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MTD income tax: Big bang start in April 2023

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It appears that all self-employed taxpayers will have to start reporting under MTD for income tax (MTD ITSA) from 6 April 2023, which is an acceleration of up to 12 months for mandation into MTD for many unincorporated businesses.

6th Aug 2021
Tax Writer Taxwriter Ltd
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The announcement of the abolition of basis periods from 6 April 2023 has created a good deal of confusion around when exactly unincorporated businesses would be mandated into MTD for income tax (MTD ITSA), and thus when they will have to start filing quarterly submissions using MTD compatible software.

As raised on AccountingWEB’s MTD Bootcamp webinar, many businesses and accountants were planning for the transition to MTD ITSA based on the draft regulations (found in this policy update), as explained in MTD webinars run by HMRC and others.

The basic rule (set out in draft reg 4) is that a taxpayer must join MTD ITSA from the beginning of the accounting period that starts on or after 6 April 2023. Thus, if the accounting period starts on 1 April, the business would be mandated into MTD from 1 April 2024, being the first accounting period that starts on or after 6 April 2023.

Basis period change

The draft provisions that will bring into effect the shift to the tax year basis of assessment, treat an accounting period that ends on any of 31 March, 1 ,2, 3 or 4 April, as if it ended on 5 April, with effect from 2023/24. Any income and expenses arising in the few days after the end of the accounting period and before the end of the tax year will be treated as if they arise in the next tax year.

In the transition year (2022/23) taxpayers will have to report all the expenses and income of the trade that arise between the end of the accounting period that was assessed in 2021/22 and 5 April 2023 (or 31 March if that is the accounting period end). The following basis period for tax purposes to be assessed in 2023/24 will be deemed to start on 6 April 2023.  

Example

When Peter started his self-employed business he made up his accounts to the tax year: 5 April. As his business grew, he engaged an accountant: Bill, who advised him to change his accounting period to end on 31 March. Bill said it would be easier to track income and expenses to the month end, and this change would also give Peter an extra year to prepare for MTD filing. 

Peter was expecting to have to start reporting under MTD ITSA from 1 April 2024, being the first accounting period starting on or after 6 April 2023.

Under the new tax year basis Peter will have to report his business income and expenses in the following years: 

  • 2022/23: 1 April 2022 to 31 March 2023
  • 2023/24: 1 April 2023 to 31 March 2024 – tax year basis.

Peter will be required to report under MTD from the quarter starting on 6 April 2023, as the period 1 April 2023 to 31 March 2024 is deemed to be: 6 April 2023 to 5 April 2024 for tax purposes. This brings forward his start date for MTD ITSA by nearly 12 months.

The CIOT agrees this is a result from the switch to the tax year basis. Pete Miller, chair of the CIOT’s Owner Managed Business Committee, said: “Formally deeming 31 March as equivalent to 5 April is, we believe, also likely to mean that unincorporated businesses will need to follow the rules for MTD ITSA from their next accounting period starting on or after 1 April 2023, rather than 6 April 2023.”

Updated MTD regulations?

The MTD income tax regulations will have to be amended to reflect the change to the tax year basis.

Delay MTD?

The CIOT is concerned about the very tight time frame in which the switch to the tax year basis will take place.

Pete Miller commented: We would have preferred the start date for MTD ITSA to be deferred in order to accommodate a more thorough consultation process and give businesses more time to absorb the impact of the change in the basis period rules before they transition into the MTD regime.”

The ATT is more direct in its recommendation to delay the change in basis period as the pace of change may overwhelm many businesses.

Jon Stride, co-chair of ATT’s Technical Steering Group, said: “Pushing back both the start of MTD for Income Tax and this new proposal would give time to ensure that the basis period change works as smoothly as possible – and it would also allow a full 12-week consultation period.”

Discussions

We understand that discussions are ongoing between the professional accounting/tax bodies and HMRC to resolve this issue.

In response to our questions HMRC has provided this revised statement: “The government announced its intention to explore basis period reform as part of the tax administration framework review and in its consultation on basis period reform published on 21 July. Over the last few months we have been informally consulting with the tax community.

We invite further views through responses to the consultation, including on the reform’s interaction with other aspects of the tax system like Making Tax Digital. The consultation closes on 31 August and the Government will then consider all of the responses in full and will publish its conclusions in due course."

Separately we received confirmation from HMRC that mandation date for MTD ITSA is 2023.

If 6 April 2023 is to be the big bang start date for all self-employed taxpayers to commence reporting under MTD, this will have huge implications for all accountants who act for small businesses, and for tax software providers. 

Feedback

If you have views on how or whether the proposed change to basis periods should be introduced, please respond to the consultation on this issue to: [email protected] or post your comments below, and AccountingWEB will respond on behalf of the community.

The consultation closes on 31 August 2021.

For more practical tips on getting clients ready for MTD, join John Stokdyk and a panel of accountants for the next installment of the MTD Bootcamp on Wednesday 11 August.  

Replies (119)

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By memyself-eye
06th Aug 2021 13:02

there are two letters missing from MTDITSA - between the 'D' and the 'I'.
When the 'S' and the 'H' are inserted it exactly describes how this will 'pan' out.

Thanks (8)
Replying to memyself-eye:
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By AdamMurphy
06th Aug 2021 15:01

Also, as I mentioned the other week, also MTDfIT stands for, Making Tax Digital? F*** it

Thanks (6)
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By Winnie Wiggleroom
06th Aug 2021 13:19

beats me why anyone would think they could gain an extra year if they have a 31/3 y/e, pretty obvious to me MTD comes in from the start of the 23/24 tax year, deal with it, its not like its a bolt out of the blue

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Replying to Winnie Wiggleroom:
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By Geoff56
06th Aug 2021 14:11

Because that's what was originally announced - from the start of the first accounting period beginning on or after 6th April 2023.

Thanks (11)
Replying to Winnie Wiggleroom:
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By Paul Crowley
06th Aug 2021 17:45

If HMRC want to rewrite the rules, despite making very clear that the rules were the rules then van we trust anything that HMRC put forward?

Thanks (8)
Replying to Winnie Wiggleroom:
RLI
By lionofludesch
09th Aug 2021 08:36

Winnie Wiggleroom wrote:

beats me why anyone would think they could gain an extra year if they have a 31/3 y/e, pretty obvious to me MTD comes in from the start of the 23/24 tax year, deal with it, its not like its a bolt out of the blue

Because it's not how it worked for MTD for VAT.

Maybe HMRC learned from that loophole,

Thanks (1)
By SteveHa
06th Aug 2021 15:39

Quote:
If you have views on how or whether the proposed change to basis periods should be introduced, please respond to the consultation on this issue to

To what end? HMRC will ignore, and simply tick the box that says "consultation done".

Thanks (13)
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By GHarr497688
06th Aug 2021 20:29

All these changes are beyond belief. Clients will not understand the new basis period and the Accountant will have problems explaining. Even without this added complication rushed through MTD will cause inaccurate tax figures and mass errors in record keeping. Changes in periods , six filings a year , digital record keeping all rushed through to prove the billions spent on MTD is a disgrace. HMRC can't even cope with the current system.

Thanks (18)
Tornado
By Tornado
07th Aug 2021 10:43

More unenforcable madness to take with a pinch of salt.

Thanks (10)
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By bluebaron
07th Aug 2021 16:53

MTD = Madness Tax Digital.

Thanks (3)
Replying to bluebaron:
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By Hugo Fair
07th Aug 2021 17:06

I prefer ... Making Tax Doubtful.

Thanks (11)
Chris M
By mr. mischief
07th Aug 2021 17:56

Making Tax Diabolical.

Thanks (8)
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By [email protected]
07th Aug 2021 18:20

Making Tax Difficult

Thanks (16)
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By [email protected]
07th Aug 2021 18:20

Making Tax Difficult

Thanks (0)
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By bluebaron
08th Aug 2021 08:45

Making Tax Dangerous.

Thanks (3)
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By Latinaid
08th Aug 2021 08:52

Doubtful, Diabolical, Difficult, Dangerous - it's a right Dog's Breakfast

Thanks (4)
Replying to Latinaid:
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By Geoff56
09th Aug 2021 09:23

Or even a Dog's Dinner (to continue the alliteration).

Thanks (3)
Tornado
By Tornado
08th Aug 2021 10:07

I think we have come to the stage where all of these knee-jerk, uncoordinated, hastily planned ideas are more worthy of ridicule than serious attention. This is not to say that some of the ideas do not have merit, is just the way that they are implemented that is the problem.

Thanks (8)
Replying to Tornado:
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By johnjenkins
09th Aug 2021 09:44

I don't think many Accountants have any problems with getting their clients digital. In fact I would think most are already there in one shape or form. It's the quarterly updates and mandatory filing that is the ludicrous part of MTD and as all Accountants agree HMRC will end up with another IR35 on their hands. It's time Rishi pulled the plug (if he's still there).

Thanks (4)
Replying to johnjenkins:
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By whiteways
09th Aug 2021 10:14

Not me.

The vast majority of my clients are pen and paper and wouldn't have a clue where to start.

Thanks (13)
Replying to whiteways:
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By bluebaron
09th Aug 2021 11:31

Most of my clients are not digital, so it is a massive leap for them. The multiple submissions each year is horrifying. Take the period ending June 30th -well, I can just envisage July when I am away for a week's holiday, and then the client(s) is away for a week's holiday, making the 31st July deadline even more problematic.
MTD forget IT!

Thanks (7)
By ireallyshouldknowthisbut
09th Aug 2021 09:45

meh, I wasn't going to get engaged in this until July 2024 at the earliest anyhow.

The keen folks can break themselves on this first and try to get HMRC 'lean' (or half finished) system working for 12 months first.

I'm going to stick to working out how much tax folks owe, which is my job, not facilitating this folly.

Thanks (19)
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By Alanpryan
09th Aug 2021 09:46

I predict a riot...

Thanks (4)
Replying to Alanpryan:
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By crofte
09th Aug 2021 10:06

I predict my retirement.....

Thanks (7)
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By accountright
09th Aug 2021 10:05

..........I'm going to retire!

Thanks (3)
Replying to accountright:
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By HLB
09th Aug 2021 10:12

Me too

Thanks (3)
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By Paul Crowley
09th Aug 2021 10:12

If everyone retires
MTD will not be complied with because too few accountants available to work solidly on it one month in every three

Thanks (7)
Replying to Paul Crowley:
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By johnjenkins
09th Aug 2021 10:25

We don't have to retire. We only have to say we are not complying with this rubbish. That's the beauty of democracy.
It would be interesting to know how many VAT registered business are not on MTD through one reason or another.

Thanks (6)
Replying to johnjenkins:
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By Paul Crowley
09th Aug 2021 11:25

I have a couple where client do their own
A couple that I know about that is, maybe more

Thanks (2)
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By whiteways
09th Aug 2021 10:16

Retirement is looking more and more attractive to me too.

Thanks (4)
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By spenner68
09th Aug 2021 10:19

Completely Unworkable New Tax System

Thanks (16)
Replying to spenner68:
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By johnjenkins
09th Aug 2021 10:33

naughty naughty. It's a wonder the editors let you get away with it. If it had been me who posted they would have taken it off.

Thanks (2)
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By AndyC555
09th Aug 2021 10:29

All the more reason to bring forward my retirement date.

I do less and less tax advising and more and more tax administration.

Thanks (2)
David Ross
By davidross
09th Aug 2021 10:45

it does seem odd that HMRC would change everything to match the 5th of the month rather than the end of the month. I can appreciate that reforming PAYE would be required, and that may be the problem, but it ignores the fact that VAT works on a calendar month basis.

Al least it reduces the number of accounting periods that the dismal johnnies on here have been banging on about - since Property and Business will use the same dates.

Those who are retiring in disgust - happy to pick up your clients. I'm nearly 65 and this a business opportunity, not a reason to throw in the towel.

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Replying to davidross:
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By jondavies
09th Aug 2021 11:16

My sentiments exactly. Anyone wanting to throw in the towel, please get in touch. I'm happy to pick up any clients being thrown on the scrap heap and help them - something we're supposed to be doing anyway!

Thanks (0)
Replying to jondavies:
RLI
By lionofludesch
09th Aug 2021 11:26

I've always said there'll be plenty of work around.

But it's low grade work that I don't want to do.

Thanks (7)
Replying to lionofludesch:
Tornado
By Tornado
09th Aug 2021 13:23

I can agree with that.

I am finding that specialised work is far more profitable than Book-Keeping and much less hassle as well.

Whilst retiring might be an option, I am thinking that MTD might in fact be a golden opportunity to change direction and specialise with a few clients at high fees than continue grinding away at many clients for low fees when there seem to be so many people happy to do that.

Thanks (5)
Replying to Tornado:
RLI
By lionofludesch
09th Aug 2021 13:39

Tornado wrote:

I can agree with that.

I am finding that specialised work is far more profitable than Book-Keeping and much less hassle as well.

It's not even about "profitable".

I just wouldn't enjoy doing basic bookkeeping all day, every day. I don't mind getting my hands dirty a bit but it's looking like bookkeeping would be pretty much all I'd be doing.

Thanks (4)
Replying to davidross:
By Charlie Carne
09th Aug 2021 12:59

I agree that this is the perfect opportunity to change the tax y/e to 31st March for exactly the reasons you state (shared year-end dates for property and business, as well as shared with VAT qtr-end). Mandating that all unincorporated businesses use 31st March as y/e and property businesses must use 5th April is insanity.

Thanks (4)
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By CORSALOVER2
09th Aug 2021 10:53

So here it is at last. Big Government stamps on Small Traders. On little people who run tiny businesses and don't know one end of a computer from the other. The next thing we will be told is that they must do it themselves through their 'personal tax account'' and we agents can't do it for them.

It would not surprise me if a great many more 'small traders' decided to go back into the black economy and revert to 'cash only' that's if cash hasn't been abolished by then.

Well, that's the last straw. I'm not prepared to play their silly games so will be hanging up my practice on 6th April 2023, and advising any remaining clients that they need to examine their options most carefully.......... although I will sadly miss the fee income, it's time to retire.

Thanks (11)
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By jondavies
09th Aug 2021 11:09

From an accountants point of view I don't see why everyone is up in arms and demanding a delay. As an industry we've known about it for long enough to warn clients and get them on board with digital systems.
I notified all my clients early last year that they would need to go digital from April 2023 and suggested that they make the switch from April 2022 to give everyone a year to get used to working in this way.
There are plenty of platforms out there (I use Nomisma) which provide accountant and client access to business accounts, and use mobile apps for invoicing, supplier invoice processing, photo uploading for receipts etc, which are easy to use. There really isn't an excuse for not being able to go digital well in time for the deadline.
All my clients bar one have agreed to switch in time for the 2022/23 tax year and most have already.
The one who won't has learning difficulties and find technology of any kind too much. He issues hand written receipts for jobs and keeps all purchase/expense receipts in monthly pockets. He could get an exemption from HMRC though that's doubtful as he has access to help (me).
He wants to comply though so his wife will be the one raising invoices and taking photos of receipts which I will process for him.
So really there's no excuse.
All the excuses I see come from within the accounting industry - it's as though we've been caught out which isn't the case. Even this proposed change to the base period is still over a year away so start acting on it now and stop whingeing.

Thanks (2)
Replying to jondavies:
blue sheep
By Nigel Henshaw
09th Aug 2021 11:14

Well said

Thanks (1)
Replying to jondavies:
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By johnjenkins
09th Aug 2021 11:59

You really don't get it do you. This is just the start of the destruction of the small business (including our own profession). I predict a more concerted effort will be made on behalf of the small business than the one caused by the destruction of the coal industry. Again I warn Boris and co. of what could well happen at the next general election.

Thanks (2)
Replying to jondavies:
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By GHarr497688
09th Aug 2021 13:08

What is the average age of your client and how old are you ? What are your client types. I was told by HMRC to get a Farmer of limited resources financially to go to night school to learn about book-keeping and computers - he was 82 last year , another younger client gets worried when she works on a computer and I have evidenced increased risk of error with her VAT returns - if she has a system that works and is accurate why should be be asked to spend more time and money when the risk of error is greater. Would you squeeze into size 6 she shoes when you are a size 9.

Thanks (5)
Replying to jondavies:
RLI
By lionofludesch
09th Aug 2021 13:43

jondavies wrote:

All the excuses I see come from within the accounting industry....

Where else would they come from ?

HMRC ? Not really.

Taxpayers ? They don't know what's involved - yet.

Come back to that statement in a couple of years' time and review it.

Thanks (9)
Replying to jondavies:
By ireallyshouldknowthisbut
09th Aug 2021 13:50

@jon, its a "well which clients?" question.

VAT registered clients, not much of an issue as you will already be using software in the main and you can mash over some more numbers if we really have to. A tedious waste of time, and of course will be for a potentially different VAT cycle (mine are all synced to year ends so will be all the same Q as the report)

But for the landlord with one property all managed by a lettings agent who's tax return takes a few minutes one a year, or the consultant who issues 12 invoices a year alongside a day job and has perhaps 20 transactions total per annum its quite frankly beyond any realm of sanity to have to file that quarterly, and what's more ALL of them in one quarter, and then nothing for the other two months.

You also have to remember that once you are in, you cant file the current SA. you will be filing multiple online returns for each part of it. So a sole trader / landlord with a day job then rather than one return as now once a year you will be filing 2* quarterly report with junk data on and then will be filing probably 4 or 5 segmental returns . The real kicker is your client will have to reauthorise you via their digital tax account - which most clients don't have at this level - and have caused as you would be aware if you do 30 day report and pay for property, utter chaos and many firms resorting to default paper returns as its in the "too hard" pile.

So overall its a huge administration burden being dumped on our laps which we are expected to make work, and for absolutely nothing of benefit to the tax payer (who will have to pay for this) and as for HMRC I don't see how they benefit either. There is no point to this, other than senior personnel have said it will happen and need to move on to their next role before it doesn't and the brown stuff circulates.

I note the MTD fvor VAT which was supposed to raise Xbillion in extra revenue has made no traceable difference. The hypothesis from our side of course is that software overstates VAT on expenses so will go down. As HMRC have not published any data on this, I can only assume this is the result. But they are keeping very quiet about all of this.

Thanks (10)
Replying to jondavies:
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By AdamMurphy
09th Aug 2021 14:07

You really don’t get it. Why should very small businesses with perfectly good paper records have to [***] about playing with gadgets to take photos taking a lot more time than just writing up a book. Never mind the other waste of time with other elements. For small businesses your shiny cloud toys are overkill

Thanks (10)
Replying to AdamMurphy:
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By AdamMurphy
09th Aug 2021 14:41

Gosh, the filter on here is awfully sensitive. All I typed was the word that Julian Clary called his dog in the 80s/90s

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Replying to AdamMurphy:
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By johnjenkins
09th Aug 2021 15:34

For some but Spenner got away with it.

jj

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Replying to AdamMurphy:
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By GHarr497688
09th Aug 2021 16:23

[***]

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