MTD for ITSA Postponed
As you may be aware, the government has postponed the start of MTD for ITSA by a year meaning that it will not start until 6 April 2024. MTD for general partnerships will now be postponed until 2025. The change to the tax year basis has also been delayed until at least April 2024.
MTD for ITSA
It remains mandatory that anyone with a turnover of £10,000 or above must use MTD for ITSA.
As the turnover must take into account the taxpayer’s income from all of their sole-trader businesses, plus any rental income, HMRC will need to pull together several figures from the taxpayer’s self assessment tax returns. Only when the tax return reaches the £10,000 threshold will HMRC issue a notice to file under MTD regulations.
If MTD for ITSA was put in place from 6 April 2023, the turnover test would need to apply to the figures reported in the 2021/22 tax return which would need to be submitted by 31 January 2023, and possibly turnover reported in 2020/21 given that those years were affected by the pandemic meaning that turnover and rental income was reduced for many businesses and landlords.
Local authority grants for businesses liable for business rates would also increase business turnover for those periods. The SEISS grant should not have been included in business turnover, however some taxpayers have reported them as such, leading to HMRC having to make corrections to taxpayers’ self-assessments for 2020/21, and possibly also for 2021/22.
As MTD for ITSA will now start in April 2024, the turnover test will be the tax year 2022/23. The turnover figures for that year should not be distorted by Coronavirus related grants and hopefully will reflect normal trading beyond the pandemic for most businesses.
Tax Year Basis
When the consultation on changing to the tax year basis of assessment was released in July 2021, doubts were raised over whether there would be enough time to introduce such drastic changes to tax law before MTD for ITSA.
It was apparent that HMRC wanted all unincorporated businesses to switch to the tax year basis before the introduction of MTD for ITSA in 2023, but this would make 2022/23 a difficult transition year.
For businesses with an accounting year end that doesn’t approximate to the tax year, more than 12 months of profits would be assessed in 2022/23. This would have a knock-on effect for a wide variety of allowances and charges, including NIC and student loan repayments meaning that there wasn’t enough time to write amendments to regulations in all the areas affected before April 2022.
The financial secretary to the Treasury has confirmed that the change to the tax year basis will not come into effect before April 2024 with the transition year being no earlier than 2023.
If you require any further information then please do not hesitate in contacting us.