 to April 2024 because the HMRC IT systems were not ready.
The government has now announced another delay to the introduction of MTD ITSA. They confirmed a two-year delay to the proposed MTD ITSA launch to 6 April 2026.
I would expect that anything that you have heard about MTD is from your accountant or those annoying TV adverts, stating that you can just photographs your receipts and press a button and everything will take care of itself; but nothing from HMRC.
The professional accounting and tax bodies have raised concern that sufficient details have not been published by HMRC regarding some very practical matters in implementing MTD ITSA. There are also concerns that this could be another costly public sector IT disaster.
Victoria Atkins wrote that “The government understands businesses and self-employed individuals are currently facing a challenging economic environment, and that the transition to MTD for ITSA represents a significant change for taxpayers, their agents, and for HMRC.”
MTD ITSA requires affected self-employed individuals and private landlords to keep digital records, and submit information to HMRC on a quarterly basis directly from those records, without any manual rekeying of information or summary totals, to the HMRC computer system. Everything must flow digital from software to HMRC, from the initial recording of each individual account transaction through to each submission.
It is estimated that MTD ITSA will ultimately force 4.2m self-employed individuals, partnership businesses and landlords to file electronic submissions multiple times a year. There would be at least 5 digital submissions each year for each self-employed business and every group of properties, together with a final year end ‘Tax Return’ submission.
MTD ITSA was first announced by the then Chancellor, George Osborne, in the 2015 Spring Budget stating that this would be the end of the annual Tax Return.
As well as MTD ITSA being delayed until April 2026, the turnover threshold is also being increased from £10,000 to £50,000. From 6 April 2027, the threshold will be reduced to £30,000, therefore bring more individual into the MTD ITSA system. The start date for partnerships is still to be announced.
MTD ITSA only affects individuals, not limited companies, though there are plans to bring the latter into the quarterly filing system once the system has been introduced and bedded-in for individual taxpayers.
It is good to note that somebody within the government acknowledges that the new system will be more costly and cause additional work for businesses. HMRC believes any costs on business would be negligible. They also believe that forcing business to digitalise their accounting records would cause individuals to declare their profits more accurately and reduce errors in their accounting records.
HMRC has been trying to encourage individuals to join the pilot to test preparation for the introduction of MTD ITSA. Initially, less than 100 people joined the pilot and it has been reported that this may have even fallen to around 10 people.
The government hopes that the delay until April 2026 will give individuals and HMRC more time to prepare for the changes.