Making Tax Digital for Income Tax has been postponed until April 2024.
MTD for Income Tax Self Assessment (ITSA), it had been due to become law in April 2023 and would have affected more than four million self-employed people and landlords that have business/property income above £10,000.
The government has also announced that the proposed basis period changes and the new MTD-focused penalty system have a postponed implementation date.
What is MTD for Income Tax’s postponed start date?
On 23 September 2021, Lucy Frazer (Finance Secretary to the Treasury) made a statement in parliament that provided an update on Making Tax Digital.
The headline announcements for MTD for Income Tax were:
For sole traders and landlords with business/property income above £10,000, MTD for Income Tax now starts in the tax year beginning April 2024. Previously it had been slated to start in April 2023.
For general partnerships with income above £10,000, MTD for Income Tax now starts in the tax year beginning April 2025. Previously, it had been slated to start at the same time as the general MTD for Income Tax scheme in April 2023. Other types of more complex partnerships (e.g. limited liability (LLPs), mixed or corporate) will follow at an as-yet-undisclosed time.
Why has the MTD for Income Tax start date been delayed?
The government says the following:
“The Government recognises the challenges faced by many UK businesses and their representatives as the country emerges from the pandemic over the last year […] A later start for MTD for ITSA provides more time for those required to join to make the necessary preparations and for HMRC to deliver the most robust service possible, affording additional time for testing in the pilot.”
Have the basis period reforms been postponed?
Yes.
While we await the official legislation of basis period reforms, the following has been announced:
Basis period reform will not come into effect until April 2024, with the transition year “not coming into effect earlier than 2023”. Previously the reforms had been due to take effect in the tax year 2022/23.
Has the new MTD penalty points system been postponed?
Because of the postponement of MTD for Income Tax, the new penalty point system has also been postponed to that date for those that use MTD for Income Tax.
However, it will apply as of April 2022 for MTD for VAT, as originally planned.
In other words, the new penalty system will come into force as follows:
April 2022, for MTD for VAT, alongside the expansion of MTD for VAT in April 2022.
April 2024, for those that will use MTD for Income Tax as of the postponed April 2024 start date.
April 2025, for all other Self Assessment individuals (regardless of whether they’re using MTD for Income Tax; notably, this isn’t new and the new penalty points system was already slated to apply to all Self Assessment individuals a year after it was introduced).
The penalty points system, once it’s implemented, means those making late submissions would earn a penalty point, rather than getting fined instantly by HMRC.
Once a certain number of points goes beyond a threshold, a £200 penalty will be automatically applied.
For MTD for Income Tax and MTD for VAT users, this threshold is four points.
Thomas-Bryant, K., 2021. MTD for Income Tax postponed: Everything you need to know - Sage Advice United Kingdom. [online] Sage Advice United Kingdom. Available at: <https://www.sage.com/en-gb/blog/mtd-for-income-tax-postponed/#what-anchor-link> (Accessed 29 September 2021).