Making Tax Digital – what has changed (this time)?

By now, you will have seen that Making Tax Digital for Self Assessment (MTD) has been deferred again. The main headline was that the mandation date has been pushed back from April 2023 until April 2024 for affected individuals, and April 2025 for most partnerships.

So, why has this change occurred? Two main reasons were cited:

1. Recognition of the challenges COVID has caused

2. Response to stakeholder feedback

In general, the stakeholder feedback unveiled that more time to test the systems robustness was needed, before mandating a new and complex tax compliance process. Unfortunately, the feedback I hear from accountants is that they are now less likely to engage with the pilot this year, since there is now a further year to use for planning and engaging with clients, and as a result there is a concern over the level of pilot participation in order to test robustness is likely to be over the coming year.

As I’ve said many times before, engaging with the pilot, even for a small selection of clients, is important so you can trial software, learn processes, and give clients the reassurance that you will be able to support them in the new process. MTD is not just about quarterly updates, but encompasses a new annual process as well. If you had joined the pilot this tax year (2021/22), you would have had time to experience the new annual process, due by 31 January 2023, before the old mandation date of April 2023.

Now that mandation has moved to April 2024, it is just as important to get involved in the pilot from April 2022, to experience the annual process – if you join the pilot any later than that, you will not get the benefit of experiencing the annual submission prior to mandation for your clients.

In addition to the deferral, MTD regulations were also published, and the main surprise was in the detail about how the new annual element of MTD may be enacted for some clients.

MTD had previously been cited as a new process to replace Self Assessment – a client was either in MTD for a tax year, or they were not – either quarterly (and annual) MTD submissions were needed, or a traditional SA tax return. Unfortunately, the devil is in the detail and based on the current phrasing, any trading client with a turnover over £10,000 with an accounting period not aligned with the tax year (and for this purpose, 31 March is not aligned with the tax year) has two start dates for MTD. Firstly, quarterly updates are mandated from 6 April 2024. However, the annual MTD submission is due based on the first accounting period starting on or after 6 April 2024. If annual MTD submissions are not due, then an SA tax return is instead due. As an example, a client with a 31 December accounting date will be quarterly reporting for periods from 6 April 2024 (i.e., tax year 2024/25), but the first MTD annual submission is not due until relevant for the accounting period 1 January to 31 December 2025 (i.e., tax year 2025/26). Therefore, for tax year 2024/25, a self assessment tax return is still due, even though MTD quarterly reporting is also required.

It is hoped that this discrepancy is resolved as part of any basis period changes, which are expected to be announced around Budget Day (27 October), because otherwise we have an unnecessary level of complexity.