Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is part of the UK government’s agenda to make tax accounting simpler for businesses and individuals such as sole traders.
It was announced on 23 September 2021 that MTD ITSA would be postponed yet again to 6 April 2024.
Will I be affected by it?
Yes, if you are self-employed, are a landlord with a tax year turnover exceeding £10,000 or have a partnership which consists only of individual partners. The turnover threshold considers the combined turnover of a person’s total number of businesses and rental properties.Are there any exemptions?
There are a few exemptions, clearly trades and/or rental income where the turnover does not exceed £10,000 and the following:
- A deceased person’s estate
- Registered pension scheme trustees
- Non-resident companies
- People who are able to claim they are digitally excluded
What is meant by ‘digitally excluded’?
This is where for example, due to your location you cannot obtain internet access at or near your home or at your workplace. Also, if you have a disability, which stops you from using the software technology or lastly your religious beliefs.Will MTD ITSA mean I have extra work to do?
You will be required to provide your trading/rental records in a digital format. During the tax year, you will need to make quarterly digital submissions to HMRC of your income and expenses for your trade/rental business.When do I have to make the quarterly submissions?
Over the course of the year the schedule would run:
- 5 August – covering the 1st quarter to 5 July.
- 5 November – covering the 2nd quarter to 5 October.
- 5 February – covering the 3rd quarter to 5 January.
- 5 May – covering the 4th quarter to 5 April.
At the time of writing, you will need to make your very first MTD ITSA submission by 5 August 2024.
What will I need to include in the submissions?
You will need to include details of your trading/rental income and expenses for the applicable quarter period. It is probable that you will need to break down your submission into categories similar to what is presently required for a self-assessment tax return.Will I have to pay my tax to HMRC at the same time as the quarterly submissions?
Currently, no, you will continue to pay the tax to HMRC on 31 January and 31 July each year.What happens after I have made the 4th quarterly submission?
You will have to make a further digital submission for the tax year called an end of period statement (EOPS). This EOPS enables you make the necessary adjustment to what you have already submitted in respect of things like capital allowances and losses.
You must submit the EOPS by 31 January following the end of the relevant tax year and if you have more than one trade, you must submit an EOPS for each trade.
Will I still need to complete a Self-Assessment Tax Return?
No, not if you are complying with MTD ITSA process.How will I declare my other income and capital gains disposals?
If you are in this position, you will also need to submit a finalisation statement (FS) by 31 January following the end of the relevant tax year. In this you will need to include other income and gains not already reflected in the quarterly submissions on the FS.What will happen if I don’t comply?
HMRC are likely to charge fines.
What do I need to do?
- Whatever you do act now, do not leave it until the last minute.
- Check now to see if you are affected by the MTD ITSA rules.
- Review your use of HMRC compatible software so that you are able to maintain and submit the relevant records digitally.
Angel Bookkeeping can help you to source MTD ITSA compliant software and if required, train you on how to use that software. I will ensure that the MTD quarterly submissions, EOPS and FS are submitted on time and advise on the tax and national insurance (if applicable) to be paid.
This is based upon present HMRC draft proposals which may be subject to change.