MTD for ITSA and basis period reform postponed

Following extensive feedback from all the professional bodies, HMRC has postponed the implementation of Making Tax Digital for income tax self-assessment (MTD ITSA). The regulations confirm that MTD ITSA will be introduced for individuals with self-employment and property income over £10,000 per annum on 6 April 2024, one year later than previously announced. The start date for partnerships will be delayed until 2025.

In March 2021, the Government announced a new system of penalties for the late filing and late payment of tax for ITSA. This will now be introduced in the 2024/25 tax year for those who have to use MTD ITSA. For all other ITSA customers it will apply from the 2025/6 tax year.

The final regulations also confirmed that:

• MTD ITSA will not require trusts, estates, trustees of registered pension schemes, or non-resident companies to join. There is specific legislation that exempts charitable trusts, trustees of exempt unauthorised unit trusts, the underwriting business of members of Lloyds, holders of shares in real estate investment trusts, and participants in open ended investment companies.
• Complex partnerships (those with corporate or other “non-natural person” partners, as well as Limited Liability Partnerships) will not be required to join MTD ITSA in April 2025, but will be required to join at a later date to be confirmed.
• The MTD quarterly update requirement will be for standard quarters ending on 5 April, July, October, and January, with the option of reporting to 31 March, 30 June, 30 September, and 31 December. This is irrespective of whether the proposed basis period reform goes ahead. The results of the basis period reform consultation have yet to be published.
• New businesses will be required to join MTD ITSA from the April after they file their first return.
• Individuals with foreign income taxed on the remittance basis will not have to report this within MTD for ITSA, but any other income they receive may still fall within the rules.
• The £10,000 gross income threshold remains in place. This limit applies to the total amount of money earned from self-employment and property. The government is opposed to raising the threshold because many people have additional sources of income that are taxable even at this level. Businesses will be able to opt out of the MTD ITSA if their revenue falls below the threshold for three successive years.