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HMRC shines a light on MTD for ITSA during FreeAgent's MTD Week | FreeAgent | Image of a base camp on a mountain

HMRC advises changing MTD year ends in 2023/24

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In an online session with accounting software provider FreeAgent, HMRC clarified several points surrounding the introduction of Making Tax Digital for income tax self assessment (MTD ITSA) in April 2024. 

10th May 2022
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Practitioners worried about the complications of moving clients to tax year basis periods ahead of MTD ITSA were advised not to update their accounting year dates until 2023/24

The question was one of several points raised by the audience during a joint webinar with HMRC during FreeAgent’s recent MTD Week.

Announced in the 2021 Autumn Budget and due to be introduced alongside MTD ITSA in April 2024, the basis period proposals are intended to streamline the quarterly reporting process. While the reforms will make life easier for HMRC, they pose new challenges for advisers who need to move clients to new accounting dates. 

Responding to the question on this issue, HMRC’s external customer readiness lead for Making Tax Digital, Melanie Hume, recommended that taxpayers considering changing their accounting period to align with the tax year should avoid doing so until the start of the 2023/24 tax year. 

Teams within HMRC are working closely together to align their communications on the basis period reform and MTD, she added. 

A recap on the facts

During the session, Hume confirmed that the submissions for MTD ITSA will consist of quarterly updates, an annual end of year period statement and an annual final declaration.

MTD ITSA will require self-employed business owners and landlords with a combined annual income of £10,000 or more to use compatible software to:

  • keep records of their business/and or income and expenses in a digital format
  • send quarterly updates of their business and/or property income and expenses to HMRC
  • submit an end of period statement (EOPS) and a final declaration (which will replace the annual self assessment tax return) to HMRC by 31 January each year.

The quarterly updates will require a summary-level report of the relevant income and expense data. Submissions that have already been made can be adjusted, if necessary, through a resubmission process. 

Touching on the final declaration, Hume advised that, as with self assessment, penalties and interest will apply if the 31 January deadline for submitting this information is missed. 

Thresholds fixed 

The HMRC spokeswoman confirmed that there are no plans to change the threshold for self-employed business owners and landlords being required to follow MTD ITSA rules. 

The existing threshold of an annual combined business and/or property income of £10,000 will result in 4.2m self-employed business owners and landlords being mandated under MTD ITSA. A further 7-8m will be able to continue to submit self assessment tax returns if they choose to do so. 

Partnerships unaffected until 2025

Hume confirmed the news from HMRC in September 2021 that the introduction of MTD ITSA for partnerships will be delayed until April 2025. 

No plans for quarterly tax payments

In response to an audience question, Hume said HMRC has no plans to introduce quarterly tax payments once MTD ITSA comes into effect. There will continue to be a single tax payment deadline of 31 January each year. 

MTD ITSA pilot programme

During the 2022/23 tax year, HMRC will be working closely with software providers such as FreeAgent to bring customers into the MTD ITSA pilot programme in a controlled way. The focus for HMRC will be on simple, mandated journeys and a set of eligibility criteria is currently in place. 

To take part in the pilot programme in 2022/23, participating taxpayers must:

  • be UK residents
  • keep digital records
  • be registered for self assessment 
  • have submitted at least one self assessment tax return
  • be up to date with their tax records, with no outstanding tax liabilities
  • have an accounting period that aligns exactly to the tax year.

The programme will expand in 2023/24 to test simple, mandated customer journeys at volume and to start testing more niche customer groups.

FreeAgent will soon be inviting its Practice Partners to use the software to make MTD ITSA submissions through HMRC’s pilot programme.

Keen to learn more about the information shared by HMRC during the session? A recording of the event is available to watch on FreeAgent’s website. 

Replies (18)

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By Hugo Fair
11th May 2022 21:07

"FreeAgent will soon be inviting its Practice Partners to use the software to make MTD ITSA submissions through HMRC’s pilot programme"

= "gobble, gobble, gobble ... I cast my vote for Christmas"!

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By HarryB
12th May 2022 09:12

'The programme will expand in 2023/24 to test simple, mandated customer journeys at volume and to start testing more niche customer groups.'

Hilarious. Still testing the simple stuff in 23/24!!

Someone get HMRC to re-read the Carter report from many years ago, the gist of which was that HMRC must ensure that software must be fit for purpose before being implemented.

Testing software for millions of people on a select group of taxpayers (allegedly only NINE people/landlords) is beyond a joke. How can such a small group be representative of the millions who will have to use this rubbish.

Most of our clients would fall in in the 'niche' category - multiple businesses, properties, partners, etc, and I guess that would be the same for a lot of represented taxpayers. so, we're still in the dark about what these quarterly dates actually look like......

Shambles.

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By ireallyshouldknowthisbut
12th May 2022 13:56

Why is it when I see these relatively close dates I cant do anything but laugh loudly.

There is huge mountain still to be climbed by HMRC, the biggest one of all being of course the "end of period statement (EOPS) and a final declaration (which will replace the annual self assessment tax return)"

So its taken 7 years to not yet be able to work out to file quarterly filings (the really easy bit as there is no tax here and its garbage data no-one cares about) and they are going to design a brand you SA tax return by April 25.

Which is the mind boggling complex bit. A tiny part of which they got so badly wrong with the 30 day report and pay for CGT. Which is one of several hundred potential entries.

I think what they mean is "replaces SA tax return with a hotch potch of disasters and work arounds" which is quickly shelved once they realise how big a job that is, quickly followed by the EPOS, and copy all of that only to the normal tax return for 99% of tax payers whilst we spend a further 10 years promising the end of the tax return, before coming in with a "Return of taxes" in 2035. Which goes pretty much what the old one did, but its more cumbersome and harder to complete, and is stuffed full of faults. ie following the path of the 30 day report and pay and all the other "improvements" such as putting NI for the self employed through ther tax return, which what 6, 7 years later (?) still doesn't work properly.

Its hard not to be cynical when the whole system is just going backwards.

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By JustAnotherUser
12th May 2022 14:58

8 people on the pilot
Only 3 products 'available now'
17 in development...
44 listed by HMRC for current self-assesment
They are at least 24 short for MTD SA, let along any new entries to the market... this is just for a final declaration, if the quarterly updates are (in some cases) going to be done in the bookkeeping product...
....over 500 can do MTD VAT

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By Open all hours
12th May 2022 20:39

‘Teams within HMRC are working closely together to align their communications….’
Really? There are ‘teams’ working on comms but very few of the unrepresented know anything about MTD except that it has spawned some seriously deficient ads from various software providers.
Come on HMRC, time to front up properly. Your customers deserve nothing less.

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By GHarr497688
12th May 2022 21:14

I've told my 70 year old client that his year end will have to change and he has to start using digital records for MTD ITSA from 2024 not to mention me filing six times a year for him. The comment was ignored so HMRC MTD Readiness Guru perhaps you can tell him. I won't be working after 2023 , us Accountants have had enough from you bully boys so let the Tax System collapse and then see what happens to your jobs.

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Replying to GHarr497688:
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By johnjenkins
13th May 2022 09:51

Maybe that's where the 90,000 civil service job cuts will come from.

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By monksview
13th May 2022 09:35

And today we hear the powers that be want to ditch a ton more civil servants, including HMRC staff. It really doesn't bode well.

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Replying to monksview:
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By MCV71
15th May 2022 20:06

It could bode well in that the daft project finally gets scrapped! Then we can have lots more time to chat away to our customers like Taxcalc said we should be doing in their article.

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By evo36nre
13th May 2022 10:35

Whilst we have moved on with cloud accounting etc., our problem and which doesn't appear to be being addressed, is because we deal with 99% of our clients' accounting/book keeping entries, how on earth are we going to get all transactions updated within a month of each quarter end, to enable a quarterly report on time anyway? We always require the 7 days at the end of the vat submission dates as it is, to get the vat registered stragglers' returns submitted and who still don't let us have the information early or won't use our other system to scan their invoices in. Or am I just missing something here?

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Replying to evo36nre:
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By Peter-S
13th May 2022 11:19

evo36nre wrote:

Whilst we have moved on with cloud accounting etc., our problem and which doesn't appear to be being addressed, is because we deal with 99% of our clients' accounting/book keeping entries, how on earth are we going to get all transactions updated within a month of each quarter end, to enable a quarterly report on time anyway? We always require the 7 days at the end of the vat submission dates as it is, to get the vat registered stragglers' returns submitted and who still don't let us have the information early or won't use our other system to scan their invoices in. Or am I just missing something here?

and in year one you will also be doing the tax return for the previous year, plus in the first reporting quarter half you staff could be sunning themselves on a beach somewhere but, hey, I'm probably just nit picking I'm sure HMRC have taken all of this into account.

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By SR TAX
13th May 2022 11:30

So HMRC want us to become competent in all the changes that MTD ITSA brings, and change our self-employed clients years ends to 5/4 including two overlap relief calculations and detailed Payments on Account for 2425 calculations - all so they know our clients income and expenses on a quarterly basis, which can then be changed anyway and on which they have no intention of taxing on a quarterly basis. No mention so far of how the other elements on a Tax Return, eg interest received, chargeable events, CGT will be reported under MTD ITSA.

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By Silver Birch Accts
13th May 2022 14:20

Responding to the question on this issue, HMRC’s external customer readiness lead for Making Tax Digital, Melanie Hume, recommended that taxpayers considering changing their accounting period to align with the tax year should avoid doing so until the start of the 2023/24 tax year.

I think Melanie is going to have her work cut as HRH External Customer Readiness Lead for Making Tax Digital.

Has she ever talked to a 'customer' , they are taxpayers, always have been , always will be.

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By lionofludesch
14th May 2022 19:22

On what grounds is Melanie Hume providing tax advice?

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By rockallj
16th May 2022 07:42

Should also ask Melanie Hume, why wait until 2023/24 for an accounting year change?

Can't HMRC cope with all the overlap relief claims before that? And if so, why not?
Because if they can't handle accounting year-end changes over the next 2 or so years, how on earth will HMRC cope with literally millions in 2023/2024?

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Replying to rockallj:
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By lionofludesch
16th May 2022 08:21

rockallj wrote:

Should also ask Melanie Hume, why wait until 2023/24 for an accounting year change?

Can't HMRC cope with all the overlap relief claims before that? And if so, why not?
Because if they can't handle accounting year-end changes over the next 2 or so years, how on earth will HMRC cope with literally millions in 2023/2024?

What extra work is involved for HMRC?

Unless we're thinking of providing information for taxpayers who couldn't be bothered to keep records of their overlap.

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Replying to rockallj:
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By Geoff56
16th May 2022 09:30

Perhaps it's because the extra profits arising in 2023-24 from this change will be subject to spreading relief, which will not be available if the change is made in an earlier year.

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Replying to Geoff56:
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By lionofludesch
16th May 2022 09:33

That's true. But there could be a case for spreading even thinner by moving the year end forward by a couple of months in 2022/23.

Every case will be different.

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