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What the Making Tax Digital delay means for you and your business


Self-employed business owner considering the new Making Tax Digital delay

Since its announcement in 2015, you’ve probably heard a lot of chatter about Making Tax Digital. Or MTD for short.

It’s a scheme designed by the government to digitalise the tax system. This means that businesses will have to keep digital records, use software that works with MTD, and submit tax updates every quarter.

It replaces the old tax return system and is already up and running for VAT payments.

We’re talking about it here because of an update to the Income Tax for Self-Assessment part of the scheme, which is aimed at sole traders and landlords. To make things easier, we’ll call this ITSA from now on.

On 19 Dec 2022, HMRC announced a delay to the launch of MTD for ITSA.

There were still loads of question marks over how MTD would work for self-assessment taxpayers. The sign-up process was only opened up in 2022. And taxpayers were worried about the new rules around using specific software.

This quiet announcement by HMRC has come as a bit of a surprise. Albeit a welcome one for many of the 4.2 million self-employed people affected by MTD for ITSA. Especially given how long they’ve delayed the launch…

What is the new Making Tax Digital for ITSA start date, and why has it been delayed?

Before the announcement, MTD for ITSA was set to launch on 6 April 2024. But HMRC has decided to delay this to one of two new dates, depending on your business’ income.

If your income is over £50,000, MTD for ITSA will launch in April 2026. Taxpayers with income over £30,000 will have an extra year, with a launch in April 2027.

Even if you’re a bit relieved about the delay, you might be wondering why HMRC have made this decision.

Victoria Atkins, Financial Secretary to the Treasury, summed it up in the announcement:

'It is right to take the time to work together to maximise the benefits of Making Tax Digital for small businesses by implementing the change gradually. It is important to ensure this works for everyone: taxpayers, tax agents, software developers, as well as HMRC.'

Still confused? Well, it comes down to a few things that Victoria Atkins and Jim Harra, Chief Executive and First Permanent Secretary of the HMRC, alluded to in the announcement. The government want to:

  • Relieve the pressure that small businesses are feeling because of the current economic situation.
  • Give self-assessment taxpayers time to catch up with the new rules. Especially learning and using new software.
  • Make sure the benefits of MTD for ITSA are felt by everyone.

The delay will make sense to a lot of taxpayers. But with the announcement, you might be thinking…

Do I have to worry about MTD for ITSA yet?

An extra couple of years might be a tempting reason to put off changing your tax processes. After all, it’ll take time and might cost a fair bit of money to adapt to MTD for ITSA. Especially if you complete tax returns by paper or unsupported software.

HMRC has thought of this, though, and has encouraged businesses to sign up as early as they can.

They want businesses to have time to get used to the new system. So that by 2026, the switchover is more of a formality.

HMRC have created a guide for checking if you’re eligible. If you are, you can sign up through this page or by speaking to your tax adviser.

There are a few exceptions:

  • If your income is under £30,000, you don’t need to sign up. But you can still choose to.
  • If you are a trustee of a charity, a Lloyd’s member, a non-resident company, or a personal representative of someone who has died, you can’t sign up.

How will MTD for ITSA affect me?

MTD for ITSA is going to affect self-assessment taxpayers in a few different ways:

  • You’ll have to use software that works with MTD to submit your tax returns.
  • All your tax records will have to be kept on an MTD account.
  • You might have to learn how to use a new piece of software.
  • The process is different from the current tax return system, so you’ll have to learn that too.
  • You won’t be able to use the current self-assessment tax return system after 2026 or 2027. Depending on your income.

This might be a worrying prospect for you. Filing taxes isn’t easy at the best of times, but having to learn a new system? Sounds stressful.

Well, the HMRC seems to be aware of this. That’s why they’ve given self-assessment taxpayers an extra couple of years to get ready.

And they’ve offered a few reasons why this new scheme is worth the short-term stress:

  • It should reduce the admin burden of paying tax.
  • They want to make it easier to keep up with taxes and regs.
  • MTD for ITSA should give you a better view of your business costs, helping you make better decisions.

Making Tax Digital isn’t as taxing as it seems

… At least that’s what HMRC are hoping. Either way, this delay gives you an opportunity to get ready for MTD for ITSA.

If you’d like to find out more, HMRC’s overview of MTD is a great resource to get started.

We can’t help with your tax returns, but we can help you with your business insurance. For more info, click here or call us on 0345 561 0320.

Image used under license from Shutterstock.

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