Government Announces Simplified ‘Making Tax Digital’ Changes for Small Businesses

In a recent update accompanying the Autumn Statement, the government unveiled the results of its ‘Making Tax Digital’ (MTD) review tailored for small businesses. Ryan Pearcy, SB Digital Associate Partner, explores the changes announced and how they will impact small businesses in the UK.

The outcome of this review brings about some significant simplifications and adjustments to the MTD for Income Tax Self-Assessment (MTD ITSA) regime, aimed at enhancing the experience for taxpayers. These changes are set to streamline the tax reporting process, making it more accessible and manageable for small businesses.

One of the pivotal changes arising from the review is the decision to maintain the MTD mandating threshold at £30,000 from April 2027. This crucial decision reduces the number of taxpayers impacted by MTD, plummeting from an estimated 4.2 million to a much more manageable 1.75 million. Initially, the mandating threshold was projected to be set at £10,000, but this revision recognises the need to ease the transition for smaller businesses.

Another noteworthy improvement involves enhancing the design of quarterly reporting. Rather than obliging taxpayers to submit income and expenditure figures for a specific three-month period, the revised system will require quarterly updates to report cumulative figures for the entire tax year. This alteration eliminates the need for resubmitting updates when adjustments are necessary, streamlining the process and reducing unnecessary administrative burdens.

The government is set to remove the requirement for End of Period Statements (EOPS). This means, that taxpayers will now only need to file four quarterly updates, along with an end-of-year final declaration for each tax year. This simplification will make it easier for businesses to manage their tax obligations without the added complexity of EOPS.

In a bid to reduce the administrative workload on landlords with jointly owned properties, there will be additional concessions. Landlords with shared property ownership can now choose not to submit quarterly updates for jointly owned properties’ expenses. Additionally, they can maintain less detailed digital records, simplifying data sharing among co-owners and further easing their tax compliance efforts.

Certain groups that face limited benefits from MTD or unique barriers will also be exempt from the digital tax system. Foster Carers and individuals unable to obtain a National Insurance Number are among the identified groups eligible for exemptions. These exemptions recognise the diverse nature of taxpayers and aim to ensure fairness and equity in the tax reporting process.

To enhance flexibility and accommodate diverse needs, taxpayers will now have the option to authorise more than one agent for MTD for ITSA. For instance, a business could designate a bookkeeper to handle quarterly updates while enlisting an accountant or tax adviser to handle end-of-year submissions and final declarations. This feature empowers businesses to choose the approach that best suits their specific requirements.

The government’s announcement of changes to the ‘Making Tax Digital’ system brings welcome simplifications and improvements for small businesses. These changes are set to create a more user-friendly and efficient tax reporting environment for small businesses. If you would like to discuss Making Tax Digital and your obligations, please reach out to your usual Scrutton Bland contact or get in touch with the team by emailing hello@scruttonbland.co.uk or call 0330 058 6559.