Making Tax Digital for income tax update – 27 May 2024

Last month we updated readers on developments in this space ahead of HMRC’s plan to widen the beta trial in 2024/25, commencing from 22 April. As set out in that update, HMRC has now expanded the beta trial and recently sent an email to agents providing information on how to sign qualifying clients up to the Making Tax Digital (“MTD”) for income tax trial. Further updates are set out below.  

Suspension of meetings 

The Institute is currently considering how best to support members in their preparations for this change and we will continue to attend HMRC forums on MTD. However, it should be noted that due to the pre-election period (known as purdah), HMRC has now suspended some forum meetings, including meetings on MTD. 

Technical consultation on new regulations 

HMRC has launched a technical consultation on proposed new regulations (“The Penalties for Failure to Pay Tax (Assessments) Regulations 2024”), which is running until 10 June 2024.  

These draft regulations relate to the reformed penalty system for late payment of tax, which is set out in Schedule 26 to the Finance Act 2021. Penalty reform began for VAT taxpayers from 1 January 2023, and from April 2024 for Income Tax Self-Assessment (“SA”) for those participating in the MTD for income tax beta trial. For all other Income Tax SA taxpayers, penalty reform will commence from April 2026 as MTD for income tax begins to be mandated 

Current legislation allows HMRC to assess a second late payment penalty within a two-year assessment time limit, at the point the outstanding tax is paid in full. However, HMRC is not able to assess this penalty if the tax remains unpaid. The proposed legislative change will allow the second payment penalty to be assessed towards the end of the time limit, in circumstances where the outstanding tax has not yet been paid in full. This will mean taxpayers will not be able to intentionally avoid a second late payment penalty by not paying their outstanding tax before the end of the two-year time limit.  

New MTD manual  

A new manual on how to use MTD for income tax has now been published. Since our last update, the number of available software packages, which already includes some of the big players, has been expanded from five to seven, with a range of other software packages in development.