Guide to Making Tax Digital for Income Tax Self-Assessment UPDATED

First Secretary to the Treasury issued a written statement confirming the changes at lunchtime on Monday 19 December.

https://questions-statements.parliament.uk/written-statements/detail/2022-12-19/hcws465

A summary of the changes is as follows:

• A two-year delay until April 2026 for mandatory MTD ITSA filing.
• The minimum income reporting level increased to £50,000, with those earning more than £30,000 mandated to join the scheme in 2027.
• The situation for landlords and sole traders earning less than £30,000 will be reviewed to see if MTD ITSA can be shaped to meet the needs of smaller businesses.
• Partnerships will not be brought into MTD for ITSA as previously planned in 2025.
• Points-based penalty system to be extended to MTD ITSA filers when they join.

What is Making Tax Digital for ITSA and do I fit?

Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) is the next stage in HMRC’s plan to modernise the UK tax system, making it easier for people to get their tax right. It means individuals and businesses will need to use MTD-compatible software to keep digital records and submit return.

You will be mandated to report your income and expenses via MTD for ITSA if you are self-employed or a property landlord with total combined turnover from all businesses exceeding £10,000 per year. For example, if you have self-employed income of £6,000 and property income of £5,000, these combined exceed the £10,000 threshold, so MTD for ITSA requirements will apply.

HMRC will look at your income from tax years ending 5 April 2022 and 5 April 2023 to determine whether you fall into MTD for ITSA. If either of these years show business profits exceeding £10,000, you will fall into the scope of MTD for ITSA and will need to start reporting your income digitally from 6 April 2024.

What are the main changes to the submission requirements?

If you fit this criteria, for each business, you will have to:

• Keep digital records on MTD compatible software
• Submit quarterly updates to HMRC
• Submit an end of period statement (EOPS)
• Submit a final declaration that includes all other taxable income by the usual 31 January deadline
• Pay your tax by the same deadline

These quarterly submissions are in line with the tax year. All businesses will have to report for these quarters regardless of their accounting period end.

Challenges you may face with MTD

• Converting manual records to a digital version (ie. Cashbooks)
• Converting spreadsheets into recognised cloud accounting packages 
• Keeping software that will link directly with HMRC (ie. Xero or Quickbooks)
• Additional costs associated
• Additional time processing

Watch our recent webinar on MTD for ITSA presented by our Cloud Accounting Manager Mark Whitehead

How we can help

Get in touch with one of our experts, to talk through how we can help you with Making Tax Digital.