HMRC has delayed its planned move to make tax digital (MTD) by a further year, now scheduled to come into force in April 2024.
The delay means businesses or landlords with a business income of over £10,000 a year will have now have an extra year to prepare for the digitalisation of income tax.
General partnerships will not be required to join the MTD scheme until the following year, in April 2025, while HMRC has announced other forms of partnerships will be required to join at a later point that is yet to be confirmed.
HMRC has suggested that eligible businesses and landlords that sign up to the MTD pilot, which is already under way, will have the opportunity to gain the benefits of MTD early, such as increased efficiency in filing tax returns that can allows businesses to focus resources on key business priorities instead.
Whilst the move is likely to be welcomed by industry bodies and accounting groups, some critics have pointed out that the transition to ‘Making Tax Digital’ is actually needed now more than ever, following the huge levels of public spending during the Covid-19 crisis.
Making Tax Digital is the first phase of the Government’s move towards what it describes as a “modern, digital tax service fit for the 21st century”.
The transition has been partly designed to help increase the tax take, along with reducing the risk of tax fraud.
HMRC estimates show that manual, avoidable mistakes when filling out tax forms cost the Exchequer more than £8bn. The further delay could therefore cost the taxpayer significant sums of money, on top of the delays that have already been announced due to Covid-19.
“This is a sensible move from HMRC that gives businesses, individuals and software providers the additional time they may need to prepare and get ready for the full transition to digital-only tax,” commented Katharine Arthur, partner and head of private client at accountancy firm haysmacintyre.
“Given that institutes have been pushing for this further delay, it’s welcome to see HMRC listen to the relevant trade bodies,” she told City A.M.
“However, there does come a point when taxpayers need certainty over a fixed starting date and the Government can’t keep just kicking the can down the road.”
With ‘Making Tax Digital’ estimated to bring in billions more to the Treasury’s coffers, its implementation is becoming increasingly necessary given the huge Covid-related holes in the public finances.
“Therefore, whilst this delay will be welcomed by many individuals and businesses alike, HMRC would be wise to ensure that this is the final postponement on the path to making tax digital and to ensure that it dedicates sufficient resources to its implementation and communication plans,” Arthur concluded.