HMRC announce MTD implementation is to be delayed by 2 years

Making Tax Digital (MTD), the initiative from HMRC that aims to digitise the tax system, was set to be mandatory for Income Tax from April 2024. However, following speculation amongst the accountancy profession, a recent announcement by HMRC has confirmed that it will be postponed until April 2026.

MTD for Income Tax Self-Assessment (ITSA) had been set to impact sole traders and landlords who will have gross income over £10,000 with effect from April 2024, requiring them to comply with the new legislation, regardless of when their accounting period ends.

When confirming the changes, the statement from the Treasury on 19th December 2022 indicated that, in order to maximise the benefits of MTD for small businesses, it would give those “particularly with the smallest incomes, more time to adopt to the new ways of working.”

The announcement of the delay has been well received, with many businesses and accountancy firms previously expressing concerns over the potential impact of the changes following such an unstable trading period due to the pandemic.

The two-year delay will undoubtedly give Government time to ensure that the system is fully tested and allow businesses to migrate to the new system prior to the April 2026 date.

Further, it gives businesses more time to fully understand the new processes and become familiar with new software that will be required to be compliant with the MTD legislation.

In addition, the statement included further comment, including:

• The first businesses, individuals and landlords required to join will be those with income over £50,000 from April 2026
• Those with income over £30,000 will then be required to join from April 2027
• A review of those with income of £30,000 and below will now be performed to review their needs so that they can be assisted with fulfilling their Income Tax obligations; any further mandation of MTD for ITSA will be set out once this is complete
• Extension for MTD for ITSA to partnerships will not take place as previously planned in 2025 (although commitment to this at a later date remains)
• A points-based penalty system to link penalties for late submission and late payment will come into effect when they are required to join MTD

In addition to MTD, businesses were also facing changes to their accounting periods (known as the basis period reform) and this will still affect those unincorporated businesses who do not have a 31 March or 5 April year end, as tax will move from a ‘current year basis’ to a ‘tax year basis’. This will impact on tax payable in the 2023/24 tax year and, whilst it is possible to spread the effect of basis period reform over a period of up to five years, those businesses could see an increase in their tax bills at a time when the UK is facing a cost-of-living crisis.

Hopefully the MTD delay will help ease the burden of the basis period reforms.