Coconut set to be acquired by GoSimpleTax after UK delays Making Tax Digital to 2026

The Government’s two-year delay through Coconut’s funding round into disarray and forced a sale.

Founded in 2018, former SME current account-turned accounting app Coconut is set to be sold to rival GoSimpleTax after its latest funding round was scuppered by changes to the UK’s upcoming Making Tax Digital scheme.

Coconut started out as a current account for small businesses, harnessing open banking and later ditching its accounts to become a dedicated accounting app.

The UK had been due to introduce Making Tax Digital for self-assessment by 2024, a key market for Coconut whereby those self-assessed workers filing self-assessed tax returns would now need to do so quarterly rather than annually and in an entirely digital format.

In December, after many previous delays, the government announced a two-year extension to the deadline until 2026, and raised the level at which taxpayers are impacted from £10,000 of income to £30,000.

“With a possible labour government in play by the time the 2026 mandate date is reached and time for competitors to catch up, raising enough funds now or in the future will be impossible for the business,” wrote Coconut’s co-founders Sam O'Connor and Adam Goodall in a letter to shareholders last week seen by AltFi.

Coconut let its employees go at the end of February and management spent the month evaluating 20 potential acquirers, with GoSimpleTax ultimately being the best fit.

“Coconut’s bookkeeping features present an opportunity to combine GoSimpleTax filing features and create an end-to-end accounting solution. Customers will get all of Coconut’s features with VAT filing and self-assessment,” wrote O'Connor and Goodall.

Last week the company’s crowdfunding investors were asked to vote on the deal by 5 May, a deal which will see no cash return but will result in then maintaining a minority shareholding in GoSimpleTax.