A delay to digital tax reporting for small businesses and the self-employed – and to basis period reform

24 September 2021 - Catherine Britton

Making Tax Digital (MTD) for Income Tax has been delayed for a year, alongside the proposed changes to the alignment of business taxation dates to the Treasury’s accounting year.

 Who will it affect?

The delay will mean that over 4 million businesses, self-employed workers and landlords with incomes of more than £10,000 a year will see a postponement of their MTD start date from April 2023 until April 2024. At this point they will need to keep accounting records digitally and to file quarterly updates to HM Revenue & Customs instead of a single update annually. MTD for general partnerships has been delayed further until April 2025, with no date given for other types of partnerships such as LLPs.

 Why has MTD been delayed?

Digitising the tax system through Making Tax Digital (MTD) has been widely described as the biggest change to taxation in a quarter of a century, but the difficulties faced by businesses as a result of the COVID-19 pandemic have created additional challenges across the board. Lucy Frazer, financial secretary to the Treasury said: “The government recognises the challenges faced by many businesses and their representatives as the country emerges from the pandemic over the last year.”

Graham Doubtfire, tax partner at Scrutton Bland said: “The delay will provide breathing space for small businesses and self-employed individuals with an income of over £10,000, many of whom have expressed concern at the additional work this administrative change will bring. We always recommend talking to one of our tax advisers who can give professional guidance and practical help on what needs to be done to become MTD compliant.”

Basis period reform also delayed

The Treasury has also announced a year’s delay to their planned change to the tax reporting ‘basis period’. This reform would have required self-employed individuals and members of partnerships to align their accounting dates with the April date used by the Treasury and many others. The proposed date change to the basis period would have meant in many cases income tax needing to be paid earlier than the current system, and despite the potential funds the government might have raised, it has decided to postpone the move until April 2023.

Graham Doubtfire further commented: “The postponement to the change in the basis period will undoubtedly be welcomed by many, but is still a change that could happen, and needs to be built into business plans. The surprising aspect is that despite MTD for Income Tax being deferred until 2024 the plans to change the basis period appear to remain for 2023, which is likely to be the most disruptive aspect for business owners who may well have an accounting period that does not coincide with the tax year end.  Our tax team can help with forecasting for these additional tax liabilities and suggest planning opportunities that will assist in lowering the amount of tax due. This can include things like making use of multiple tax allowances and adjusting the timing of capital expenditure so that Capital Allowances are utilised in the right accounting period.”

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