Welcome to January’s blog. Big news. The title (almost) says it all, but there are some important takeaways for you to be aware of. In this piece, “Making Tax Digital Has Been Delayed”, we’ve broken down all the critical facts into easy-to-read sections to make things as simple as possible. Here’s a summary of the news, the critical points and the reasons that may lie behind it. Also, what – if anything – you need to do in the meantime.
What’s happening with Making Tax Digital?
After much publicity and advance warning, HMRC’ has once again delayed Making Tax Digital. The government has now pushed back the legislation to April 2026. Last month, they announced that the April 2024 MTD for income tax deadline and launch, in our diaries for April 2024 has now been officially pushed back until April 2026, two years later.
Good question. Why, indeed.
HMRC says that the reason for the delay is to manage (and hopefully reduce) the pressure on businesses caused by the current state of the economy. In her statement, the Secretary to the Treasury refers to the changeover needing to work “for everyone”. Tellingly, it included “software developers, as well as HMRC” (my italics). Also, that extra time was necessary to “take the time to work together to maximise the benefits of Making Tax Digital”.
Therefore, may we quite literally assume that they’re simply not ready? A reasonable assumption, perhaps. After all, this is a critical development. And it will deliver a profound change in how most of us will have to manage our tax affairs.
The government has in recent years come under scrutiny for legacy systems that simply failed to function properly, with sometimes-disastrous results. For example, those affected by the systems within the Child Support Agency. LIkewise, of course, the dreadful consequences and fallout from the Horizon scandal at the Post Office.
Better safe than sorry. This is, again, about people’s money and their livelihoods. Perhaps not much is more in life is more important than that.
Let’s summarise MTD, as well as the key highlights of the NEW phased approach.
What is Making Tax Digital?
At Angel Bookkeeping, this is, or will be, a major aspect of how we work with and support our clients. So, we make no apology for going over established ground.
Making Tax Digital is HMRC’s programme and proposal to implement a tax system in the UK that’s fully digital. This means that all taxpayers will need to keep digital records (no more paper-based files) and use MTD-compatible software to submit their tax returns electronically. MTD will apply for VAT, Income Tax Self-Assessment (ITSA) and Corporation Tax for both businesses and individuals. Its purpose is to streamline tax returns and make everything more straightforward and efficient.
This will be a legal requirement, with no ifs and buts.
In fact, we use the words “will need to” but for VAT-registered businesses, this has been mandatory since November 2022
What Is the New Legislation?
The key points, including a new, two-phase approach:
- As mentioned, there is a two-year delay on MTD for income tax, which will now be introduced in April 2026.
- Self-employed people and landlords whose turnover is more than £50,000 will have to comply FIRST. They will have to submit quarterly updates on their income and expenditure to HMRC through MTD-compatible software.
- Those with a turnover of more than £30,000 will be obliged to sign up to MTD in 2027.
- Taxpayers may join the MTD revolution voluntarily beforehand, thus eliminating (hopefully) any last-minute panics and making things easier almost straight away.
- The government will be launching a review of the needs of smaller businesses, too – mainly those with a turnover of less than £30,000. Joint partnerships will NOT be mandated to join MTD in 2025, as was previously announced.
Key Things to Know, and To Be Aware Of
We’re not going to lie: 2026 seems like an awfully long way away into the future, and to be fair, it probably is. Nevertheless, time has a habit of moving like lightning. It’s worth realising that the new legislation, when it eventually gets here is going to affect an enormous number of people all at once. If we fail to prepare, we could all be preparing to fail.
The basis reforms – an attempt to align business accounting periods to the tax year (6th April to 5th April) are for the time being unchanged.
Corporation tax hasn’t been mentioned, so watch this space.
What We Think
In a nutshell, we approve of these proposed changes, and strongly advise against complacency, or just sitting back and hoping for the best. At the risk of stating the obvious, given that as a bookkeeping business, we’re already aware of and use MTD-compatible software such as Sage every day, we know just how useful, powerful and beneficial they can be.
Making Tax Digital has been delayed, so there’s no need to panic. But, when it does come, the MTD legislation will enable you to:
Make better, more powerful strategic decisions about your business. With current, up-to-date information about what’s going on, you’ll be able to respond faster, troubleshoot any financial downturns, and may even find that you can spot new opportunities or trends within your operation.
Reduce errors. Human error is almost unavoidable, but digitising accounting will help you to make fewer mistakes – and save you time in the process.
Understand your finances better. Knowledge is power, therefore recognising where you are against your goals and targets, as well as how much tax you may owe, you’ll be able to plan more efficiently and effectively.
Time To Act?
Yes, we think so.
Get in touch with Angel Bookkeeping today. Let’s talk about how we can reduce a great deal of the day-to-day financial and administrative burdens that get in the way of you working smart, rather than hard – and yes, there IS a difference. We’re all human. So, knowing that your finances are in order, and that you are fully compliant is a feel-good boost that we could all do with in these colder, darker months.