Making Tax Digital for income tax self-assessment (MTD for ITSA) will transform how you report and pay your income tax if you’re self-employed, a landlord, or have any untaxed income.
But the Government announced in December 2022 big changes as to when this becomes mandatory — so how will it affect your business?
Let’s take a look.
How will MTD affect ITSA?
According to the Government, MTD will help the UK become one of the most digitally advanced tax administrations in the world. VAT-registered businesses must comply with MTD now (that’s been in effect since April 2019 for those above the VAT threshold, and from April 2022 for all others) and income tax is next up.
Once the MTD for ITSA rules take effect, you won’t have to submit your self-assessment tax returns annually to HMRC in the same way. Using MTD-compatible software, you’ll be able to:
- keep digital records of your business income and expenses
- send quarterly updates to HMRC every three months
- finalise your business income using an end of period statement (EOPS) and a final declaration each year – the idea is that this will eventually replace the self-assessment return.
If you’re a self-assessment customer with more than one business, you must keep separate records for each income source.
What are the changes?
Previously scheduled for April 2024, the Government pushed back MTD for ITSA for two years to give taxpayers more time to get MTD-ready.
At the earliest, the new rules won’t apply to you until 2026. And a phased approach means they won’t apply to everyone at first.
This is the timeline at the time of writing:
- April 2026 – sole traders and landlords with incomes over £50,000 will need to comply with MTD for ITSA
- April 2027 – sole traders and landlords with incomes between £30,000 and £50,000 must comply with MTD for ITSA.
There is no revised date for when partnerships will need to comply with MTD for ITSA at this time. A review is being conducted by the Government to see how the initiative can be adapted to meet the needs of small businesses in the future.
How to prepare for MTD for ITSA
Getting ready for MTD for ITSA, whilst not a necessity right now, means you’ll be well prepared when things do become mandatory. We recommend that you:
Choose the right software
Sign up for software that works with MTD for ITSA — by using the right technology you’ll make the transition far easier, and your taxes will be done quicker as a result.
As with anything in business, there are plenty of options at your disposal — as your accountant, we can help you make the decision.
Keep digital records
Using your software to keep digital records will make Making Tax Digital reporting far easier, when the time comes.
If you’re already doing this for VAT, you’ll know how things work. But if not, you’ll learn how effective digital records are once you’re used to them.
Sign up for the pilot
Whilst the pilot is currently paused for new sign-ups, it’s worth checking when it reopens. Getting used to new processes means you have more time to make mistakes and learn before it becomes mandatory.
We’re MTD experts
We can take care of your return on your behalf or act as counsel should you have any questions that need answering immediately. We’ve helped countless businesses like yours, so feel free to ask any questions — it’s all part of our job.
We’ll also get you set up on cloud software and offer general guidance on MTD for ITSA legislation.
Get in touch to discuss MTD and how it will affect your business.