Exactly two years since the first lockdown was announced, the eyes of the public were…
Unincorporated businesses have heaved a sigh of relief after the Government delayed the date for the implementation of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) by one year to 2024.
Hit hard by the pandemic, it will give these businesses, including the self-employed and landlords, an extra 12 months breathing space to prepare for the changes.
What are the changes?
The self-employed and landlords with a gross income from their business or property of more than £10,000 per annum will need to follow the MTD for ITSA rules from 6 April 2024.
It will not be necessary for general partnerships to join MTD for ITSA until the tax year beginning 6 April 2025, while the date other types of partnerships will be required to join is yet to be confirmed.
The Government introduced a more favourable system of penalties for the late filing and late payment of tax for ITSA in March 2021.
This penalty scheme is for those who are required to comply with MTD for ITSA and will now also come into force in the tax year beginning April 2024 for the self-employed and landlords, and April 2025 for all other ITSA taxpayers.
There will be the chance to explore the benefits and challenges of MTD early if you are an eligible business or landlord, via the Government’s pilot scheme.
This is already underway and will be increasingly expanded during the 2022/23 tax year, preparing for a greater scale of testing in the 2023/24 tax year.
How can you prepare for these changes?
It’s vital that businesses use the correct software to meet the new requirements, such as HMRC approved cloud accounting software or a set of compatible software programs that can connect to HMRC systems via its Application Programming Interface (API).
The software must be able to:
- Keep records in a digital form
- Preserve digital records in a digital form
- Create a VAT or tax return from the digital records held in functional compatible software and provide HMRC with this information digitally
- Provide HMRC with VAT and tax data on a voluntary basis
- Receive information from HMRC via the API platform that the business has complied.
Will you be ready?
MTD is the first step in HMRC’s shift towards an innovative, digital tax service, supporting businesses through their journey in the ever-evolving modern world.
Although the initiative has been postponed by a year, taxpayers must be fully prepared, as they could face fines or penalties if they do not abide by these changes.
It is important that they implement suitable software, such as an HMRC-approved cloud accounting solution, and migrate their information across to the new systems in advance of the new deadline.
This may require additional training and changes to existing accounting processes and procedures.