MTD legislation day: The BIG reveal
The full MTD regulations have been made public for the first time today. Until now, we have only had an early draft of the regulations to work with and it is fair to say that there were some glaring holes in that draft document – particularly in relation to partnerships, basis periods and when taxpayers could enter or leave the MTD regime.
We have been waiting a long time for those draft regulations to be updated and our tax experts are now pouring over the contents to disseminate the fine detail. Keep checking back here for live updates.
What's been announced Updated 23/09/21 5.50pm
MTD for ITSA has been delayed until 2024
In a hotly anticipated written statement by the incoming Financial Secretary to the Treasury Lucy Frazer, it was today announced that The Government’s Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) programme will once again be delayed.
The official explanation is that The Government recognises the challenges faced by many UK businesses and their representatives as the country emerges from the pandemic over the last year. In recognition of this and of stakeholder feedback, MTD for ITSA will be introduced for individual businesses and property landlords a year later, in the tax year beginning April 2024.
Furthermore, partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025. The date at which all other types of partnerships will be required to join is yet to be confirmed.
There was no confirmation of where this leaves MTD for Corporation Tax which was original scheduled for April 2026. A later start for MTD for ITSA provides more time for those required to join to make the necessary preparations and for HMRC to deliver the most robust service possible, affording additional time for testing in the pilot.
This announcement will no doubt be a relief to many who felt HMRC were not in a position to roll out MTD for ITSA successfully in April 2023.
You can read The full written statement can be read on the parliamentary website.
The Income Tax (Digital Requirements) Regulations 2021
The legislation for MTD will now come into force on 6th April 2024
You can read The full regulations here.
Digital record-keeping: Once you’re in, you’re in
The MTD regulations confirm that once you have reached your digital start date you are compelled to keep digital records, and file quarterly updates, for as long as your business is in existence regardless of your turnover.
“A relevant person must keep digital records for each business for the period beginning with the digital start date which applies to the business and ending with the date on which the business ceases”.
Digital record-keeping: Not quite real-time
The MTD regulations confirm that transactions need only be recorded with sufficient regularity to meet the quarterly reporting filing deadline.
“A relevant person must record a digital record by no later than the quarterly deadline for the quarterly period in which the digital record falls”.
Cash or accruals basis: Need to know in advance
The MTD regulations confirm that the digital record, and hence the quarterly submissions, must use the same basis as intended for the final tax return.
“...the dates of the transactions, according to the basis used by the relevant person for recording transactions for the purposes of income tax”.
Who needs basis period reform: Same filing stagger for all
The MTD regulations confirm that, irrespective of your financial accounting period, ALL individuals will provide quarterly updates based on the tax year UNLESS they elect to use a calendar year basis instead. Making the calendar year election removes the need to consider those tricky 5 days overlapping a tax month but conveniently forces through a major implication of basis period reform before the consultation responses were even considered.
Going on holiday?: Submit your quarterly updates early
The MTD regulations confirm that you can submit your quarterly update early, provided you are within 10 days of the end of that quarterly period and you do not anticipate any further transactions occurring between submission and the end of that period.
“A relevant person may provide update information as specified in an update notice for the whole of a quarterly period before the end of that period. A relevant person may do so only if the update information is provided by a date which is within 10 days before the end of the quarterly period”.
Property portfolio: Get specific
The MTD regulations contain a section called ‘Specified information’ which legislates for the provision of certain additional information including (but not limited to) identifying all properties contained within an individual’s property portfolio. Exactly what information is required is not specified but one would assume this to be the address of each and every property.
“The end of period information which may be specified includes (but is not limited to) identifying the properties which form part of a property business”.
Errors and omissions: Further clarification needed
It has always been suggested that any errors or omissions discovered after a quarterly update has been filed would result in a requirement to refile the affected quarter, rather than make an appropriate amendment on the next available quarter, as has always been the case for VAT errors. Although the MTD regulations clarify that any such error should be made when the next submission falls due, it is not clear whether the error or omission is reported within that submission, or whether an amended submission is required.
“The relevant person must provide the correct or complete information to HMRC when the relevant person next provides a quarterly update; or the end of period statement, whichever the relevant person is first required to provide”.
£10,000 income exemption: 2 year rule
My test of legislative clarity is how many times I have to re-read the legislation to understand the implication. The turnover test gets a 4 out of 10 from me! Despite the slightly unwieldy prose below, in order to determine whether your client will fall within the MTD regime from the new outset in 2024/25, you will need to assess whether their gross revenues from all businesses (trade and property) exceed £10,000 during 2022/23, two years prior.
“The income exemption applies to a tax year if the digital requirements did not apply to the person in respect of the previous tax year; and the amount of the person’s qualifying income for the most recent tax year in relation to which the filing deadline fell before the start of the tax year in question is not more than £10,000”.
£10,000 income exemption: 3 year rule
If gross revenues from all businesses (trade and property) DO NOT exceed £10,000 for three consecutive years in which you were required to comply with the MTD regime, then you will be exempt from MTD from year 4.
Volunteers wanted: Advance notice required
If any taxpayers wish to voluntarily report under the MTD regime (excluding those wishing to join the HMRC pilot) they will have to register their intention to elect not to be exempt in advance of the start of the tax year.
“An election by a person not to be exempt under regulation 21 or 22 must be made before the start of that tax year”.
Other exemptions: Confirmed
The regulations confirm the previously anticipated exemptions for the digitally excluded, non-resident companies chargeable to income tax, trustees, foreign businesses of non-UK domiciled individuals (including foreign properties).
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