MTD ITSA implementation and basis period reform delayed

Delays announced to the start date for Making Tax Digital and the introduction of basis period reforms for income tax self-assessment.

Delays announced to the start date for Making Tax Digital and the introduction of basis...

The Government announced on 23 September 2021 that the introduction of Making Tax Digital (MTD) for income tax self-assessment (ITSA) will be pushed back one year to the tax year beginning in April 2024 (later for partnerships). At the same time, it announced that controversial proposals for income tax basis period reform and earlier payment of tax, affecting individuals with trading income (including partnerships) will also be delayed and will now not come into effect before April 2024, with a transition year not coming into effect earlier than 2023. These are welcome announcements demonstrating that the Government has listened to the many concerns raised by stakeholders about the rapid pace of these changes.

The announcements were made by way of a Written Statement from the new Financial Secretary to the Treasury, Lucy Frazer.

MTD for ITSA was due to commence from April 2023 but the statement confirms that the Government “will now be introducing MTD for ITSA a year later, in the tax year beginning in April 2024”. The start date for unincorporated partnerships, also known as ‘General Partnerships’, has been pushed back by two years and they “will not be required to join MTD for ITSA until the tax year beginning in April 2025”. The date at which all other types of partnerships will be required to join has still not been determined.

Long awaited regulations setting out further details on how MTD ITSA will operate have also been published alongside further guidance from HMRC.

The Written Statement also discussed the Government’s recent proposals to make fundamental changes to the rules for taxing trading income which were covered in our earlier article in Tax Matters Digest. The proposals have triggered widespread concerns about the pace of change, particularly when combined with the introduction of MTD. The Government has now confirmed “these changes will not come into effect before April 2024, with a transition year not coming into effect earlier than 2023”. This means that for those with an accounting date falling other than 5 April (or 31 March), the transition year starts with the first accounting period ending after 5 April 2023 rather than the original proposal of 2022, which had already commenced for many businesses. The Government has also promised to respond to the consultation in due course providing the next steps.