Last month just days before Christmas the Government announced, via a Ministerial Statement by the Financial Secretary to the Treasury, that Making Tax Digital (“MTD”) for income tax is now being delayed two years and will commence instead from 6 April 2026 and not for all businesses and landlords with turnover of more than £10,000 from 6 April 2024. Mandation of MTD for income tax is also being phased in for smaller businesses and a review is being conducted of the impact on the smallest businesses. During various HMRC forum meetings in 2022, Chartered Accountants Ireland lobbied HMRC for an easement of this nature to allow businesses, landlords and HMRC more time to prepare for this significant change.
The phased mandation of MTD for income tax means that from 6 April 2026, self-employed individuals and landlords with an income of more than £50,000 will be required to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software. Those with an income of between £30,000 and £50,000 will need to do this from 6 April 2027.
The phased mandation and delayed start date will therefore allow taxpayers time to voluntarily join the MTD for income tax trial voluntarily beforehand once the most suitable software for their circumstances has been chosen. This should allow taxpayers to participate in the MTD for income tax trial for at least one full annual tax cycles before being mandated to do so.
The Government has also announced a review into the needs of smaller businesses, and particularly those under the £30,000 income threshold. According to HMRC, the review will consider “how MTD for income tax can be shaped to meet the needs of these smaller businesses and the best way for them to fulfil their Income Tax obligations. It will also inform the approach for any further roll out of MTD for ITSA after 6 April 2027”.
Once that review is complete, and in consultation with businesses, taxpayers, agents, and other stakeholders, the Government will lay out the plans for any further mandation of MTD for income tax. Chartered Accountants Ireland will be engaging with this review.
Mandation of MTD for income tax will not be extended to general partnerships in 2025 as previously announced. There is currently no information on if the Government intends to delay the introduction of MTD for corporation tax, which HMRC had previously stated would not be mandated before April 2026, though this is now likely to change.
Basis period reform, which means that unincorporated businesses and landlords will be assessed on the tax year basis instead of the current year basis, is still proceeding from 6 April 2024 with 2023/24 being the transitional year.
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