Posted: Thu 23rd Sep 2021
HM Revenue & Customs (HMRC) has delayed the introduction of new income tax rules which require businesses to keep digital records and use software to submit quarterly updates to the government.
The changes to income tax self assessment (ITSA) were originally due to come into force in April 2023 but Lucy Frazer, financial secretary to the Treasury, today said due to the disruption caused by the pandemic, businesses and landlords with an income of over £10,000 will now be mandated to comply from April 2024. The rules will apply to general partnerships from April 2025.
The new requirements are part of the Making Tax Digital (MTD) strategy which aims to see the end of the traditional annual tax return and transform the tax system. The government says the changes increase business productivity, reduce mistakes and cut costs. Figures show that tax return mistakes cost the exchequer £8.5bn in 2018-19.
"During the pandemic, UK businesses increasingly turned to digital tools to communicate remotely and work collaboratively", Frazer said in a written statement. "Businesses adapted rapidly to the challenges posed by the pandemic, using digital solutions to maintain resilience and reduce disruption.
"Over the past year, HMRC has worked closely with partners in the business and tax communities on the proposed design and scope of MTD for income tax.
"The government recognises the challenges faced by many UK businesses and their representatives as the country emerges from the pandemic over the last year. In recognition of this and of stakeholder feedback, we will now be introducing MTD for ITSA a year later, in the tax year beginning in April 2024.
"A later start for MTD for ITSA provides more time for those required to join to make the necessary preparations and for HMRC to deliver the most robust service possible, affording additional time for testing in the pilot."
The announcement of the delay came as the government laid out the regulations for how MTD for ITSA will work. A policy paper, also released today, says that the requirements will impact on an estimated 4.2m unincorporated businesses, individuals and civil society organisations with trading and/or property income over £10,000.
It includes around 2.6m self-employed individuals, around 1m landlords, over 250,000 ordinary partnerships and about 380,000 businesses with income from different sources.
Since 2019, businesses with taxable income above the VAT threshold of £85,000 a year have been required to comply with MTD for VAT. Over 1.5m businesses have signed up. VAT-registered businesses with taxable turnover below the threshold need to join MTD for their first tax return from April 2022.
Government guidance on Making Tax Digital for Income Tax Self Assessment
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