On 23 September the Government agreed to delay MTD ITSA (Making Tax Digital for Income Tax Self Assessment) by a year until April 2024.
This makes sense because business owners, accountants and HMRC have been distracted by other priorities over the last eighteen months. But we would still encourage clients to make the move to digital record keeping and online software as soon as possible to reap the benefits:
The other proposal is that HMRC may change the ‘tax basis period’.
The tax basis period determines which set of accounts are taxed in which tax year. The tax year always runs 6 April to 5 April and you may have an accounting year end of 31 March, 30 April, or any other time.
The current general rule is that you are taxed on the accounting year that ends in the tax year. So 31 March 2021 accounts will be taxed in the year 6/4/20-5/4/21 and 30 April 2021 accounts will be taxed in the year 6/4/21-5/4/22.
The proposed rule is that the accounting years must be apportioned over the tax period. So the tax year 6/4/24-5/4/25 for a 30 April year end would be 1/12 x 30 April 2024 + 11/12 x 30 April 2025. As a result it may be simpler to move all accounts year ends to 31 March for simplicity.
This is better explained with some examples.
|Accounts year end||Old tax basis rules for tax year
6/4/2020 – 5/4/2021
|New tax basis rules for tax year
6/4/2024 – 5/4/2025
|31 March||Year ended 31/03/2021||Year ended 31/03/2025|
|5 April||Year ended 05/04/2021||Year ended 05/04/2025|
|30 April||Year ended 30/04/2020||1/12 x year ended 30/04/2024 + 11/12 x year ended 30/04/2025|
|31 July||Year ended 31/07/2020||4/12 x year ended 31/07/2024 + 8/12 x year ended 31/07/2025|
The Office of Tax Simplification has recently been looking into moving the 5 April tax year end to 31 March or even 31 December in line with most other countries. We await the outcome of their report and will advise clients accordingly if it might be worth them changing their accounting year end in line with the tax year end.
In the meantime we are continuing to help businesses to migrate onto accounting software which will ensure that they comply with the digital records requirements of MTD.