Minister says that, in light of the pandemic, department wishes to given businesses extra time to prepare

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HM Revenue and Customs is to delay by one year the expansion of its Making Tax Digital programme to cover income tax payments.

Self-employed people, small businesses and landlords that are registered for income tax self-assessment (ITSA) and generate business or property income in excess of £10,000 a year had previously been set a deadline of April 2023 to sign up for MTD. This has now been pushed back by 12 months, to 6 April 2024.

General partnerships that pay income tax will have until April 2025 to adopt the online platform, with more complex partnership models to follow at some – as-yet-unspecified – point thereafter.

Announcing the postponement, financial secretary to the Treasury Lucy Frazer said that the government wanted to ensure taxpayers had sufficient time to get ready for the digital system – particularly given the additional challenges created by the coronavirus crisis.

“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,” she said. “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. We remain firmly committed to Making Tax Digital and building a tax system fit for the 21st century.”

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Switching to MTD will require users to adopt a compatible software tool. There are currently seven products that are certified as compatible for income tax – three of which offer a free version. Two of the seven are designed purely for use by businesses or individuals themselves, while one is specifically for professional tax agents working on behalf of clients. The other four can be used by either businesses or their appointed agents. A further five companies are in the process of developing programs.

The number of options is likely to increase significantly between now and 2024, and into the future beyond that; well over 500 software tools are certified as compatible for the Making Tax Digital for VAT programme.

Although the deadline is now more than two and a half years away, HMRC is encouraging businesses and individuals to sign up voluntarily for the MTD for income tax programme at their earliest convenience. 

A pilot scheme is already underway and inviting participants to register. According to the department, these trials “will be gradually expanded during the 2022 to 2023 tax year, ready for larger-scale testing in the 2023 to 2024 tax year”.

“Collaboration with tax professionals and customers has been key in the development of MTD and HMRC has worked closely with partners in the business and tax communities on the proposed design and scope of MTD for ITSA,” the tax agency said. “HMRC will continue to work in close partnership with business and accountancy representative bodies and software developers to ensure taxpayers are well supported as they adopt MTD for ITSA.”

Newly published regulations are intended to provide taxpayers with all the applicable legal guidance and technical detail concerning the digitisation of income tax.

Exemptions from the mandated use of the online system may be given to those for whom it is “not reasonable or practical… to use computers or the internet due to age, disability, location” or any other valid reason, or for those who “object to using computers on religious grounds”.

HMRC indicated that it will provide details of how to apply for such exemptions in due course and that, once it launches, the process will include a right of appeal.

Although the digitisation of income tax payments has been postponed, the expansion of the existing Making Tax Digital for VAT programme will go ahead as planned in just over six months’ time. 

Since April 2019, businesses with annual turnover in excess of the £85,000 threshold have been required to file their quarterly VAT returns via the digital platform. 

From April 2022, all VAT-registered businesses – regardless of size – will be required to complete the switch to MTD.

The government indicated that “over 30%” of sub-£85,000-revenue firms have already done so.