Making Tax Digital for Income Tax Self-Assessment

From 6 April 2024, Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) will apply to self-employed individuals and landlords with total business and/or property income above £10,000 per year.

Under MTD for ITSA, taxpayers caught by the regime will have to submit quarterly updates to HMRC, providing summary information of income and expenditure for the quarter using MTD compatible software. In this blog, Lynn Gracie shares what we know and how we can help you.

MTD ITSA timeline and quarterly summaries

Following the introduction of MTD for VAT in April 2019, which saw us take part in a pilot scheme and file the first ever MTD VAT return, MTD ITSA was expected from April 2023. However, partly due to the pandemic, we have a new implementation date of April 2024.

If you are caught by the new requirements, you’ll need to maintain digital records and file digital quarterly summaries starting in the quarter ending 5 July 2024. Importantly, this filing should follow the tax year, rather than your accounting year end dates (unless they happen to be the same). There’s only a one-month window for filing, by the 5th of the following month, so the first filing deadline will be 5 August 2024.

Unlike MTD for VAT, HM Revenue & Customs (HMRC) will determine who is caught by MTD ITSA by reviewing 2022/23 personal tax returns, which means that there will be no requirement for you to register in advance.

Looking further ahead and following this phase of MTD, we can expect to see MTD ITSA for general partnerships by April 2025, followed by MTD for corporation tax no earlier than April 2026.

EOPSs and your Final Declaration

At the end of each tax year, and after filing quarterly summaries, an End of Period Statement (EOPS) will be required for each business you own and for any income from property. We can help ensure that this includes any necessary adjustments to take advantage of allowances and tax reliefs.

By 31 January following the tax year end, you will also need to legally declare, via the submission of a Final Declaration, that you’ve provided HMRC with all the information they require and that you agree with their income tax calculation. We can help ensure that this final declaration brings together all your tax information from quarterly updates and EOPSs, together with any income that falls outside of MTD, such as dividends and interest. Your Final Declaration applies to you as an individual, so we’ll only need to submit one for you each year, very much like your self-assessment return.

More about who will (and won’t) be affected

All self-employed individuals and landlords with total business and/or property income above £10,000 per year will be caught by this regime. However, if your income falls below £10,000 for three consecutive years, you will be able to exit MTD ITSA.

There are also exemptions if:

• You are digitally excluded – so it’s not reasonably practicable for you to use digital tools to keep business records or submit quarterly returns due to age, disability or remoteness of location.
• You are subject to an insolvency procedure.
• Your business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.

If you fall into any of the above categories, you’ll need to apply to HMRC to claim an exemption, which they will either grant or deny within 28 days.

Other exemptions from MTD ITSA also apply to:

• Trusts,
• Estates,
• Trustees of registered pension schemes, and
• Non-resident companies.

How we can help you

If you are likely to be affected by MTD ITSA, we will be in touch again before you need to take any action to be compliant, but it’s never too early to be aware of the forthcoming changes, so that you can start thinking about how to prepare. To help identify if MTD for ITSA will affect you, please download this guide from AAB.

Although some of the MTD ITSA platforms are still in development and testing phases, we already use Xero which has received HMRC approval and we await the approval of the CCH platform which we expect may provide a suitable solution for landlords. Just as we successfully supported clients in preparation for MTD for VAT, we will be able to recommend which technology to invest in, and implement it to ensure you can be MTD ITSA compliant.

There was great benefit in us joining the MTD for VAT pilot, so if you’re a landlord or self-employed and you would be interested in helping us take part in the MTD ITSA pilot, please get in touch – all we need to do this is a couple of willing clients.

And finally, we are monitoring MTD ITSA closely and you can rely on us to keep you up to date with any relevant developments. If you have any queries, please get in touch with your usual AAB team member or email Helen Furniss.