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New MTD delay means basis period rules remain intact – for now

The Government has announced it will delay the start of Making Tax Digital for income tax self-assessment (MTD for ITSA) to 6 April 2024, with MTD for general partnerships postponed to 2025.

The move has implications for the proposed change in the basis period rules, now delayed until at least April 2024.

As recently as a few days ago, it was being reported that the new basis period rules would kick in from next April, with 2022/23 being a transitional year and the reformed rules applying from 2023/24.

The shift, when it eventually happens, will affect how unincorporated businesses, such as sole traders and business partnerships, allocate trading profits to tax years for inclusion on their self-assessment returns.

Chris Hadley, Harwood Hutton’s Head of Private Client Department, has welcomed the twin delays, which it was felt left businesses little time to adapt their financial reporting and plan for their tax liabilities.

“Recently it has seemed that MTD actually stood for Making Tax Difficult,” said Chris. “This is the latest in a long line of delays and deferrals in the MTD programme, which was originally intended to begin in 2018 and was proposed as long ago as late 2015.

“The delay in the tax basis period change will give affected clients greater time to plan ahead for their tax liabilities, with the transitional year when liabilities are likely to increase for many being pushed back a year to 2023/24.”

The turnover for mandation into the MTD ITSA regime, which considers the taxpayer’s income from all of their sole-trader businesses, plus their rental income, remains at the low threshold of £10,000 per year.

As MTD ITSA will now start in April 2024, the base year for testing the MTD turnover threshold will be the tax year 2022/23.

“While it is disappointing the turnover threshold has not increased, the turnover figures for that year should not be distorted by any grants related to Covid and hopefully will reflect normal post-pandemic trading for most businesses,” said Chris.


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