The Government has set out an ambition to become one of the most digitally advanced tax authorities in the world.
Making Tax Digital (MTD) is the first phase of our move towards a modern, digital tax service fit for the 21st century. It supports businesses through their digitalisation journey and provides a digital service that many have come to expect in their everyday lives. MTD helps businesses reduce common errors in their tax affairs and allows for better customer interaction and guidance through digital prompts and nudges.
Since the introduction of MTD for VAT in 2019, over 1.5m businesses have joined and many are already experiencing benefits. MTD users are reporting that preparing and submitting returns is easier, and that MTD has increased their confidence in managing tax affairs and using technology. MTD also puts businesses on a path to further digitalisation: integrating tax management with a range of business processes can contribute to productivity gains.
During the pandemic, UK businesses increasingly turned to digital tools to communicate remotely and work collaboratively. Businesses adapted rapidly to the challenges posed by the pandemic, using digital solutions to maintain resilience and reduce disruption.
Over the past year, HMRC have worked closely with partners in the business and tax communities on the proposed design and scope of MTD for Income Tax (ITSA).
Today the Government has laid Regulations in Parliament to help those impacted by the changes to prepare, and for their representatives to develop their own support and guidance.
The Government recognises the challenges faced by many UK businesses and their representatives as the country emerges from the pandemic over the last year. In recognition of this and of stakeholder feedback, we will now be introducing MTD for ITSA a year later, in the tax year beginning in April 2024.
General partnerships 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 will be confirmed later.
In March 2021, the Government announced a new system of penalties for the late filing and late payment of tax for ITSA. This will now be introduced for those who are mandated for MTD for ITSA in the tax year beginning in April 2024, and for all other ITSA customers in the tax year beginning in April 2025.
Alongside the Regulations, HMRC have also today published a Tax Information and Impact Note (TIIN) setting out the projected benefit and cost impacts of MTD for ITSA, as well as a Policy Paper to help different businesses understand what their transition to MTD could look like in more detail.
A later start for MTD for ITSA provides more time for those required to join to make the necessary preparations and for HMRC to deliver the most robust service possible, affording additional time for testing in the pilot.
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.
The Government has also recently consulted on a reform of the complex basis period rules that govern how self-employed profits are allocated to tax years. Many respondents said that the reform was a sensible simplification but asked for more time to implement the changes. In recognition of these concerns, these changes will not come into effect before April 2024, with a transition year not coming into effect earlier than 2023. The Government will respond to the consultation in due course providing the next steps.