By way of a reminder, MTD for direct taxes (namely income tax and corporation tax) is a requirement for the digital retention of records, and more regularly submitting financial data (using those digital records) to HM Revenue & Customs (HMRC).
We have ensured (in previous emails and website posts) to provide proactive updates on the implementation of MTD for direct taxes in (i.e. additional to VAT – the introduction of MTD for VAT having come and gone relatively smoothly), and before Christmas there were further announcements. Effectively, further delays to the implementation of MTD for the direct taxes was announced – this being the 5th such delay.
MTD is being extended for individuals with rental or self-employment income (being MTD for ITSA), under the MTD for Income Tax Self-Assessment (ITSA) regime. This will mean quarterly returns are required to disclose the income and expenses in each quarter along with an ‘End -of Period Statement’.
This system was due to take effect from 1 April 2024 and would include all individuals with gross rental income or self-employment turnover above £10,000.
On 19 December 2022, it was announced that the implementation of MTD for income tax will now take effect from 6 April 2026 instead, and will include all individuals with gross rental income or self-employment turnover above £50,000.
Then from 6 April 2027, individuals with gross rental income or self-employment turnover between £30,000 and £50,000 will also be required to make quarterly returns.
This currently reflects a sizeable increase in the previous £10,000 gross income threshold. It has not yet been confirmed whether MTD for ITSA will be further extended to include individuals with gross rental income or self-employment turnover below £30,000.
MTD for ITSA was previously due to include general partnerships from 6 April 2025, however, following this 19 December 2022 announcement, there is now currently no implementation date for when partnerships will be brought within MTD for ITSA.
MTD for corporation tax was intended to be implemented from 1 April 2026. Whilst there were no specific announcements in relation to this on 19 December 2022, the current assumption is that this will follow the successful implementation of MTD for ITSA.
This further delay has understandably raised feelings amongst many of that the implementation of MTD for direct taxes will never happen, or will just keep being repeatedly delayed. However, we feel that the implementation is inevitable, and if implemented correctly, could result in a tax compliance system that is more interactive and less burdensome for tax payers. However, there have clearly been underestimations as to how much work is involved for HM Revenue & Customs to implement such a system.
For those clients that will fall within these new gross income thresholds, we would still suggest continuing with planning for the implementation. The use of software to enable digital record keeping will undoubtedly have other benefits for your business, far in excess of merely preparing for MTD for direct taxes (see our recent article here).