Making Tax Digital for income tax is delayed

Making Tax Digital (MTD) for income tax has been delayed for a year
Malachy McLernon

QUESTION: I run a small business in my local town and I keep financial books and records on spreadsheets. I provided these spreadsheets to my accountant every quarter for him to submit my VAT returns. I am reading that I will have to keep digital records for my business and submit them quarterly to HMRC. Is this correct?

ANSWER: Making Tax Digital (MTD) for VAT was first introduced back in April 2019 and resulted in many businesses having to keep digital records and using accounting software to complete their VAT returns.

Currently most VAT registered businesses with turnover exceeding £85,000 are complying with the MTD legislation and this is due to be extended to all other VAT registered businesses from April 2022.

MTD for income tax was expected to be introduced from April 2023, but the government announced last month that this has now been delayed 12 months until April 2024 for self- employed businesses and landlords, with a further 12 month delay for partnerships until April 2025. MTD for income tax will apply to businesses with annual income above £10,000.

MTD for income tax is similar to MTD for VAT in that businesses will need to keep digital records and use accounting software to send information to HMRC on a quarterly basis, the main difference being that MTD for income tax will be sending details of income and expenditure each quarter, not just submitting VAT return figures which is the case in MTD for VAT.

"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. We remain firmly committed to Making Tax Digital and building a tax system fit for the 21st century” said new financial secretary Lucy Frazer.

The announced postponement is the latest in a series of delays and deferrals in the MTD programme, which was proposed by Chancellor George Osborne in late 2015.

The MTD start date for small businesses was first planned to be in April 2018, then the focus switched to MTD for VAT. The MTD for income tax programme was to be delayed until lessons had been learnt from the VAT roll-out.

The turnover for mandation into the MTD income tax regime remains at only £10,000 per year, much to disappointment of many who were lobbying for a much higher entry threshold.

As the turnover threshold must take into account the taxpayer's income from all of their sole-trader businesses, plus their rental income, HMRC needs to pull together several figures from the taxpayer's self-assessment tax returns. Only when the tax return totals reach the £10,000 threshold will HMRC issue a notice to file under the MTD regulations.

If MTD Income Tax was mandated from April 2023, the turnover test would need to apply to the figures reported in the 2021/22 tax return, submitted by January 31 2023, and possibly turnover reported in the 2021/22. Both of those years were affected by the pandemic which reduced turnover and rental income for many businesses and landlords.

Local authority grants for businesses liable for business rates would also increase business turnover for those periods. The SEISS grants should not have been included in business turnover, but some taxpayers have reported them as such, leading to HMRC having to make many corrections taxpayers' self-assessments for 2020/21, and possibly also for 2021/22.

As MTD income tax will now start in April 2024 the base year for testing the MTD turnover threshold will be the tax year 2022/23. The turnover figures for that year should not be distorted by Covid-related grants, and hopefully will reflect normal trading beyond the pandemic for most businesses.

This recent delay is a very welcome announcement for businesses to give them more time to prepare for the latest instalment of MTD.

:: Malachy McLernon (m. is a director of PKF-FPM (www.pkffpm. com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

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