The Income Tax (Digital Requirements) Regulations 2021 legislating the implementation of Making Tax Digital for income tax (MTD ITSA) were laid before parliament on 23 September 2021.

The regulations confirm that MTD ITSA will be implemented from April 2024 for income from self-employment and property, one year later than had been previously announced.

It also makes it clear that MTD will start for all those businesses in scope from 6 April 2024, regardless of their accounting date. The start date for partnerships has not been set in legislation, but the government has announced that it will be put back to 2025.

In a written ministerial statement, the new Financial Secretary to the Treasury, Lucy Frazer, confirmed that if basis period reform goes ahead the changes will not be introduced until the start of MTD in 2024/25, with 2023/24 being the transitional year.

An announcement on whether basis period reform will go ahead is expected in the Budget on 27 October; ICAEW’s representation on the planned changes made a firm recommendation that the proposals should be dropped.

A new system of penalties for late filing and late payment of tax is being introduced alongside MTD. The ministerial statement confirms that start date for this is also delayed until the 2024/25 tax year for those mandated for MTD ITSA from that date and from 2025/26 for all other ITSA taxpayers.

ICAEW welcomes the opportunity that this additional time presents. It will allow for a fuller pilot programme, spread the workload of agents and businesses, and give more time for awareness raising and education about MTD ITSA.

HMRC will be also able to manage its resources more effectively and work on the customer support model, and software developers now have the certainty they need before investing in developing products to support digitalisation.

ICAEW’s Tax Faculty is developing plans to support all ICAEW members through this period of change. Before the end of the year it will be running a comprehensive programme to include a webinar and updates to ICAEW’s MTD hub before ramping up activity significantly from 2022.

Other highlights from the final regulations include:

• Trusts, estates, trustees of registered pension schemes and non-resident companies will not be required to join MTD ITSA (previously announced). Charitable trusts, the trustees of exempt unauthorised unit trusts, the underwriting business of members of Lloyds, holders of shares in real estate investment trusts or participants in open ended investment companies are exempted through primary legislation.
• Complex partnerships (ie, those that have corporate or other “non-natural person” partners and Limited Liability Partnerships) will not be required to join MTD ITSA in April 2025, but will be required to join MTD at a future date to be confirmed (previously announced). 
• Irrespective of whether basis period reform is implemented, the MTD quarterly update requirement will be for standard quarters to 5 April, July, October and January with an option to elect to report to 31 March, 30 June, 30 September and 31 December.
• The end of period statement (EOPS), which is used to finalise the reporting for each income source, is decoupled from the quarterly updates and will be required for basis periods. The EOPS is the equivalent of the SA103 and SA105 self-employment and property pages on the self assessment tax return.
• New businesses will be required to join MTD ITSA from the April after they file their first self assessment tax return.
• Remittance basis taxpayers will not be required to comply with MTD ITSA in respect of their foreign income. The requirements will, however, apply to their UK source income.
• The threshold of £10,000 gross income from self-employment and property remains. This threshold applies to the total income from all such sources. The government is not receptive to a higher threshold as many taxpayers have secondary sources of income, with the income being taxable even at this level. Businesses will be allowed to exit MTD ITSA if they fall below the threshold for three successive years. 

Further reading:

• The regulations: The Income Tax (Digital Requirements) Regulations 2021, SI 2021/1076 (legislation.gov.uk)
• The written ministerial statement: Update on Making Tax Digital (parliament.uk)
• The Finance (No. 2) Act 2017, Sections 60 and 61 and Schedule 14 (Digital Reporting and Record-Keeping) (Appointed Day) Regulations 2021, SI 2021,1079 (legislation.gov.uk) 
• Extension of Making Tax Digital for Income Tax Self-Assessment to Businesses and Landlords (gov.uk) 
• Customer costs and benefits for the next phases of MTD (gov.uk)
• Using MTD ITSA (gov.uk)
• Applying for an exemption from MTD ISA (gov.uk)
• MTD ITSA for business step by step (gov.uk)
• Check if you're eligible for MTD ITSA (gov.uk)
• Businesses get more time to prepare for digital tax changes (gov.uk)
• ICAEW's guidance on MTD
• Drop proposed basis period reform, urges ICAEW (Tax News, 31 August 2021)
• ICAEW REP 77/21: Basis period reform
• ICAEW REP 7/21: MTD ITSA regulations