Taxpayers have been given more time to prepare for Making Tax Digital for Income Tax.

The Government has announced the digital tax system will now be introduced in April 2024 – a year later than planned.

What is Making Tax Digital for Income Tax?

Making Tax Digital (MTD) is the first phase of HMRC’s move towards a modern, digital tax service.

You’ll need to use MTD for Income Tax Self-Assessment (ITSA) if you’re a self-employed business owner or landlord with a business income of over £10,000 per year in the tax year starting in April 2024.

General partnerships won’t be required to join MTD for ITSA until the tax year beginning in April 2025. And there’s no date yet for when other types of partnerships will have to use the digital system.

Eligible businesses and landlords will get the opportunity to use MTD early by signing up to the pilot, which is already underway. The pilot will be gradually expanded in the 2022-23 tax year, ready for larger scale testing in the 2023-24 tax year.

What do you need to do?

If you’re a business owner or landlord who falls under the scope of the scheme, you’ll need to keep digital records and use MTD-compatible software to update HMRC quarterly.

At the end of the tax year, you’ll need to finalise your business income. For each income source, you’ll submit an end-of-period statement. You’ll also need to file a final declaration, which replaces your self-assessment tax return.

And remember, Making Tax Digital doesn’t change the date when you must pay your tax.

What about penalties?

In March 2021, the Government announced a new system of penalties for the late filing and late payment of tax for Income Tax Self-Assessment.

If you’re required to use MTD for ITSA, the penalties will now come into effect in the tax year beginning in April 2024. For all other ITSA taxpayers, the penalties will be introduced in the tax year starting in April 2025.

Why has MTD for ITSA been delayed?

The Government said the system was being postponed because of Covid-19.

Lucy Frazer, Financial Secretary to the Treasury, said: “The digital tax system we are building will be more efficient, make it easier for customers to get tax right, and bring wider benefits in increased productivity.

“But we recognise that, as we emerge from the pandemic, it’s critical that everyone has enough time to prepare for the change, which is why we’re giving people an extra year to do so.

“We remain firmly committed to Making Tax Digital and building a tax system fit for the 21st century.”

Our advice

It’s good news for taxpayers that HMRC has listened to concerns and moved the goalposts for MTD for Income Tax.

But if you’re a business owner or landlord affected by the forthcoming changes, it’s important you take the opportunity to make sure you’re ready for digitalisation.

This delay gives you the chance to get your digital platforms up and running and ensure you’re confident in using them before the new system is compulsory.

No-nonsense tax advice

At Churchill Taxation, we’re trained to understand complex tax matters, so we can help you make sense of Making Tax Digital and other areas of UK taxation.

To find out more, get in touch with our team of tax consultants today by calling 07813 434195 or emailing: stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation