What is MTD for ITSA?
Making Tax Digital (MTD) is the digitization of UK tax which is being rolled out in stages. MTD for ITSA, the Income Tax Self Assessment stage will begin in April 2024 and requires affected people to submit quarterly tax returns of income and expenditure online, using approved software.
Why is HMRC moving towards a paperless system?
It’s to reduce costs and increase efficiency, and to reduce basic tax errors which costs both HMRC and businesses.
Who will MTD for ITSA affect?
Anyone who is registered for Income Tax Self Assessment with a combined gross income (or turnover) from self-employment and rental income (not profit) over £10,000 per annum will be required to submit their quarterly returns in digital format from 6th April 2024.
Therefore, self-employed and landlords should review their gross income (not profit).
Ordinary business partnerships with a gross income over £10,000 a year will not be impacted by MTD for ITSA changes until 6th April 2025, and companies until 6th April 2026 (at the time of writing this article).
How do I comply with MTD for ITSA?
Assuming that you fit the criteria above, you will be required to keep digital records on HMRC compatible software, submit quarterly and end of period (year) returns, tell HMRC of any additional income and its sources, and pay your tax on time.
When do I have to comply with MTD for ITSA by?
Originally planned for April 2023, MTD for ITSA has been delayed until 6th April 2024 for self employed and landlords with gross income above £10,000 pa.
What are the deadline dates?
You will need to submit summary returns to HMRC each quarter and an end of period statement (EOPS) at the end of the tax year for each business. Once HMRC has calculated the tax you owe, you must pay it by 31st January of the following tax year.
- Quarter 1: 6th April to 5th July – filing deadline 5th August
- Quarter 2: 6th July to 5th October – filing deadline 5th November
- Quarter 3: 6th October to 5th January – filing deadline of 5th February
- Quarter 4: 6th January to 5th April – filing deadline of 5th May
You may make an adjustment to change the dates to the end of month (30th June, 30th September, 31st December and 31st March) but the filing deadlines remain as above.
If you have a self employed business plus rental income, this will be classed as 2 businesses and you will be required to submit returns for each business; therefore 8 quarterly returns would be required, 2 End of Period returns and 1 Final Declaration.
Since MTD for ITSA starts from 6th April 2024, your submissions will be due by: 5th August 2024, 5th November 2024, 5th February 2025 and 5th May 2025. Your final declaration for tax year 2024-2025 will be due by 31st January 2026.
What happens if I miss the deadline dates?
You have up to one month after each quarter’s end to submit that quarter’s information. After that, you may attract a fine.
Are there any exemptions from MTD for ITSA?
There are some special cases, yes and you can apply for exemption from MTD for ITSA if it is not practical for you to keep your records or submit them digitally. These exemptions can include age, disability, religious grounds, and poor internet connection, but you will be required to explain and justify your reasons to HMRC.
Non-doms, non-residents and MTD for ITSA
You will still need to comply with MTD for ITSA, but only for UK-based income from property or self-employment.
What happens if I refuse to comply with MTD for ITSA?
Unless HMRC has granted you an exemption, if you have self employed / rental gross income over £10k pa, you may face penalties for non-compliance. Instead of the previous flat-rate penalties however, a points-based penalty scheme is being introduced which will penalise repeat offenders more heavily.
Since adjustments can be made in the EOPS, HMRC have indicated that there will be no penalties for inaccuracies in the quarterly submissions.
Are there any benefits of MTD for ITSA for me?
With all your information kept digitally, you should find it easier to keep your expenses and income up to date.
You’ll have a better idea of how much tax you will need to pay, and should find planning for your tax bill a little easier. By keeping your data updated more regularly the end of year should be less of a panic and administrative nightmare.
How is MTD for ITSA different to self assessment?
For a start, there are deadlines throughout the year with MTD. You would need to keep digital records of your taxable income and costs, and send a quarterly summary of them to HMRC. You will also send HMRC an end of period statement (EOPS) at the end of the tax year with a final statement including any adjustments. You must also declare any other income you have received.
Does HMRC register me automatically for MTD for ITSA?
No. HMRC requires you to register for MTD for ITSA manually.
I’m already submitting returns for MTD for VAT…
That’s handy, because it should mean that you’re ready for MTD for ITSA. Unfortunately you will still be required to submit quarterly returns for ITSA too. Note that penalties apply for missing either deadline, so you may want to align your VAT and ITSA quarterly dates to keep you administration simpler.
What accounting software is MTD for ITSA compliant?
Recent versions of the most popular cloud accounting packages are compliant with MTD for ITSA, but you should check that the software you are running is compliant. If it is not compliant or if you are using your own spreadsheets for example, you may be able to use bridging software which can convert your data into a format which HMRC are happy with.
UHY Ross Brooke team include certified experts who are experienced in many brands of accounting software, including:
We can help you choose, customize and learn, according to your needs.
Can I sign up for MTD for ITSA now?
If you’re eager to sign up before the deadline of 6th April 2024, you may be able do so here https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax although there are some restrictions at the moment which are explained.
Can anyone sign me up for MTD for ITSA?
Yes. Your accountant, bookkeeper or agent can sign you up and make your submissions for you, so long as you all have the appropriate software.
Still confused about MTD for ITSA?
MTD for ITSA is not rocket science but we know that not everyone finds paperwork or digital reporting fun or easy. So we’re here to help you. Just get in touch to see how we can make all the messiness just go away!