Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA)
As you may or may not yet be aware, it is “HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world” The next stage in their master plan to make it “easier for taxpayers to get their tax right” is the introduction of MTD for ITSA. Following a series of delays to its introduction, we are now quickly approaching the point of no return.
From 6 April 2024 MTD for ITSA will apply to any individual, ordinary partnership or trust with total self-employment and/or property income above £10,000 per year. The £10,000 threshold will be based on income figures provided in 2022/23 self-assessment returns. Taxpayers with such income declared will be automatically mandated into MTD for ITSA from the 6 April 2024.
The threshold of £10,000 will apply to total gross income or turnover. For example, if an individual has £4,000 of sales from a sole trader or partnership business, £8,000 of rental income and they will fall within the scope of MTD for ITSA as the total income of £12,000 exceeds £10,000 test.
For taxpayers falling within MTD for ITSA, the following new requirements will arise:
- Accounting records must now be kept digitally, using compatible software;
- A quarterly summary submitted to HMRC, providing details of income and expenditure together with any other information yet to be specified by HMRC.
- A final end of period statement or return (called “EOPS”) will then be submitted after the tax year ends to complete the individual’s tax reporting.
Although the frequency of reporting is to change, the timing of tax payments will not and the current system of payments on account by 31 July and balancing payment by 31 January after the tax year should remain in place.
All businesses within MTD for ITSA will have to provide quarterly updates of their income and expenses; there is currently no requirement to include tax or accounting adjustments.
An individual will be required to submit a separate quarterly update for each trade or property business carried on.
Quarterly updates will cover the same periods, in line with the tax year, regardless of a business’s accounting period end. Although, businesses can elect to prepare quarterly updates to the end of the previous calendar month should they prefer. Where this election is made, the filing deadlines will remain the same.
|Period covered||Filing deadline|
|Quarter 1||6 April to 5 July OR 1 April to 30 June||5 August|
|Quarter 2||6 July to 5 October OR 1 July to 30 September||5 November|
|Quarter 3||6 October to 5 January OR 1 October to 31 December||5 February|
|Quarter 4||6 January to 5 April OR 1 January to 31 March||5 May|
The first quarterly updates under MTD for ITSA will therefore be due for filing by 5 August 2024, and will cover either the quarter ended 5 July 2024, or 30 June 2024 (where a calendar quarter election is in place).
If you are a sole trader or a landlord and your income exceeds £10,000 from your businesses, you will need to be ready for MTD for ITSA by April 2024.
If you are a sole trader and your trading period does not match the tax year, you will need to make arrangements to switch by April 2024.
If you wish to discuss any of the above or discuss the best way to digitise your record keeping ahead of the mandatory changeover date, please do not hesitate to contact us..
The Governments guidelines on MTD can be found here