UK and International Tax news

Making Tax Digital Update

Friday 24th September 2021

HMRC has announced a one year delay to April 2024 for the introduction of the digitalisation of income tax for businesses.

Last year, the government published its report ‘Building A Trusted Modern Tax Administration System’, which attempted to set out a vision of a UK tax system fit for the 21st century, designed to improve its resilience, effectiveness and support for taxpayers. Making Tax Digital [MTD] is the first phase of a move toward this modern, digital tax service.

MTD first launched for those with taxable turnover above the VAT threshold (£85,000 pa) in April 2019. Since then, over 1.5 m businesses have signed up, including a number of VAT-registered businesses that have joined voluntarily.

VAT-registered businesses with taxable turnover below the threshold need to join MTD for their first tax return from April 2022. Over 30% of these customers have already signed up voluntarily.

As part of the 2020 announcement, the government set out that it would be extending MTD to businesses and landlords with business and/or property income over £10,000 per annum that are liable for income tax from April 2023.

MTD for income tax [MTD for ITSA] is now being introduced from the tax year beginning in April 2024. Those within scope will need to keep digital records and use software to update HMRC quarterly, through MTD software. MTD will not change when taxpayers need to pay their tax.

HMRC’s announcement does not affect the MTD for income tax pilot, which will continue as planned. Eligible businesses and landlords will be able to sign up to the pilot, which will be gradually expanded during the 2022/23 tax year, and for larger scale testing in the 2023/24 tax year.

To align with the introduction of MTD for income tax in 2024, reformed penalties are being introduced for income tax taxpayers required to use MTD in the tax year beginning in April 2024. For all other income tax taxpayers, the new penalty regime will be introduced in the tax year beginning in April 2025.

Simple partnerships will not be required to join MTD for income tax until the tax year beginning in April 2025. HMRC will confirm at a later date when more complex partnerships will be required to join.

The Income Tax (Digital Requirements) Regulations 2021 set out the technical details of how MTD for ITSA will work and its new launch date.

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