The Office for Tax Simplification (OTS) issued a consultation paper in June exploring the implications, costs, pros and cons of moving the tax year end date for individuals from 5th April to another date such as 31st December or 31st March. The reasons for this were to sit alongside ever increasing requirements under the government’s ‘Making Tax Digital’ (MTD) programme. MTD is already in place for some areas of taxation and is being phased in for others over the coming years. As a result of all the coming MTD changes, the proposed Tax Year End change has now been postponed.
The Making Tax Digital (MTD) Phases
Phase 1: MTD payroll - Real Time Information (RTI) reporting started in April 2013. Employers with payroll for employees must every time they pay staff, electronically submit to HMRC details of amounts to be paid to each employee, hourly rate, hours worked and deductions. For many employers, this may be weekly or monthly. You must usually report RTI using approved payroll software before you physically pay your staff. We usually do this for staff on the same day to avoid confusion.
Phase 2: MTD for VAT registered businesses. MTD for VAT started in April 2021. All VAT returns must be submitted electronically via an approved book keeping software package.
Phase 3: MTD for Non VAT registered businesses. For smaller turnover companies that are not VAT registered (turnover below £85,000 threshold), the deadline for MTD now takes effect from April 2022. So you need to start planning now.
Phase 4: MTD for Income Tax. Self Employed and Landlords with annual business or property income (not your profit after expenses, it is just the gross income) in excess of £10,000 pa will be required to file real time income and tax information returns quarterly under MTD as well as a final year end self assessment return from April 2023. You can already voluntarily do this now as part of a number of pilot schemes but it becomes compulsory for all in April 2023. Start your planning early for this.
Phase 5: MTD for Corporation Tax. This is in consultation at present and likely to come into force in 2026.
Given all of the above changes with making tax digital, the OTS has made a recommendation to the Government to not change the personal tax year end date for the time being. It make sense to get all the MTD ‘balls in a line’ and working smoothly as moving the tax year end date will have little effect if we are already filing regular MTD returns on self employed income and landlord rental income. Remember, for employees, MTD it is already technically in place with RTI on payroll software.