Making Tax Digital: businesses get an extra year to prepare

Businesses will now get an additional year to prepare for the Income Tax digital changes, as revealed by HM Revenue and Customs (HMRC).

Acknowledging the challenges faced by many UK businesses during the pandemic, the Government will now launch Making Tax Digital (MTD) for Income tax Self-Assessment (ITSA) in the tax year beginning April 2024, rather than 2023.

Lucy Frazer, Financial Secretary to the Treasury, said:

“The digital tax system we are building will be more efficient, make it easier for customers to get tax right, and bring wider benefits in increased productivity.

“But we recognise that, as 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.”

What do you need to know?

The self-employed and landlords with a business income over £10,000 per annum will now need to follow the MTD rules from 6 April 2024.

It will not be necessary for general partnerships to join MTD for ITSA until the tax year beginning in 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 scheme for those who are required for MTD for ITSA will now come into force in the tax year beginning April 2024, 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.

What will you need?

It’s vital that businesses use ‘functional compatible software’ to meet the new requirements, such as a software program or set of compatible software programs which 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.

Many of the existing cloud accounting platforms that we offer are able to fulfil these roles and have been designed with MTD in mind.

Will you be prepared?

MTD is the first step of HMRC’s shift towards an innovative, digital tax service, supporting businesses through their digitalisation 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.

For help and advice on related matters, contact our expert team today.

Subscribe
Sign-up to receive our news and updates by email

    I am happy to receive newsletters and promotional information from AGS Accountants.

    If you would like to see full details of our data practices please visit our Privacy Policy.