Two-year delay announced to UK Government’s digital income tax revamp

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A massive change to how millions of self-employed people and landlords will be expected to report income tax in the UK has been delayed for a third time.

The UK Government confirmed on Monday, 19th December, that it was “giving a longer period to prepare” for Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA).

The news of the delay comes on the back of critics stating that government IT systems had not been adequately tested and that there was little awareness of the reforms among taxpayers.

What is the latest news on Making Tax Digital for income tax?

The Treasury said that the decision had been made to put back the date from which affected taxpayers would be required to use HM Revenue & Customs’ (HMRC) Making Tax Digital scheme for self-assessed income tax from April 2024 to April 2026.

The Government said it had delayed the date for the beginning of mandatory use of new software due to its understanding that “self-employed individuals and landlords are currently facing a challenging economic environment”, and because the transition to MTD for ITSA “represents a significant change to taxpayers and HMRC for how self-employment and property income is reported”.

The scheme, which is meant to help boost efficiency while minimising fraud, was first unveiled in 2015. When it does finally take effect, it will involve self-assessment tax returns being reported on a quarterly rather than an annual basis.

In addition to the two-year delay, the Government has changed the annual income threshold for MTD, from its initial proposal of £10,000 to £50,000 from April 2026. This change, according to the Financial Times (FT) newspaper, was made due to fears that the lower limit would be overly burdensome for small businesses. The threshold is set to be reduced to £30,000 from April 2027.

The Treasury said it would consult on the requirements of businesses that will eventually fall below the £30,000 threshold to ensure the income tax digitalisation is in line with their needs.

Tax agents ‘uncomfortable with low taxpayer awareness of MTD’

The announcement of the latest MTD delay is in many ways unsurprising; Alison Hobbs, who chairs the digital strategy committee of professional bodies the Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT), said the postponement “had to happen” as a result of “incredibly limited testing” of MTD and the “significant problems still to be resolved”.

The FT also referenced a poll of tax professionals undertaken by CIOT and ATT earlier in December, which found that 97% of tax agents were uncomfortable with the low level of awareness of MTD among taxpayers. A mere 36% of respondents thought it was a useful move to switch from annual to quarterly reporting.

With HMRC’s original 2015 proposals reportedly having been intended to see a launch of MTD for income tax in April 2018, it is clear that the scheme’s implementation is now severely delayed – leading one tax professional quoted by the FT to describe it as “the Crossrail of tax reform”.

HMRC chief executive and first permanent secretary Jim Harra said the department was still committed to delivering MTD “as a critical part of our strategy for digitalising and modernising the tax system”. He added, though, that “we want to make sure we get this right and deliver it effectively.”

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