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Why millions of self-employed can breathe a sigh of relief

It was becoming somewhat obvious that HMRC could not deliver on its promises by April 2024, with the very limited testing, together with significant problems, meant that this delay was inevitable.

Millions of self-employed can breathe a sigh of relief after HMRC recently announced that Making Tax Digital (MTD) for ITSA (Income Tax Self-Assessment) will now be deferred until April 2026.

Andy Vessey, Head of Tax at Kingsbridge Contractor Insurance said, “SME’s are the backbone of the UK’s economy, so this extra time to deal with MTD will no doubt be a welcome respite. It was becoming somewhat obvious that HMRC could not deliver on its promises by April 2024, with the very limited testing, together with significant problems, meant that this delay was inevitable.”

Andy continued, “Jim Harra, Chief Executive & First Permanent Secretary, HMRC, said that “we want to make sure we get this right & deliver it [MTD] effectively.” Whilst that sentiment is to be applauded, the department should now use the additional time wisely and critically review policy decisions made seven years ago, to decide if they are still appropriate. One of the aims of MTD should be to ensure that the costs of delivering it and the compliance burdens to the taxpayer should not be disproportionate.”

This announcement will mean that the mandatory use of software for Income Tax Self Assessments (ITSA), will now be phased in from 2026 instead of the planned 2024. Therefore, anyone who is self-employed with an income of more than £50,000, will have to provide quarterly updates to HMRC on their income and expenditure from April 2026. Then from April 2027 anyone who earns between £30,000 – £50,000 will also need to switch over to MTD.

In a recent CIOT/ATT survey of tax professionals carried out last month, it found:
• 94% of respondents uncomfortable with the level of taxpayer awareness.
• 94% uncomfortable about taxpayers’ ability to comply.
• 65% uncomfortable about the availability of suitable software.
• Only 3% of respondents comfortable about HMRC’s capacity and resources to support
taxpayers and agents.
• 79% think that keeping digital records will be useful.
• 36% think that quarterly reporting will be useful.

In conclusion, in the next few years, HMRC needs to address and arrest these concerns, if it is to competently roll out MTD for ITSA.

The government also announced that it would review the needs and support for smaller businesses, in particular those that come under the £30,000 threshold, to see how best MTD can be implemented for them. More information on this latest statement is available from: https://www.gov.uk/government/news/government-announces-phased-mandation-of-making-tax-digital-for-itsa

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