Update to Making Tax Digital – delayed until April 2024

In September, the government released a statement announcing that the digitisation of the UK’s tax compliance system – Making Tax Digital (MTD) – was being pushed back.

Stating they recognised the challenges faced by many UK businesses as the country emerges from the pandemic, together with feedback from various stakeholders, had led them to the decision to delay the introduction of MTD for income tax self-assessment (MTD ITSA) to April 2024. This is one year later than the original implementation date of April 2023.

MTD will mean major changes for some taxpayers in how they keep their accounting records and file their annual returns. It is therefore a good time for affected parties to take stock of their current position, and to establish what preparations they will need to make to be ready for the upcoming changes.

What is MTD?

The government’s Making Tax Digital program is intended to move the UK towards a fully digital tax system, which is planned to allow taxpayers to easily keep digital records and report their tax liabilities and payments in real time.

Why is it being introduced?

It is the government’s intention that this will both reduce taxpayer errors and increase the information available to HM Revenue & Customs (HMRC).

How will it affect me?

From April 2024, individuals with business and rental income totaling over £10,000 per annum will need to keep digital records and submit quarterly returns to HMRC, as well as complete a year-end reconciliation and update process which broadly equates to the current self-assessment tax return filing. This will include many sole traders and landlords, and general partnerships will be required to comply one year later from April 2025.

Taxpayers will be able to keep their underlying records, such as invoices and receipts, in paper format if this best suits them. The MTD ITSA legislation makes it clear however that there will need to be an accompanying digital record for each transaction, with amounts allocated to the relevant income or expense category (broadly aligned to the current categories on the self-assessment tax return). It is the totals from these categories (not the transactional data) which will need to be reported on a quarterly basis. Taxpayers will have one month from the end of each quarter to submit their quarterly update. All individuals affected by MTD ITSA will come within the regime from 6 April 2024 and the report for their first quarter will be due by 5 August 2024.

Following the year-end, the taxpayer will have to submit an end of period statement that will incorporate relevant accounting and tax adjustments, finalising their tax position for the year. They will have until the normal self-assessment deadline of 31 January following the tax year to submit this statement, along with any other income and expenses that would currently be included in their self-assessment tax return.

How can I prepare now?

A move to paperless record keeping and transitioning to MTD compatible software would be a significant step towards ensuring you are prepared for the changes ahead.

For many taxpayers, there are potential benefits in getting systems in place which support quarterly reporting. For example, moving to a cloud accounting system could give you the necessary digital records for tax purposes, and make it easy to transfer information to ourselves or HMRC digitally when the new rules come in. Such systems are available at a low monthly cost (in the region of £20 per month) which offers very good value for money when time saved is taken into account.

Our clients who qualify for MTD from April 2024 can sign up to trial the system now in preparation, if you are interested in doing this please get in touch.

How we can help

We can advise you on selecting an appropriate accounting package and using it to maximise the benefits, as well as preparing more generally for the MTD changes.

The MHA Tait Walker Client Centre Account is the perfect tool to familiarise yourself with digital taxation and get ahead of the curve in advance of MTD going live.

Contact us

For further information, please contact us at advice@taitwalker.co.uk.