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Since 2015, Making Tax Digital (MTD) has been a fundamental part of the UK government's plan to further digitalise the UK tax system, with the aim being to create "a trusted, modern tax system – one that fits with how customers live their lives and run their businesses, keeps the tax gap low, and helps to create the right conditions for UK economic growth". Former Chancellor George Osborne referred to this "as the death of the annual tax return" when the project was first announced in the 2015 Budget.
Sounds like a great idea, right? Unfortunately, that is not the view of many professional bodies, tax agents, self-employed individuals, and landlords. Many are fearful of these significant changes and simply don't believe that they will ever come to fruition after repeated delays and the high chance of a change in government in the UK this year. Whilst there is no doubt that many businesses are becoming increasingly digitalised, the costs and upheaval that will be imposed by MTD for Income tax Self-Assessment (MTD for ITSA) are simply not welcome.
However, announcements made in the 2023 Autumn Statement confirmed that His Majesty's Revenue and Customs (HMRC) is moving ahead with its plans for MTD for ITSA and essentially reiterated that it will commence in April 2026. Some relaxations to the original design were also announced.
Let's look at the journey of MTD for ITSA so far to set the Autumn Statement announcements in context.
THE ORIGINAL PLAN
After the project was announced in Budget 2015, HMRC subsequently launched the roadmap for MTD in December 2015 with the stated aim of digitalising and modernising reporting and record-keeping for Value-Added Tax (VAT), income tax, and corporation tax by 2020. This was followed by several consultations and various delays before the first major phase of MTD was introduced for VAT for those with taxable turnover above the (then) £85 000 VAT registration threshold. MTD for VAT was then extended to all VAT-registered businesses from April 2022 after a further delay due to the pandemic.
However, MTD for ITSA is much more complex than VAT due to the wider range of taxpayer circumstances, but also because of the complexity of UK income tax legislation. Broadly, MTD...