In an early Christmas present, HMRC announces two year MTD ITSA mandation delay
ICAS welcomes the newly announced changes in the mandation timescales for Making Tax Digital for Income Tax Self Assessment (MTD ITSA)
After much speculation, it has now been officially confirmed that the rollout of MTD ITSA mandation will be delayed until at least April 2026. The news was confirmed in a written statement to Parliament by Victoria Atkins, Financial Secretary to the Treasury.
What has changed in the latest announcement?
Before today’s changes were announced, following the completion of the rollout of MTD for VAT in November 2022, the mandation of MTD ITSA was originally expected to take place from April 2024. ICAS considered the practical implications of this in a briefing titled ‘Tomorrow’s practice – the impact of basis period reform and MTD’.
Whilst there are no changes to the plans for basis period reform, which will go ahead as planned in the 2023/24 tax year, it has been announced that MTD ITSA will now be mandatory for businesses from April 2026. However, this will only apply to those businesses, self-employed individuals and landlords who have income above £50,000. Businesses with income over £30,000 will be mandated to comply with MTD ITSA from April 2027.
It was originally planned that MTD ITSA would apply to partnerships from April 2025. This will no longer happen, but the government intends to introduce MTD ITSA for partnerships at a later date.
Smaller businesses with income below £30,000 may find the move to MTD ITSA more challenging, so there will be a review of how MTD ITSA could best meet their needs before any mandation takes place.
Chris Campbell, Head of Tax (Tax Practice and Owner Managed Business Taxes) at ICAS said: “For many ICAS Members and their clients, this will be seen as an early Christmas present. For some time, ICAS has made representations to HMRC that the mandation of MTD ITSA needed to be delayed in order for any perceived lessons to be learned from the rollout of MTD for VAT (which was only completed last month), so the announcement is welcome news.”
"Our Members regularly give us feedback that they are concerned about the impact MTD ITSA will have on their clients. Neither businesses, nor HMRC, would appear to be fully ready so that they can be compliant from the original mandation date of April 2024. Whilst those businesses who wish to move to MTD ITSA before they are required to should be able to do so, the delay in mandation until April 2026 will enable businesses to adapt their processes.”
“ICAS has previously flagged concerns to HMRC about the extent of the MTD ITSA pilot, which had only been available for businesses with a 5 April year end. Delaying the mandation of MTD ITSA will enable HMRC to carry out further testing ahead of April 2026 and it should be possible for businesses to move to MTD ITSA ahead of the date when they will be required to do so by law.”
“It is also helpful that the government is carrying out a review on the impact of MTD ITSA on smaller businesses. Those are the businesses who are likely to find the requirement to maintain digital records and submit tax returns using MTD compliance software most challenging. ICAS has ongoing dialogue with HMRC on a range of issues and looks forward to engaging with HMRC and representing the views of our Members about the practical aspects of MTD ITSA for smaller businesses, as part of this review.”
Whilst the changes in the mandation to MTD ITSA are welcome, basis period reform will still affect those unincorporated businesses who do not have a 31 March or 5 April year end, as tax will move from a 'current year basis' (based on accounting year ends which land in a tax year) to a tax year basis. This will impact on tax payable in the 2023/24 tax year and, whilst it is possible to spread the effect of basis period reform over a period of up to five years, those businesses could see an increase in their tax bills at a time when the UK is facing a cost of living crisis. Unincorporated businesses in Scotland will also be affected by the changes announced in last week’s Scottish Budget.
Let us know your views
MTD is one of the most significant changes in the way that the tax system operates in the UK. We welcome Members’ input to inform our work on consultations or other tax-related matters – email email@example.com to share your insights and feedback. ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by Members.