The UK government has further delayed the introduction of Making Tax Digital (MTD) for income tax self-assessment, the fifth such postponement since HMRC announced that the system would start operation in April 2018.

MTD will require self-employed persons and landlords to keep electronic records and use special software to prepare revenue and expenditure reports five times a year. It is now being phased in from April 2026, rather than April 2024. Self-employed individuals and landlords with an income of more than GBP50,000 will have to comply by April 2026. The deadline for those with income between GBP30,000 and GBP50,000 has been put back to until April 2027.

The government has not yet decided whether or when MTD will be applied to individuals earning less than GBP30,000. Moreover, it will not now be mandatory for general partnerships in 2025, although the government has said it will be introduced for partnerships ‘at a later date’. The new penalty system being introduced to harmonise late submission and payment penalties is also being postponed. It will not come into effect for taxpayers until they are compelled to join MTD.

The announcement separates the introduction of MTD for income tax from the proposed change to tax basis periods, which is due to commence transitionally from April 2023.

The postponement has drawn approval from many professional tax and accountancy bodies. The Institute of Chartered Accountants in England and Wales (ICAEW) described it as ‘inevitable given the very small numbers of taxpayers in the restricted pilot and a long list of problems with digitalising tax reporting of trading and property income’. The problems included taxpayers’ lack of awareness of the system’s requirements, the absence of a solution for non-tax year accounting periods, taxpayer resistance to using commercial software and doubts that HMRC, software developers and agents have the capacity to deliver the change.

‘HMRC and government must take the opportunity to reconsider some aspects of MTD ITSA policy’, said the ICAEW. ‘HMRC should now undertake a critical review and question whether policy decisions made seven years ago are still appropriate.’ Quarterly reporting in particular should be reconsidered, it said.

‘This announcement recognises reality’, commented the joint Association of Taxation Technicians (ATT) and Chartered Institute of Taxation (CIOT) committee on digitalisation and agent strategy. ‘The incredibly limited testing, combined with significant problems still to be resolved, means that this delay had to happen.’ The committee cited its survey of tax professionals, carried out in December 2022, which found that 97 per cent of respondents did not think that MTD for income tax in its current form could be successfully introduced from April 2024.