HMRC extends digitalisation of income tax by a year

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The HM Revenue and Customs (HMRC) has extended the introduction of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) a year later than planned, taking into account the challenges faced by businesses during the pandemic.

Businesses will have an extra year to prepare for the digitalisation of income tax as all ITSA customers with a taxable turnover of £10,000 or more per year from their business or income from property, will now be required to join MTD from April 2024.

“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,” Lucy Frazer, Financial Secretary to the Treasury, 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.”

General partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025, while the date other types of partnerships will be required to join will be confirmed in the future.

In March 2020, the government announced a new system of penalties for the late filing and late payment of tax for ITSA. The new penalty system for those who are mandated for MTD for ITSA will now come into effect in the tax year beginning in April 2024, and in the tax year beginning in April 2025 for all other ITSA taxpayers.

HMRC added that eligible businesses and landlords may sign up to the MTD pilot, which is already underway and will be gradually expanded during 2022-23 ready for larger scale testing in 2023-24.

Since its launch in April 2019 for those with taxable turnover above the VAT threshold (£85,000 per annum), over 1.5 million businesses have signed up for MTD.

VAT-registered businesses with taxable turnover below the threshold need to have joined MTD for their first tax return from April 2022. HMRC said over 30 per cent of these customers have already signed up voluntarily.