On the 23rd of September 2021, HM Revenue and Customs (HMRC) announced that the Making-Tax-Digital (MTD) scheme for income tax self-assessments (ITSA) will be introduced a year later than originally planned, with the roll out now scheduled for the tax year beginning in April 2024. The postponement is planned to provide additional time for preparation for both to the taxpayers and the HMRC, to ensure that service is properly in place before widescale implementation.
The scheme is aimed at businesses and landlords who have a business income of over GBP 10,000 per annum. Those who fit into this category will be required to join the MTD for ITSA in the tax year beginning in April 2024. General partnerships, however, will not have to join until the tax year beginning in April 2025. Eligible businesses and landlords will be able to gain the benefits of MTD even before the launch date of the scheme by signing up for the pilot, which is currently underway and is expected to expand in 2022-2023, and become available for larger-scale testing in 2023-2024.
A fairer system of penalties for late filing and late payment of tax for ITSA was also announced by the UK government in March and will come into effect in the tax year beginning April 2024 for those that are mandated to MTD for ITSA, and in the tax year beginning April 2025 for all other ITSA taxpayers.
Making-Tax-Digital is the first phase in building a UK tax system fit for the 21st century, a vision which was set out in the government’s Building a trusted, modern tax administration system publication. When first launched, MTD was initially for those with taxable turnover above the value-added tax (VAT) threshold (GBP 85,000 per annum) in April 2019. Since then over 1.5 million businesses have signed up, including a number of VAT-registered businesses that have joined voluntarily.
However, the changes and the original implementation date had also been criticised by many in regards to the potential and predicted impact on freelancers. The new rules will mean that around 4.3 million self-employed workers and small business owners will be required to report income quarterly and concerns were subsequently raised that the initial timescale gave freelancers insufficient time to prepare.
In August, the Institute of Chartered Accountants in England and Wales (ICAS) Association of Taxation Technicians, Chartered Institute of Taxation, and the Low Incomes Tax Reform Group co-signed a letter urging the Treasury to delay the implementation of MTD and the Association of Independent Professionals and the Self-Employed (IPSE) asserted the earnings threshold should be increased to exclude the smallest businesses from the rules.
Taking both these considerations and feedback as well as the challenges UK businesses are facing as a result of COVID-19 into account, The Treasury then acted to delay the changes by a year, in order to give those affected more time to prepare.
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