Don't get caught out! Dean Flood

Dean Flood, Rowland Hall Chartered Certified Accountants

Perhaps most importantly, communicate any concerns with your accounting or tax advisors. They may themselves be battling with the possible implications for their own businesses but will most likely appreciate an early discussion on how they can help with these changes.

DON’T GET CAUGHT OUT! PREPARE FOR DIGITAL TAXATION NOW.

I hope that the readership remains well.

Deferral of Making Tax Digital for Income Tax Self-Assessment

Whilst accountants will have been expected to know this, there may have been few outside of the industry who will have been aware that HMR&C had intended to introduce Making Tax Digital (MTD) requirements for income tax in April 2023. Many practitioners kept quiet about it as the date seemed a little far off and there was still a lack of clarity about how it would be addressed through HMR&C’s IT systems. Perhaps most importantly, the accounting industry strongly suspected that as with other previous MTD commencement dates, this one would also be deferred.

HMR&C have not let the side down in that regard.

On the 23rd September, HMR&C issued a press release to say that the introduction of this would be deferred until April 2024. This was in recognition of the difficulties faced by business as a result of the pandemic and also to acknowledge concerned feedback received from various stakeholders impacted by the process. The accounting industry had lobbied government to defer on the basis that IT systems were not properly thought through and affected businesses and individuals could not be expected to be ready.

A list of to do’s could include the following:

• Consider the quality of your record keeping. Will it be timely and reliable?

• Consider your IT systems and or whether investment in software may be needed.

• Build in an expectation that there may be some additional costs to this process.

Perhaps most importantly, communicate any concerns with your accounting or tax advisors. They may themselves be battling with the possible implications for their own businesses but will most likely appreciate an early discussion on how they can help with these changes.

So what is MTD for Income Tax selfassessment (MTD for ITSA) and who is affected?

MTD for ITSA will affect those who are selfemployed and submitting self-assessment tax returns as well as those that have other income such as rental receipts, where those rental receipts (gross) exceed £10,000 per annum. There will be similar requirements for partners and partnerships although the timeframe for their introduction is slightly different.

The process will broadly require selfassessment tax-payers that fit the above criteria to send quarterly accounts information to HMR&C in an acceptable digital format. Those quarters will be fixed (March, June, September, and December). A final reconciling submission will be submitted later, much like the existing return. Essentially, there will be five submissions for each tax year and year end accounts will still need to be prepared.

The quarterly submissions will most likely need to be dealt with in the month following each quarter and a penalty regime will be applied for late submissions. The digital format will be some form of acceptable accounting software or other digital format that will link with HMR&C systems.

If the taxpayer is currently VAT registered and caught under MTD for VAT, this transition will not be as onerous, as they will already have some systems in place to deal with this quarterly reporting. However, if VAT return periods are not aligned to the quarters noted above, a change in the VAT periods may be needed.

The delay to implementation gives everybody some extra time to prepare but HMR&C say they remain fully committed to the process.