Relief greeted the delay to Making Tax Digital for Income Tax and Self Assessment (MTD ITSA), but also concern about delaying preparations.
The Government has announced a one-year extension to the start date for MTD for Income Tax Self-Assessment (MTD ITSA) from April 2023 to April 2024 to allow businesses more time to recover from the pandemic.
The move is the second time the Government has soft-peddled on MTD because of Covid-19 and follows lobbying from stakeholders. HMRC will also benefit from more time to carry out testing. Its statement reads:
“A later start for MTD for ITSA gives those required to join more time to prepare and for HMRC to deliver a robust service, with additional time for customer testing in the pilot.
Lucy Frazer, Financial Secretary to the Treasury, commented:
“[A]s 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.
The revised timetable has been written into legislation and imposes the following commitments:
- Individuals with self-employment income or property income will need to comply with MTD ITSA for the year beginning 6 April 2024.
- General partnerships will need to comply from 5 April 2025.
MTD ITSA will be introduced for 4.2m taxpayers with business or property income over £10,000 a year. That includes business owners, sole traders, landlords and partnerships.
Like MTD for VAT, businesses must keep digital records and use third-party software to submit their income tax returns to HMRC. Under the changes, people required to file under MTD ITSA will need to send a quarterly summary of income and expenses, plus an end of year report, using MTD compatible software.
Accountants shared their responses to this announcement as the news came out.
A relief – but we should press ahead with preparations
Clare Bowen, Director for MHA Monahans
The delay to the Making Tax Digital (MTD) rules came as both a surprise and a relief for many small business owners up and down the country. After 18 months of uncertainty, this extra breathing space to master MTD policies was welcomed with open arms. And as an accountancy firm, we can only agree that the extension of the deadline is brilliant – but it doesn’t mean that anything should be done slower.
In recent research undertaken by MHA Monahans, we found that one in three business leaders predict a decline in revenues over the next 12 months. And with the furlough scheme due to finish imminently, 17% of businesses say that they are likely to implement hiring freezes. This is where MTD can really come into its own.
By digitising accounts, as well as filing every quarter, no longer will small businesses need to worry about high levels of uncertainty. What the digitisation of accounting records required for MTD will do is give business owners a much better understanding of their own business. There will be no more unhappy surprises in the forms of large tax bills after filing at the 11th hour, cash flow will be managed in a much more streamlined way and decisions can be made in a more informed manner, avoiding knee-jerk reactions.
Next step: The extension of the deadline removes the sense of worry from many business owners’ minds. There is now more time for them to work with their accountancy firms to implement MTD tools and technologies and reap the benefits. Any hiccups along the way can be ironed out efficiently long before the new rules are even implemented, getting SMEs off to the best start possible.
Verdict: The delay is welcome, and the digitisation of accounting records will benefit struggling businesses.
A good move by the new Financial Secretary to the Treasury
Phil Hall, AAT Head of Public Affairs & Public Policy
This was a welcome move by the new Financial Secretary to the Treasury, just a few days after being given responsibility for HMRC.
The 12-month delay for businesses and landlords -24 months for general partnerships – not only offers some much-needed breathing space to 4 million-plus people and their accountants; it provides HMRC with a chance to make improvements, to ensure the software has been fully tested and is more widely available and most importantly, to preserve the integrity of the tax system.
It’s imperative this extra time isn’t wasted. HMRC need to raise awareness and understanding of new MTD requirements to landlords and businesses, but they are not alone, professional bodies including AAT, must use the time to further help, inform and guide the agent community too.
Next Step: HMRC and professional bodies must use the extra time to help agents and businesses better prepare.
Verdict: A good move from the new Financial Secretary to the Treasury.
It’s a missed opportunity, but for many it will be a relief
Oumesh Sauba, Director, Sauba and Daughters Co
I have mixed feelings about the delay. I can understand the reasons why HMRC and the Government felt they had to delay it, but I do think it’s a missed opportunity. After Covid-19, most businesses have moved online and this is a great chance for all business’s tax affairs to be moved online too. However, it’s welcome news in that it will give accountants and businesses more time to prepare, which is beneficial for everyone involved.
Next step: We are continuing to prepare clients to move online and supporting them through this process so that they are ready for when MTD is introduced.
Verdict: While it seems a shame to delay the progress made digitalising businesses, the additional preparation time is welcome.
While it’s welcome, we shouldn’t be complacent
Lee Murphy, Managing Director at The Accountancy Partnership
The news that the compulsory date of MTD for Income Tax Self Assessment has been pushed back might be welcome news to many. That said, it’s essential that accountants and bookkeepers use this time to help clients prepare for the transition, and that those affected put MTD processes in place.
Next Step: MTD goes beyond compliance, and there are lots of advantages to embracing digital bookkeeping sooner, rather than later, including greater efficiency, and improved collaboration between accountants and their clients.
Verdict: We can’t ignore MTD ITSA even if it is delayed.
Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.