April 2024 is when Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) is due to start. It will apply to all individuals if their total gross income from self-employment and property exceeds £10,000 per year.
What is Making Tax Digital?
MTD began back in 2019 and initially required certain VAT registered businesses to keep digital records and use MTD compatible software to submit their VAT returns electronically. As of 1 April 2022, all VAT registered businesses are required to follow these rules.
MTD for ITSA is the next phase of the Government’s Making Tax Digital plan and will replace the current Self-Assessment Tax Returns system. Partnerships and partners will follow in April 2025. This means that landlords and self-employed people will have to submit four quarterly updates to HM Revenue and Customs using MTD compatible software, and at the end of the year, they will also have to submit an End of Period Statement (EOPS) and a Final Declaration. The Final Declaration will replace the Self-Assessment Tax Return.
How Will This Affect You?
If you are self-employed and/or a landlord with a gross income of more than £10,000, from 6 April you will have to:
- Keep digital records
- For each type of income send quarterly updates to HMRC, with the deadline one month after the quarter-end. HMRC has indicated calendar quarters will be acceptable at a later date and will announce this at the appropriate time. The quarterly periods will be:
- 6 April to 5 July
- 6 July to 5 October
- 6 October to 5 January
- 6 January to 5 April
- Submit an EOPS by 31 January after the tax year. This will finalise your business income and enable you to make any accounting adjustments, claim any reliefs and confirm the information is correct and complete.
- Submit a Final Declaration by 31 January after the tax year. This will include details of other income such as savings and investments.
- Pay any tax due by 31 January.
Clearly for a lot of small self-employed business owners and landlords MTD for ITSA is going to be a significant change in how they manage their accounting records and some may struggle to adapt. The Financial Management Centre will be well prepared to assist existing and new clients adopt the new practices and ensure that they remain compliant. Quarterly reporting will, in our view, help strengthen client relationships and enable us to provide a better level of service. Clients will be able to see how their business is performing more regularly and estimate their likely tax liabilities well in advance of the payment deadline giving them more time to prepare.