What the MTD for ITSA delays mean for accountants

There’s now more time for small businesses to prepare, but some accountants fear their efforts to improve software have been wasted.

The Government has announced a minimum two-year delay to Making Tax Digital for income tax (MTD ITSA) and mandation will now take effect from April 2026 at the earliest for certain groups.

The previous April 2024 date ­- ­which had already been postponed due to the pandemic – would have required self-employed individuals and landlords with income of over £10,000 a year to report quarterly earnings. But under latest postponement announcements, a phased approach will now take place.

The latest timelines for MTD for ITSA involve:

• April 2026: Businesses and self-employed individuals earning over £50,000 will be mandated to join.
• April 2027: Businesses and self-employed individuals earning over £30,000 will be mandated to join.
• For businesses and individuals earning less than £30,000 a year, there are no further dates set for joining. Instead, the government will carry out a comprehensive review on MTD and its impact on small businesses.

The delay is likely to come as a welcome relief to accountants and businesses, many of whom have been working towards MTD transition and testing software. But it may also be a source of frustration due to time and resources spent on preparing for MTD only for it to be postponed. We spoke to accountants across the UK about the impact further extensions are likely to have.

The delay raises more questions than it answers

Clare Bowen, Director, Monahans

Whilst the premise behind the delay is clear, it provokes more questions than answers:

With those turning over more than £50,000 coming under the rule in 2026, what happens if someone turns over £45,000 in 2025 and is then likely to reach £60,000 the next year?

And why delay those with a taxable turnover above £85,000 who have already been following MTD for their VAT returns? These people are already on the system, ready to go.

That said, this delay has brought a clear sense of relief that the original strategy of bringing everyone under the same rule simultaneously has been abandoned. Grouping accidental sole traders in with intentional and professional ones was impractical.

Then there’s the issue around basis periods: sole traders choose their year-ends, but MTD requires reporting at the end of March/beginning of April. There isn’t any logic in having a year-end in one period and then reporting on it in another. It will generate scenarios where companies are paying tax on 18, 19, 20 months’ worth of income rather than 12, and situations where businesses are reporting on data that hasn’t even happened yet.

There are however, indisputable frustrations about the thousands already spent on the creation of plans for clients and segmentation efforts based on the information and criteria they had. Now that HMRC has moved the goal posts, this work will need to be redone.

Next steps: The government should utilise this breathing space to speak to accountants, businesses and experts who live and breathe this topic. HMRC need to be talking to people on the ground to identify issues and solve problems.

Verdict: Grouping everyone under the same rule was impractical so there’s relief the original strategy has been abandoned. HMRC need to take this time to speak to experts and address issues.

Some businesses may deprioritise MTD for ITSA

Hayley Benn, Senior Healthcare manager and member of national making tax digital (MTD) team, MHA MacIntyre Hudson

Businesses and accountants have invested time and money into transitioning to MTD so while some may see the extension as a relief, others will feel frustration.

We have been working hard to prepare and support our clients for the 2024 deadline, with some already starting the process of signing up to digital software.

Software companies meanwhile, will see the delay as a waste of precious resources. Teams have been established to deal solely with the project and given there will inevitably be changes to the way MTD will be run come 2026, much of the work already complete will have to be redone. Companies have invested a lot into assisting individuals with new software and in training. Some may have worked business models around MTD, which may now need to be reworked.

On a positive note, the change of threshold is welcomed, as it does mean that smaller landlords are less likely to sell up to avoid the administrative burden, leading to more rental properties being available to let.

Next steps: The delay may cause many businesses to deprioritise and potentially forget about the MTD transition. The Government needs to be more vocal about MTD and provide more support to accountants and businesses to create certainty over the changes. Trust has been broken on various levels and it is going to take time to rebuild it.

Verdict: The delay may result in some businesses deprioritising or forgetting about MTD for ITSA. HMRC needs to use the time well to provide more support and certainty to accountants and businesses.

Make use of the extra time to properly prepare for the MTD for ITSA transition

Claire Lea, Director and Head of Advisory Tax, Prime Accountants

The delay benefits self-employed individuals and small landlords, providing them with extra time to focus on their businesses through this turbulent period.

However, it’s a source of frustration for software companies that have put in a lot of effort to ensure their systems are ready for MTD. They need certainty from HMRC and improved communication so they can better utilise their resources.

Accountants and individuals still need to prepare to ensure a smooth transition for when MTD for ITSA finally arrives and need to work together to ensure record keeping and processes are digitised. This is especially important for those that currently handle manual records.

Next steps: The Government should ramp up campaigns to increase awareness and advise how businesses can prepare for a smooth transition. It could also provide IT training for those who use manual records or need assistance with digital records.

Verdict: Delay will be a relief to some but MTD for ITSA preparation is still needed to ensure smooth transition. The Government should reach out to those that need assistance with the transition.

HMRC’s changes will be frustrating and potentially costly

Lee Murphy, Managing Director, The Accountancy Partnership

Many businesses and their finance departments have put processes and software in place to make the switch to digital seamless. Significant time and money has been invested preparing for these changes. Delays to the official introduction could mean that new tech and accounting processes need to be drastically changed or scrapped altogether, so many will feel let down by the Government moving the goalposts again.

Next steps: Entrepreneurs should still make the move to digital bookkeeping in good time to make sure they’re familiar with new systems before the change is imposed on them. Digital accounting can be more accurate and save time, freeing you up to run a successful business. Our own research has shown that almost two-thirds (63%) of SMEs are already storing their financial records and expenses digitally, which is positive to see.

Verdict: There will be frustration that HMRC have moved the goalposts again but businesses should still make the move to digital bookkeeping in plenty of time, and can benefit from doing so.

The delay undermines work and time that has already been invested, but it’s important not to become complacent

Joanne Thorne, Technical Compliance Manager, SJD Accountancy

Many now have extra time to prepare and better understand the changes MTD will bring. However, the delay also somewhat undermines the work and time that has already been invested.

Accountants are already challenged with accurate forecasting. Recent government U-turns, numerous fiscal statements and now the delay and changes to MTD criteria will make it harder for businesses to trust that the Government will not push this delay back further – or make further changes.

Many software companies will be disappointed by this news as they have likely been forecasting bigger uptake on MTD-compatible software. The change could also mean that software will need to be updated by 2026. Anyone who has already purchased new software may be considering cancelling or reducing their fees, which will again be disappointing for software developers.

However, the delay to MTD does not mean that people cannot start to voluntarily implement digital software, which may help avoid unnecessary panic and anxieties when MTD becomes mandatory.

Next steps: Accountants and their clients should not become complacent. Despite the postponement, it’s advisable to make use of this extra time now so that everyone can acclimatise to how the changes may impact them before the change becomes mandatory.

Verdict: The delay undermines work and time that has already been invested, but it’s important to use the additional time to get used to the digital system.

The delay will allow more time for software developers and HMRC to test their systems and address any bugs

Chris Whyles, Associate Director of Saul Fairholm

The general consensus amongst our clients is that the delay is very welcome. Businesses do not feel that MTD ITSA is of any benefit to them: it represents further costs and an increased administrative burden.

The delay provides us with additional time to educate our affected client base, not only about the ramifications of the legislation but also about how this might impact their future accountancy fees.

And for software providers, a prolonged window for testing and addressing any algorithmic bugs is a good thing.

Next steps: HMRC should utilise the extra time to test their systems and API interface, relentlessly. To test it, to test it again and to test it some more. Businesses and professional advisory firms need regular and clear updates from HMRC and should have access to a myriad of help articles and webinars to assist in the transition.

Verdict: The delay will allow more time for software developers and HMRC to test and retest their systems and address any bugs. HMRC must take the extra time to build up support and resources.

We’ve been excited by MTD for ITSA and understand that delay is necessary

James Poyser, CEO of Provestor and innAccounts

We’ve been excited about MTD. Yet the very reasons why we got excited are perhaps the very reasons why it’s been postponed. For clients and accountants to get the benefits of MTD, change was needed. We were geared up to restructure our teams and processes, to introduce automation to drive efficiencies and lower fees, driven by MTD.

We were exceptionally interested in appealing to the one-third of those in scope for MTD who don’t have an accountant today – we wanted to win them over with our low-cost MTD service, and start to have advisory conversations with them.

If we didn’t make these changes then MTD would simply feel like ‘more work to be done’ by accountants. And, in the end, this perhaps was one of the contributing reasons to the postponement and increase in thresholds.

There are great benefits to MTD, that are worth the wait. The capabilities of the MTD APIs that HMRC has created are brilliant and presented a real opportunity to smooth out the ‘lumpy’ nature filing self-assessment (no more January busy season), offer live tax forecasts to clients throughout the year, and get reliefs and allowances claimed and out of the way the moment they arise. A delay allows more time for us to fine tune.

Although far fewer landlords will now be in scope for MTD due to the increased thresholds, for those who are, time is on their side to understand the implications and find the right digital accounting partner.

Verdict: It’s been an exciting journey but delays are necessary to restructure, introduce automation and fine tune.

Annie Makoff is a freelance journalist and editor.