Tax update: Deferral announced for MTD and basis periods reform

Published: Wednesday 29 September 2021

On 23 September 2021, the Government announced that Making Tax Digital (MTD) for income tax will be postponed, along with the proposed reform to income tax basis periods. These deferrals come as welcome announcements after much lobbying and representations from professional bodies and other stakeholders that they were being introduced too quickly and without sufficient time for taxpayers to adequately prepare.

The new quarterly reporting requirements under MTD for unincorporated businesses and landlords with total gross income of more than £10,000 were due to come in from April 2023 (after originally being set to come in from April 2018 and several delays since!). It has now been confirmed, however, that the commencement date has been pushed back once again until April 2024. Furthermore, the requirement for general partnerships to comply has now been delayed until April 2025 and for other, more complex, partnerships a later date which is yet to be confirmed.

The Government also confirmed that the income tax basis periods reform would be deferred by a year. This was following a consultation released earlier this year proposing that individuals and partners should be taxed on profits arising in the tax year rather than profits for their relevant accounting period end. This change will have the consequence of accelerating profits into an earlier tax year, except for those already preparing accounts to a 31 March or 5 April year-end. As a result, it will inevitably also lead to accelerated tax liabilities for many. 

Draft legislation was also published at the same time as the consultation and it seemed that this was a ‘done deal' with provisions being rushed through. The Government has, however, appeared to listen to representations in respect of the lack of time to prepare as well as the inevitability of higher tax bills at a time when businesses are just beginning to recover from the COVID-19 pandemic.

These rules are now expected to apply from April 2024 with a transitional year in 2023/24.  

Lastly, it was also announced that the new points-based penalties regime for late payments of income tax and late filings of tax returns, which was due to come in from next April, will also be delayed in line with MTD. The new regime will apply to those mandated for MTD for income tax in April 2024 from the same date and for all other taxpayers from April 2025.

Content image: /uploads/team/unknown.jpg Nick Haines
Nick Haines
Partner, Tax and Property
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