Digitizing Taxes For Income Tax Delays: Everything You Need To Know

Editor’s Note: Tax digitization for Income Tax Self-Assessment (MTD for ITSA) has been postponed to April 2026 and some eligibility requirements have been modified. This article has been updated to reflect this.

HMRC has announced a delay in the launch of Making Tax Digital (MTD for ITSA) for Income Tax Self-Assessment.

The scheme is part of the government’s wider ambition to completely digitize the tax system and reduce the burden of tax returns for small businesses.

Here at SEZ, we are committed to helping the accountants and bookkeepers of our clients adopt digital tools that will make them more productive, profitable and resilient to change.

With these benefits in mind, we encourage practices and businesses to continue preparing for a smooth transition to MTD for ITSA, regardless of the timing.

Here’s everything you need to know about the delay:

What is the new making tax digital start date for income tax?

Why has the MTD for Income Tax Start Date been delayed?

Do I still need to worry about MTD for ITSA?

Have the base period reforms been postponed?

Has the new MTD penalty point system been shelved?

Has MTD for Corporation Tax been deferred?

3 Reasons You Shouldn’t Wait for the MTD for the ITSA Deadline

final thoughts

Prior to the latest announcement from the government, the digitization of tax for income tax was scheduled for 6 April 2024. But after an official announcement from the government, the scheme will be launched in a phased manner based on two new income limits.

In a written statement, HMRC said:

“The MTD requirement for ITSAs will now be introduced from April 2026, with businesses, self-employed individuals and landlords earning over £50,000 being the first to join.

Those earning more than £30,000 will be mandated from April 2027.

So, it gives low-income small businesses an extra year to prepare for the switch.

HMRC says that the main reason behind this delay is to ease the pressure on businesses due to the current economic climate. Although the benefits of digitizing tax are already being demonstrated by the MTD for VAT, the transition will still feel like a big change.

Financial Secretary to the Treasury Victoria Atkins said:

“It is right to take the time to work together to maximize the benefits of tax digitization for small businesses by implementing a gradual change. It is important to make sure it works for everyone: taxpayers, tax agents, software developers, as well as HMRC.

HMRC believes that a more gradual implementation will give taxpayers, accountants and government more time to prepare for digital ways of working. This is also the stated reason for the phased approach, recognizing the increasing hardship faced by low-income people.

The new deadline is when digitization will be legally required, but experts advise you should make the change now if you haven’t already.

Even taking into account the revised limit, the number of taxpayers who would be affected by MTD ITSA would be very large. Accountants need to take full advantage of this extra time and drive the digitization of their practice while helping clients do the same.

Remember, the whole idea of ​​MTD is to transform businesses by reducing the burden of administration. Using compliance software as soon as possible will bring these benefits first and reduce the anxiety that can arise from falling behind on taxes and regulations.

The software will also bring greater visibility of performance, helping businesses manage costs and make more confident decisions based on real-time information.

No. Unlike last time when the MTD was pushed back, the base period corrections will remain unchanged. That is, they will start in 2023-2024.

The base period reform is an attempt by the government to align the business accounting period to the tax year (April 6 to April 5).

Most businesses are already aligned to the tax year, but some chose different periods for reasons such as managing tax payments more effectively, or reducing the impact of seasonal fluctuations on financial results.

The reforms are intended to address long-standing criticism of the existing base period rules, but specifically focus on the administrator requirements introduced by MTD for Income Tax.

The administrative burden of reporting quarterly for each business run by an individual is reduced if those businesses all have the same tax-year base period.

As a reminder, the penalty point system brings in penalties for late submission and payment of both Income Tax Self Assessment and VAT. Its objective is to make the penalty justifiable and simple for the taxpayers.

It was set to start in January 2023, but now from this date the regime for VAT will apply only to the MTD.

The combined penalty point system for MTD for ITSA taxpayers will be introduced as soon as they are required to join based on their income.

HMRC is planning to introduce a new penalty system for taxpayers outside the scope once the scheme goes live.

The latest announcement does not mention making tax digital for corporation tax.

As it stands, HMRC consulted with companies, agents, professional bodies and software developers on the scheme, but said there would be no mandate before 2026.

Although no details have yet been announced, it is expected that businesses will be required to digitally keep accounting records that relate to corporation tax, update quarterly summaries of income and expenditure to HMRC, and digitally File your corporation tax return.

Whether you run a business or a business, you can get moving by preparing for the MTD for the ITSA ahead of the new deadline.

Will be able to practice drive:

  • profitability: Teams will be freed up to deliver the highest level of support to clients, driving both practice growth and profitability.
  • Capacity: Keeping the practice under control, more tasks will be completed ahead of time. By making the most of the software, practices will get a good return on investment and be able to make significant improvements to processes.
  • customer valueProfitability and efficiency will both free up the ability to deliver better customer experiences and greater value. This means greater appreciation for the time and effort invested.

Businesses will be able to:

  • Know about his finances: The requirement to submit quarterly accounting updates will make businesses pay more attention to their finances. This means they’ll always know their cash flow status and how much tax they owe, which helps with planning and encourages more valuable consultative conversations with their accountants.
  • Make fewer mistakes: Digitizing accounting with quality software reduces human error and helps businesses get things right more often. It also means less time spent administering and going back to correct mistakes.
  • Make better business decisions: Good MTD-compatible software provides easy access to accounting information, and those with mobile apps allow this from anywhere. Businesses can see problems as they arise and act on the fly, which means less time spent solving problems. They can also spot new opportunities with instant access to reports and dashboards that reveal business trends, such as highest revenue periods and top paying customers.

Those affected by the MTD for ITSA will now have more time to examine their processes and find out where and how the law can improve the way they operate.

But it is important not to let the postponement make you complacent. Better to have control over your own digital transformation plans as well as being legally required by HMRC.

In SEZ, our plans have not changed. We believe in a compelling vision for a competitive UK digital economy that will support a return to growth.

If SMBs and accountants are given the clarity and support to embrace digitization, they will lead that charge. Therefore, we are more committed than ever to helping our customers and partners digitize their businesses and become more productive, successful and resilient.

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