HMRC has announced that it will delay the implementation of Making Tax Digital (MTD) until 2024. The changes, which were initially set to come into force from April 2023, will mean that businesses with annual income of more than £10,000 will be required to keep digital tax records and report their income digitally to HMRC on a quarterly basis.
The changes and the original implementation date had been criticised for their predicted impact on freelancers. The rules will mean that around 4.3 million self-employed workers and small business owners will be required to report income quarterly and concerns were raised that the initial timescale gave freelancers insufficient time to prepare.
In August, the Institute of Chartered Accountants in England and Wales, ICAS, Association of Taxation Technicians, Chartered Institute of Taxation and the Low Incomes Tax Reform Group co-signed a letter urging the Treasury to delay the implementation of MTD. Meanwhile, the Association of Independent Professionals and the Self-Employed (IPSE) had asserted the earnings threshold should be increased to exclude the smallest businesses from the rules.
The Treasury has now acted to delay the changes by a year, taking into account stakeholder feedback and the challenges UK businesses are facing as a result of COVID-19 and in order to give those affected more time to prepare.
Financial Secretary to the Treasury Lucy Frazer 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.”
IPSE Director of Policy Andy Chamberlain commented: “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. We continue to call on government to raise the threshold for MTD so the changes do not apply to the smallest businesses.”
