Many self-employed people are welcoming the news that Making Tax Digital (MTD) for income tax self-assessment (ITSA) has been delayed by one year.
HMRC said it recognised the challenges faced by many as the UK emerges from the pandemic and therefore decided to delay the digitalisation of submitting taxes from April 2023 to April 2024.
This deferral was announced to give businesses more time to prepare and allow “HMRC to deliver a robust service, with additional time for customer testing in the pilot.”
MTD ITSA would have forced over four million self-employed workers and landlords with incomes of more than £10,000 a year to keep their accounting records digitally and file quarterly updates to the taxman, instead of the single annual update.
It’s the first phase of a wider government initiative aimed at moving towards a more “modern, digital tax service” that should enable self-employed people to be more accurate in their self-assessment returns.
Lucy Frazer, the recently appointed financial secretary to the Treasury, said: “The digital tax system we are building will be more efficient, make it easier for customers to get tax right, and bring wider benefits in increased productivity.
“But we recognise that, as we emerge from the pandemic, it’s critical that everyone has enough time to prepare for the change, which is why we’re giving people an extra year to do so.
“We remain firmly committed to Making Tax Digital and building a tax system fit for the 21st century.”
Industry bodies have welcomed the news of the delay saying it will offer “much-needed breathing space” to many self-employed people who have been hit hard by the pandemic.
Andy Chamberlain, director of policy at self-employed trade body, IPSE, said: “It is very welcome that the government has decided to delay the roll-out of Making Tax Digital for Income Tax.
“This will provide much-needed breathing space before another painful hit to the self-employed. After the financial impact of the pandemic, many freelancers simply are not ready to make the shift to Making Tax Digital.
“Although we can see the benefits of digital record-keeping, we continue to have reservations about certain aspects of the change. The shift to quarterly reporting will be a serious and heavy additional admin burden for many freelancers.”
IPSE is calling on the government to raise the threshold for MTD above £10,000 so it does not apply to the smallest businesses.