Making Tax Digital for Income Tax Self Assessment — Another Postponement and what it means for you
What is Making Tax Digital (MTD)?
Making Tax Digital (MTD) is a government initiative that has been ongoing for nearly a decade now, repeatedly delayed by setbacks, the biggest of which is the impact of Covid.
The essential purpose of MTD for ITSA is to switch taxpayers to self-assessing exclusively through a digital system, allowing them to submit their self-assessments online through HMRC or commercial software.
Introducing and delaying MTD
MTD for Income Tax Self Assessment (ITSA) was first announced in 2015 as part of the sweeping reforms to digitise the general tax system. The stated purpose is to reduce error and improve compliance, reducing tax fraud and concurrently making the workflow for taxpayers easier,
The initial plan for MTD for ITSA was for everyone to switch to digital-only by April 2020; this was moved back a year to 2021, with further postponements occurring from January 2020 to April 2022. In addition, the government alluded that the program would only be mandatory for those with a turnover of over £85,000, with a phased rollout for other bands.
In March 2021, the program was postponed to April 2023 for those turning over £10,000. Finally, with the impacts of Covid still weighing heavily on freelancers and small businesses, in November 2021, the enforcement date was again stretched to April 2024.
Now we are seeing the fifth delay of this program and an even more dramatic one, with the enforcement date being knocked back by another two years to April 2026. So what are the new plans, and how might they affect you and your business?
How is my business impacted?
From April 2026, those with an annual turnover of £50,000 or more will have to switch to digital. Those with a turnover of £30,000 or more will have to do so by April of the following year. Those turning over less than £30,000 are yet to see how their cases will be handled, with the government planning to review the needs of smaller businesses.
If you wish to move voluntarily to digital for your business, there are two main ways to do so. You can sign up individually at the government website or ask your agent to sign your business up on your behalf. This is advisable as your agent will be able to advise you best and make sure the process goes smoothly and all the correct setup is done.
Going digital raises certain advantages and disadvantages for your business. It should, for instance, make completing Self-assessments a more streamlined and accurate process. Overall you will spend less time on your taxes than you could be managing your business.
Conversely, to make going digital work for your business, you may find your best option is to use commercial software, which will be a cost you will have to consider. You also must consider data security matters if tax information will be stored digitally and potentially ensure GDPR is followed correctly.
Making Tax Digital is an initiative you will want to stay abreast of on all the developments for the compulsory rollout if you want to avoid a late payment or submission penalties. It is worthwhile consulting your tax adviser to make sure signing up early is the right move for your business, and they can make sure your transition to digital goes smoothly.
Schedule an appointment with one of our tax advisers if you are unsure about moving to MTD.