Making Tax Digital for Income Tax Self Assessments (MTD for ITSA) is the latest big change to HMRC’s rulebook. The initiative focuses on creating digital records, improving tax reporting, and increasing the uptake of digital tax software, overhauling the UK tax system for millions of sole traders and landlords.
Sounds pretty daunting? Don’t worry, if you’re panicking then you’re not alone. At Angel Bookkeeping & Payroll Services, a lot of our clients have been concerned about these proposed changes, which is why we thought we’d outline what’s going on and how you can stay ahead of the overhaul. Get to grips with the future of UK tax in this guide.
What is MTD for ITSA?
MTD for ITSA is a digital initiative that will change the way sole traders and landlords maintain and report their income records. Rather than sending a Self Assessment once a year, qualifying businesses will have to submit four quarterly updates throughout the year alongside a final declaration due at the end of the tax year.
You’ll be urged to maintain digital records of your income and expenses, and use compatible software when submitting your updates.
The good news is that MTD for ITSA is focused on making tax rules simpler to follow, helping you pay the right amount of income tax for your earnings.
When Does MTD for ITSA Start?
For sole traders and landlords, MTD for ITSA will come into force in April 2026. At this stage, individuals earning over £50,000 will have to meet the new requirements. In April 2027, individuals earning £30,000 or more will be required by law to follow MTD for ITSA.
Having said that, the journey towards MTD for ITSA has already begun. In 2019, the government introduced Making Tax Digital for VAT, which required qualifying VAT-registered businesses to submit their returns and records electronically.
Do Partnerships Have to Follow MTD for ITSA?
As of October 2024, the government intends for partnerships to follow the new MTD for ITSA regulations but hasn’t announced the date that this will come into force. If you’re in a business partnership, we recommend keeping an eye out for updates. Don’t have time to monitor tax changes? Work with us and we’ll stay ahead of the curve for you.
What Are the MTD for ITSA Rules?
Under the MTD for ITSA changes, qualifying sole traders and landlords will have to:
- Record business income and expenses correctly in a digital format
- Send quarterly updates of revenue to HMRC
- Submit a total yearly income in the form of a final declaration
But what does all of this actually mean for how you do your taxes? Let’s take a closer look.
Storing Digital Records
The government is pushing for all self-employed individuals and landlords to switch to digital record-keeping. This means that all of your income and expenses need to be backed up with digital documents.
For example, you might have a business bank account that records your income. If you invoice clients, HMRC will require you to keep a digital record of each invoice, too, and you should be able to connect individual invoices to bank transactions.
You’ll also need to have a digital record of your expenses. This includes the actual bank transaction and any receipts or invoices that provide proof of purchase.
Send Quarterly Reports
HMRC are asking that self-employed individuals and landlords start sending income and expense updates every three months. You’ll need to use MTD-compatible software for this, or work with a team of bookkeeping professionals (like us) who have HMRC-approved technology ready to go.
From the start of the tax year on the 6th of April, you’ll need to submit reports by the:
- 7th August
- 7th November
- 7th February
- 7th May
Send a Final Declaration
For each tax year, you’ll also need to send a final declaration to HMRC. This will be a full report of your income and expenses that replaces Self Assessments, using the reports you’ve sent throughout the year to ensure all of your numbers add up. It’ll also provide you with the chance to edit any of your reports, add additional details, and make sure your tax information is correctly recorded.
All of this will be done digitally.
The deadline for your final declaration will follow the same deadline as current digital Self Assessments. You’ll need to submit yours (and pay any tax owed) by the 31st of January.
What Happens If You Don’t Keep Digital Records?
MTD for ITSA will come into force as a legal requirement for all qualifying sole traders and landlords. If you don’t keep a consistent, digital record of your income and expenses, you could face fines and penalties.
It’s also important to remember that not following the rules correctly can lead to long-term problems. If you’re audited by HMRC, for example, and found to not keep records properly or misrepresent your income and expenses, you’ll be liable to fines and prosecution.
How You Can Comply With MTD for ITSA
As a business owner or landlord, MTD for ITSA might sound a little overwhelming. You have a business to run, after all, and that doesn’t leave much time for finding compliant software or submitting quarterly reports.
Luckily, you don’t have to navigate the tax changes alone.
The simplest way to ensure compliance with HMRC regulations is to work with a team of professional bookkeepers. That’s where we come in.
Work With Our Bookkeepers in Sussex
At Angel Bookkeeping & Payroll Services, we stay ahead of HMRC tax changes so that you don’t have to worry.
When you team up with us, we’ll establish a record-keeping system for you that makes compliance a breeze. It’s our job to track all of your income and expenses, ensuring you have a clear, consistent record of the money moving in and out of your business. We’ll help you prepare for your quarterly reports and final declarations, too, making sure that you file everything correctly.
To learn more about our bookkeeping services or start working with us, get in touch with our team today. When it comes to Making Tax Digital, we’re always ready to help!