Many self-employed individuals may have to conform with Making Tax Digital for income tax self-assessment (MTD for ITSA) a year earlier than planned.
Many unincorporated businesses were planning for the changes to apply from accounting periods that start on or after 6 April 2023.
For those with accounting periods that don't align directly with the tax year, this may have allowed more time for them to prepare.
However, the Government recently announced a consultation to abolish basis periods for businesses that pay income tax on trading profits on a current-year basis, shifting instead to a ‘tax-year basis'.
The proposal could see 7% of sole traders and 33% of business partnerships receive bumper tax bills for 2022/23, as their accounting periods are adjusted to fit exactly to the tax year from 6 April 2023.
That means business owners who have an accounting period ending on 31 March, as many do for accounting purposes, will have their data for MTD for ITSA brought forward by nearly 12 months.
Pete Miller, chair of the Chartered Institute of Taxation's owner-managed business committee, said:
"Ultimately, we would have preferred the start date for MTD for 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."
Talk to us about MTD for ITSA.