This article gives an update following the Autumn Budget 2021 on Making Tax Digital (MTD) that businesses need to be aware of in preparation for 2022. The MTD regime is based on businesses being required to maintain their accounting records in a specified digital format and submit extracts from those records regularly to HMRC.
It had been expected that sole trader businesses and landlords with business income of more than £10,000 per annum would be required to enter the MTD regime for income tax purposes from 6 April 2023.
Making Tax Digital for income tax
HMRC has announced that Making Tax Digital will be deferred until 6 April 2024. Early adoption of digital record keeping and voluntary submission of MTD for income tax data remains possible.
Following the deferral for sole trader businesses and landlords, general partnerships will not be required to comply with MTD for income tax until 6 April 2025 and the date other types of partnerships (for example limited liability partnerships) will be required to comply will be confirmed in the future.
HMRC has also confirmed that the new system of penalties for the late filing and late payment of tax for income tax self-assessment will be aligned with when a taxpayer becomes mandated into MTD for income tax. For individuals without trade or property income or otherwise exempt from MTD for income tax, the new penalty regime will apply to their income tax affairs from 6 April 2025.
MTD for corporation tax
HMRC has previously announced that MTD for corporation tax will not be mandated before 2026.
Accounting periods that are not aligned to tax years
Aligned to the revised start date for MTD for income tax, changes will be made to simplify the rules under which trading profits made by self-employed individuals and partnerships are allocated to tax years.
The changes mainly affect unincorporated businesses that do not draw up annual accounts to 31 March or 5 April. The transition to the new rules will take place in the 2023/24 tax year and the new rules will come into force from 6 April 2024.
Affected self-employed individuals and partnerships may retain their existing accounting period but the trade profit or loss that they report to HMRC for a tax year will become the profit or loss arising in the tax year itself, regardless of the chosen accounting date. Broadly, this will require apportionment of accounting profits into the tax years in which they arise.
If you have any queries about Making Tax Digital and how the changes will affect your business, then please do get in touch by calling 01623 490 120 or email