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Making Tax Digital for Income Tax delay: Everything you need to know

Money Matters

Making Tax Digital for Income Tax delay: Everything you need to know

Editor’s note: Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) has been postponed until April 2026 and some of the eligibility requirements have been revised. This article has been updated to reflect that. 

HMRC has announced a delay to the launch of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA).  

The scheme is part of the government’s wider ambition to fully digitalise the tax system and reduce the burden of tax returns for small businesses. 

Here at Sage, we remain committed to helping accountants and bookkeepers guide their clients in adopting the digital tools that will make them more productive, profitable, and resilient to change. 

With these benefits in mind, we encourage practices and businesses to continue preparing for a smooth transition to MTD for ITSA, no matter the timeline. 

Here’s everything you need to know about the delay: 

Prior to the government’s latest announcement, the launch of Making Tax Digital for Income Tax was set for 6 April 2024. But following an official announcement from the government, the scheme will be launched in a phased approach based on two new income thresholds. 

In a written statement, HMRC said: 

“The mandation of MTD for ITSA will now be introduced from April 2026, with businesses, self-employed individuals, and landlords with income over £50,000 mandated to join first. 

Those with income over £30,000 will be mandated from April 2027.” 

So, this gives smaller businesses with lower income an extra year to prepare for the switch. 

HMRC says that the main reason behind this delay is to relieve pressure on businesses caused by the current economic environment. Though the benefits of digitising tax are already being demonstrated by MTD for VAT, the transition will still feel like a big change. 

Victoria Atkins, Financial Secretary to the Treasury, said: 

“It is right to take the time to work together to maximise the benefits of Making Tax Digital for small businesses by implementing the change gradually. It is important to ensure this works for everyone: taxpayers, tax agents, software developers, as well as HMRC.” 

HMRC believes a more gradual implementation will give taxpayers, accountants, and the government more time to prepare for digital ways of working. This is also the stated reason for the phased approach, recognising the increased difficulty faced by those with lower incomes. 

The new deadline is when digitalisation will be legally required, but experts advise you should be making changes now, if you haven’t already. 

The number of taxpayers that will be affected by MTD ITSA will be huge, even considering the revised thresholds. Accountants need to take full advantage of this extra time and drive the digitalisation of their practice while supporting customers to do the same. 

Remember, the whole idea of MTD is to transform businesses by making tax less of an admin burden. Using compliant software as soon as possible will bring these benefits earlier and reduce the anxiety which can come about from falling behind on taxes and regulations.  

Software will also bring greater visibility of performance, helping businesses to manage costs and make more confident decisions based on real-time information. 

No. Unlike the last time MTD was pushed back, the basis period reforms remain unchanged. This means they will start in 2023-2024.  

The basis period reforms are an attempt by the government to align business accounting periods to the tax year (6 April to 5 April). 

The majority of businesses already align to the tax year, but some chose different periods for reasons such as managing tax payments more effectively, or minimising the impact of seasonal fluctuations on financial results. 

The reforms intend to address long-running criticism of existing basis period rules but focus especially on the admin requirements introduced by MTD for Income Tax. 

The administrative burden for quarterly reports for each business run by an individual is eased if all those businesses have the same tax-year basis period. 

As a reminder, the penalty points system brings together penalties for late submission and payments for both Income Tax Self Assessment and VAT. It aims to make penalties fairer and simpler for taxpayers. 

This was set to begin in January 2023, but now the system will only be in place for MTD for VAT from this date.  

The combined penalty points system will begin for MTD for ITSA taxpayers as soon as they are mandated to join based on their income. 

HMRC plans to introduce a new penalty system for taxpayers outside of the scope once the scheme is live. 

The latest announcement does not mention Making Tax Digital for Corporation Tax.  

As it stands, HMRC ran a consultation with companies, agents, professional bodies and software developers on this scheme, but stated there will be no mandation before 2026. 

Though there have been no details announced yet, it’s expected to require businesses to keep accounting records digitally that pertain to corporation tax, make quarterly summary updates of income and expenditure to HMRC, and submit Corporation Tax Returns digitally. 

Whether you run a practice or a business, you can get ahead by getting ready for MTD for ITSA before the new deadline. 

Practices will be able to drive: 

  • Profitability: Teams will be freed to support clients at the highest levels, which will lead to both practice growth and profitability.  
  • Efficiency: More tasks will be completed ahead of time, keeping the practice in control. By making the most of software, practices will get a good return on investment and be able to significantly improve processes. 
  • Client value: Both profitability and efficiency will free up the capacity to deliver enhanced client experiences and even more value. This means more appreciation for the time and effort invested.

Businesses will be able to: 

  • Know more about their finances: The requirement to submit quarterly accounting updates will make businesses pay more attention to their finances. This means they’ll always know their cash flow position and how much tax they owe, which helps with planning and encourages more valuable advisory conversations with their accountant. 
  • Make fewer mistakes: Digitalising accounting with quality software reduces human error and helps businesses get things right more often. This also means less time doing admin and having to go back to correct mistakes. 
  • Make better business decisions: Good MTD-compatible software gives easy access to accounting information, and those with mobile apps allow this from anywhere. Businesses can see problems coming and act on the fly, meaning less time spent working out of hours. They can also spot new opportunities with instant access to reports and dashboards that reveal business trends, such as peak revenue periods and top paying customers. 

Those affected by MTD for ITSA now have longer to examine their processes and discover where and how the legislation can improve the way they work. 

But it’s important not to let the postponement make you complacent. It’s better to take control over your own digital transformation plans, alongside what will be legally required by HMRC.  

At Sage, our plans have not changed. We believe in a compelling vision for a competitive UK digital economy that will support a return to growth.  

If businesses and accountants are given the clarity and support to embrace digitisation, they will lead that charge. So, we’re more committed than ever to helping our customers and partners in digitising their businesses and becoming more productive, successful, and resilient.   

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