Delay to Making Tax Digital for Income Tax Self-Assessment ‘should trigger HMRC to review and rethink’

Accountants to contractors are backing the government’s December 19th decision to delay Making Tax Digital for Income Tax Self-Assessment until April 2026.

The backing from firms like Tax Ninja and Jenner & Co, represents a rare show of support for a government tax decision, particularly a government decision made so near to Christmas.

But both of the firms say their hope now is for a rethink about MTD ITSA, generally and specifically, beyond ministers now twice delaying it (initially the launch was April 2023).

'Policy decisions made seven years ago'

The general rethink of the scheme is required because MTD ITSA is “based on policy decisions made around seven years ago,” scorns contractor accountant James Trowell.

“It's been such a long time [from inception of the scheme until now that] the economic landscape has changed entirely,” Trowell, boss at Tax Ninja told ContractorUK.

He added: “The delay in MTD ITSA is the right move. Fundamentally, HMRC should review thoroughly and rethink. I mean; is quarterly reporting even still the best way forward?”

The government says MTD ITSA is being delayed because the scheme represents a “significant change to taxpayers” who are in a “challenging economic environment.”

'Added burden'

Chartered accountant Graham Jenner believes having to report to the Revenue every quarter isn’t going to become appealing to small companies once (or just because) economic growth returns.

“Small businesses want to focus their efforts on rebuilding their enterprises, so delaying MTD ITSA must be sensible in the current circumstances.

“But for our clients, Making Tax Digital for Income Tax Self-Assessment is seen as an added burden," Mr Jenner said. "Especially in preparing for it -- they would far rather leave it to us to worry about.

“Furthermore, the overall benefits being promoted by HMRC to the taxpayer don’t amount to enough for the average business to rush into MTD ITSA.”

'Misleading results'

Jenner & Co’s boss also said one specific aspect of MTD ITSA which keeps being touted isn’t having as much cut-through with tiny traders as HMRC would like.

“Even the ‘perk’ of being able to budget for the tax liability -- via HMRC’s provision of a tax estimate based on the quarterly submitted summary data -- isn’t a big incentive,”  the chartered accountant said.

“I fear that HMRC’s tax estimate calculator could give misleading results, as it will have to make certain assumptions regarding the level of profit for the remainder of the year.

“The taxpayer would, perhaps be better off having a quick discussion [with their accountant] about their tax estimate, which of course they can do without MTD ITSA.”

'HMRC should entirely re-assess MTD ITSA'

Kevin McCallum, chief executive officer at Bright Software Group says that ideally, HMRC will use the extra time granted by the delay to “assess the entire MTD ITSA process”.

Taking to LinkedIn, McCallum urged the Revenue to “identify areas which can be simplified.”

“For example, the existing self-assessment return is already submitted digitally, so a solution which links quarterly reporting into that return without reinventing the finalisation in January would mean taxpayers keep digital records and provide income and expenditure data early, without the upheaval of EOPS and crystallisation statements.”

'Obvious'

Julia Kermode is an adviser to independent workers like the self-employed, who will be covered by MTD ITSA from April 2026 if their income is above £50,000, or from April 2027 if their income is between £30,000 and £50,000.

She backed McCallum’s linking recommendation -- but admitted she can’t quite believe it’s not something HMRC has already actioned.

“Surely that's an obvious feature which should have been included from the outset,” said Kermode, founder of IWORK. “It [does seem] HMRC needs to review the whole process”.

'Opportunity for contractors'

But contractors, too, are among those who should use the breathing space wisely, according to Joanne Thorne, technical compliance manager at SJD Accountancy.

“While disappointing for many who have invested time and resource into facilitating the change, [the MTD ITSA delay] does at least offer an opportunity for contractors to get prepared and understand how MTD will change how they run their businesses," she said.

“It’s important to note that contractors can voluntarily start to file their tax affairs digitally now, helping them keep an accurate track of their income and taxes throughout the year to avoid the typical, last-minute anxieties at tax year-end.”

'Turbulent year'

Thorne further told ContractorUK that if they prepare now, contractors operating through their own limited company can do their bit to ensure the “transition to MTD is as seamless as it can be.”

Yet the SJD manager hinted some contractors might be not overjoyed at having to wait for another three years to get a digital tax account, partly because of what they’ve been through already.

“The delay to MTD ITSA…follows a turbulent year for contractors, with dangled cherries [relating to IR35], Mini-Budgets and Autumn Statements,” Thorne said. “So this delay may cause feelings of further uncertainty. Indeed, it might even be hard for some to trust that we won’t see any more changes -- or delays -- to the introduction of MTD ITSA.”

HMRC chief executive Jim Harra said: “HMRC remains committed to the delivery of Making Tax Digital as a critical part of our strategy for digitalising and modernising the tax system, but we want to make sure we get this right and deliver it effectively.”