Although Making Tax Digital (MTD) has become a legal requirement for VAT reporting, there’s still uncertainty over how it will look in the future. MTD for income tax self-assessment (MTD for ITSA), was expected to roll out in April next year, but after substantial pushback from taxpayers, plans have changed.
This has caused much confusion, especially for those who expect to start reporting their self-assessment through MTD this year. If you’re unsure what’s going on with MTD, this article will bring you up to speed.
What is MTD for ITSA?
Much like VAT, MTD for ITSA will involve sole traders and others who submit annual self-assessment tax returns to do so through MTD-compatible software.
All of the necessary paperwork, submissions and payments will be made through pre-approved software. The Government hopes that streamlining the process will make it easier for taxpayers to keep up with their obligations.
The aim of MTD for ITSA is to remove the regular self-assessment reporting schedule in favour of quarterly submissions, an end-of-period statement, and a final declaration.
Those waiting for MTD for ITSA will have to wait patiently.
Initially set to launch in April 2024, MTD for ITSA will now come into effect in April 2026 for businesses, self-employed workers and landlords with an income of £50,000 and over and in April 2027 for anyone earning £30,000 a year.
Due to the new phased approach taken by the Government, MTD for ITSA will not extend to general partnerships as anticipated in 2025 but will roll out later.
Currently, it’s still possible to voluntarily sign up for the MTD for ITSA pilot scheme. The Government is inviting eligible taxpayers to apply to help test the scheme before its official launch in 2026. To check to see if you’re eligible, visit the Government website.
Why was it delayed?
The delay came as good news to several industry professionals, such as the Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT), who both agreed that the pushback “recognises reality”.
From joint research in 2022, the CIOT and ATT found that 97% of the survey participants believed the scheme wouldn’t be ready in 2024.
The other top three concerns raised by taxpayers were:
- lack of awareness surrounding the rollout – 97%
- concern over the ability to comply – 94%
- cost burden on clients – 92%.
Only 3% of the people asked said they believed HMRC had the capacity and resources to support taxpayers and agents through the switchover.
In addition, 65% of tax advisers expressed concern over the availability of suitable software to report property and business income and expenses.
What can I do to get ready?
Given that you now have more time to prepare for the next phase of MTD, we recommend getting a head start, so you’re prepared and compliant every step of the way.
Since the introduction of MTD for VAT, we’ve been working closely with businesses to help them understand the newer ways of working.
Using our experience, we’ll be on hand to guide you through the upcoming changes. If you would like to discuss Making Tax Digital, contact us today.