HMRC aim to join up their internal systems to create just one account for each taxpayer covering all their different taxes. MTD will impose new quarterly filing and a new late filing and payment penalty scheme. Electronic submission of tax information will also be greatly expanded.
MTD is being introduced in phases. MTD for VAT was first in 2019 and MTD for corporation tax not expected before 2026. The Financial Secretary to the Treasury recently announced a year deferral of MTD for Income Tax Self-Assessment (ITSA). For businesses and landlords with a base income over £10,000 per annum MTD will now be introduced in April 2024, this deferral is in recognition of the recent challenges due to the pandemic. The deferral will give taxpayers and advisers more time to make these substantial changes.
Many micro and small businesses are not represented by agents so this will be an expensive and time-consuming conversion, although businesses with turnover below £10,000 will initially be exempt. If a business doesn’t use smartphones, software or computers they may be obliged to do so to submit their electronic records to HMRC, however, free software will be made available.
The delay to MTD for ITSA has also pushed back the potential change to the tax basis rules for unincorporated businesses. Such businesses usually report their profits for the accounting year ending in the tax year, but in their first year have to report profits to 5 April thus taxing an amount of the first year’s income twice. ‘Overlap Relief’ is offered to mitigate this but the system is being reviewed for improvement.
Various industry bodies called for a delay to changing these rules to allow proper scrutiny, and it is now suggested that change will be implemented no earlier than April 2024, to align with MTD for ITSA.
To complicate matters further, the Office for Tax Simplification recently reported on changing the tax year, finding that a move to a calendar year tax year would be the ‘natural, simplest and easiest approach for everyone to understand’. This would bring the UK in line with many other countries and support the use of international data for tax compliance purposes but the cost of such a transition may prove prohibitive in the short term.
The next step
For more information get in touch with John Mosford at j.mosford@uhy-uk.com or your usual UHY adviser.
