MAKING TAX DIGITAL DELAYS

The self-employed and landlords will have more time to prepare for Making Tax Digital following a government announcement on the 19 December 2022.

This is a very sensible delay and demonstrates that the government and HMRC recognise that many self-employed people and landlords are facing a tricky economic environment and to continue with the slated changes from 6 April 2024 could be too great a burden.

The plan had been that from 6 April 2024, MTD for Income Tax Self-Assessment (ITSA) commences for the self employed and landlords with an annual turnover of over £10,000. The date has been pushed back to 6 April 2026 and the turnover limits refreshed. From 6 April 2026, MTD will only apply to sole traders and partnerships with a turnover greater than £50,000 and from 6 April 2027 the turnover threshold falls to £30,000.

The overall intention remains that the annual requirement for submitting a self-assessment tax return will become a quarterly one (which will be rounded off with a final reckoning called an End of Period Statement). Under this new regime, all paperwork and invoices must be maintained within a digital system.

In readiness for the move to MTD, HMRC also has plans from 5 April 2024 to change the basis period which determines when business profits are taxed. For many years, the ‘current year’ basis has been in force which means that a sole trader is taxed on profits in the tax year that their year-end falls; eg a sole trader business or partnership with a year-end of 31 May 2022 must report those profits on their 2022/2023 tax return, (because their year-end of 31 May 2022 falls between

6 April 2022 and 5 April 2023 and therefore falls in the 2022/2023 tax year, often abbreviated to simply 2023).

From 5 April 2024, there is going to be a horrible overlap with the 2023/2024 tax return needing to report the profits shown in the year-end accounts that finished part way through that 2023/2024 year plus the profits made between the business’ year-end accounts date all the way up to 5 April 2024.

There are going to be reliefs offered to help with this transition which includes the fact that the additional tax can be paid over 5 years. Sole traders and partnerships who do not have a 31 March or 5 April year-end date (these dates are loosely regarded as the same), and made profits in their first year of trading should consult with their accountant because they may find that there is ‘overlap relief’ available to them. This really is a technical area, but HMRC are certainly saying that ‘overlap relief’ will help with the transition.

So if you are a sole trader or trade as a partnership and you do not already have a 31 March or 5 April year-end date for the preparation of your accounts, start talking to your accountant now about the process involved in changing to one of these dates.

Peter Bevan Bevan & Co, Chartered Accountants peter@bevan.co.uk