Update on Making Tax Digital for income tax

Jan 25, 2021

HMRC sent the below update on Making Tax Digital (“MTD”) for income tax which is targeted to commence from April 2023.

“We want to provide you with an update on the roll out of MTD for ITSA customers and expect that the legislation underpinning the roll out of MTD for ITSA customers will be laid in Parliament in early 2021.   

The legislation will confirm, amongst other things, the scope of MTD for ITSA, including that all ITSA customers with a taxable turnover of £10,000 or more per year from their business or income from property, will be required to join MTD from April 2023, with the following exceptions: 

  • Trusts, estates, trustees of registered pension schemes and non-resident companies will not be required to join MTD for ITSA. 
  • Partnerships that earn £10,000 or more and that have only individuals as partners are required to join MTD for ITSA from April 2023 but all other partnerships (e.g., those that have corporate partners and Limited Liability Partnerships) are not required to join MTD for ITSA in April 2023 but will be required to join MTD at a future date, to be confirmed.

These customers are exempt due to the complexity of delivery requirements, and as their nature and current obligations differ notably from those of sole traders, partnerships with individuals only as partners, and individual landlords. 

We remain committed to maintaining an open dialogue and a collaborative working relationship on the rollout of MTD. Therefore, we are sharing a draft of the ITSA legislation in the ITSA Service Guide ahead of a final version being laid in Parliament in early 2021. This draft legislation can be found in the Developer Hub, in the in the ITSA end-to-end service guide here.

While formal consultation on draft regulations for ITSA took place in 2016 and this version reflects feedback from that exercise, we would welcome any further feedback you may have on the content and scope of these updated draft regulations. Please reply to this email if you wish to discuss further and my team will be in touch. 

We have also just released functionality that allows software developers to build MTD for ITSA-compatible products for customers with construction industry, state benefits, employment and student loan income, and taxpayers with more than one source of self-employment and/or property income. The end-to-end MTD ITSA pilot will be expanded in scope yet further from April 2021 to enable even more businesses and landlords to join and facilitate full testing of the service in advance of testing at larger volumes in 2022-23, ahead of mandation. We will be grateful for ongoing support from agents and businesses who are in a position to start using MTD early and help us test the service.”