Making Tax Digital for Income Tax Self Assessment (ITSA) was originally expected to be implemented in April 2023, but following an announcement from HMRC last year, now has an official roll-out date of April 2024.
Whilst many businesses are broadly familiar with the Making Tax Digital (MTD) scheme, what with all VAT-registered companies now required to comply, new developments mean that MTD is extending to include income tax.
These adjustments are set to make significant changes to how some individuals who register for self-assessment file their taxes and whilst the implementation is still two years away, it’s never too early to start thinking about how this might affect you.
Our blog post will cover the key things you need to know about MTD for ITSA and how you can ensure you are prepared.
What is MTD for ITSA?
Making Tax Digital for ITSA means that self-employed businesses and landlords with annual business or property income above £10,000 will be required to keep their accounting records electronically from April 6th 2024.
This means that for those eligible, MTD for ITSA will replace the current requirement to file an annual Self Assessment tax return.
Instead, digital records must be kept using compatible MTD software. This means tracking and sending quarterly summary updates of business income and expenditure to HMRC, as well as an end-of-year summary via this software.
Using this new system, the government aim to increase the accuracy of tax returns and make it easier to get tax correct, saving time and money for both HMRC and self-employed businesses.
Who Does MTD for ITSA Affect?
You will need to sign up for MTD for ITSA if:
- You’re an unincorporated business or a landlord
- Your total gross income is more than £10,000 a year from self-employed income and/or rental properties.
It’s important to note that the income threshold applies to gross income or turnover, not profit and is applicable where the individual or business has more than one trade or property business.
For example, those earning £7,000 as a sole trader as well as £5,000 from rental income will exceed the limit and be required to comply with MTD for ITSA.
What Are the Exemptions?
In order to qualify for MTD for ITSA, the sole trader or landlord must have a total income of above £10,000 per year.
Those earning below this threshold can continue using the current Self Assessment system.
In line with the exemptions for MTD for VAT, HMRC allows individuals to apply for an exemption from MTD if it is not reasonable or practical for the individual to use computers, software or the internet. Typically, this is due to age, disability, location, or religion and is considered on a case-by-case basis.
The following are also exempt from MTD for ITSA:
- Non-resident companies
- Trustees, executors and administrators
- Foreign businesses of non-UK domiciled individuals
- Those in a Limited Partnership or Limited Liability Partnership
When to Pay Tax Under MTD for ITSA?
All eligible individuals must comply with MTD regulations for the first tax year beginning on or after 6th April 2024.
Quarterly reports must henceforth be submitted every three months throughout the tax year by the following deadlines, regardless of the accountancy period end:
|Quarterly Update 1||6th April – 5 July 2024||5th August 2024|
|Quarterly Update 2||6th July – 5th October 2024||5th November 2024|
|Quarterly Update 3||6th October 2024 – 5th January 2025||5th February 2025|
|Quarterly Update 4||6th January – 5th April 2025||5th May 2025|
How To Sign Up for MTD for ITSA
Unlike MTD for VAT, you’ll need to sign up for the scheme through your cloud-based software instead of on the HMRC website. This means that all eligible individuals will need HMRC approved software in place ahead of the April 2024 start date.
HMRC will then require the following information:
- Business name
- Business start date
- Email address
- National Insurance number
- Accounting period
- Accounting type
Need a Hand?
Whilst MTD for ITSA may feel like a long way ahead, it’s worth getting prepared ahead of time to ensure you fully understand your MTD obligations.
Our expert team can assist you in everything from setting up MTD compliant software, to managing the submission of your Self Assessment tax returns.
For more information, call us on 0117 379 0810 and schedule a free, no obligation consultation.
- Making Tax Digital for Income Tax – Are You Prepared? - July 27, 2022
- 10 Common Business Start-up Mistakes to Avoid - May 30, 2022
- Spring Statement 2022 – Key Takeaways - April 29, 2022
This post was written by Steph Roffey