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Making Tax Digital (MTD) for Income Tax & Self Assessment was originally expected to be implemented in April 2023, but yesterday the Government announced a delay of one year, beginning April 2024. This is because the Government recognises the challenges faced by many UK businesses as the country emerges from the pandemic.
Although delayed, the move to digitalisation will happen; so as a helpful guide we summarise the who, what, when and how surrounding MTDfITSA.
Who is affected by MTD for ITSA?
Businesses with income greater than £10,000 per year from:
- General partnerships with only individuals as partners
- Property businesses (UK and overseas)
How does MTD for ITSA change the current process for self-assessment?
MTD for ITSA requires businesses and landlords to keep their records digitally and to submit quarterly updates of business income and expenses to HMRC using MTD-compatible software.
Business owners and landlords will no longer file an annual self-assessment tax return, unless exempt from MTDfITSA. Instead, each business will need to file four quarterly updates and an End of Period Statement to finalise business profits. You will then need to submit a Final Return with any other income, gains or reliefs.
When will MTD for ITSA be compulsory?
Individuals with self-employment income or property income will need to comply for the year beginning 6 April 2024. General partnerships will need to comply from 5 April 2025.
Below is a worked example of the first returns that will be due for submission under MTDfITSA – for an accounting year that runs from 6 April 2024 to 5 April 2025:
|1st return||Q/E 5 July 2024||5 August 2024|
|2nd return||Q/E 5 October 2024||5 November 2024|
|2023-24 return (previous year)||Y/E April 2024||31 January 2025|
|3rd return||Q/E 5 January 2025||5 February 2025|
|4th return||Q/E 5 April 2025||5 May 2025|
|5th return (final year-end report)||Y/E 5 April 2025||January 2026|
For unincorporated businesses with an accounting period other than 5 April, the Government plans to simplify the process by reforming basis periods – see the consultation here.
The draft legislation suggests the £10,000 income threshold relates to the income for the accounting period two years before the period in question. In other words for a period ended 5 April 2025, this would be the income for the period ended 5 April 2023.
The quarterly updates are due for submission one month after the end of the quarter.
As a reminder, ALL VAT registered businesses regardless of turnover (i.e. under £85,000 turnover who are voluntarily registered, in a repayment situation, or submit nil returns) must transition to MTD for VAT by April 2022.
At PKF Francis Clark we are carefully following the guidance and legislation being put in place by HMRC, and will be identifying which of our clients may fall under MTD for ITSA.
- Consultation– we can discuss the options to become compliant with MTD for ITSA and a number of important considerations. For example because MTD for ITSA requires six returns to be submitted per year, as opposed to one currently, we’ll consider how best to automate your records to reduce your paperwork time. Options may be influenced by who you bank with, existing systems, your business needs, and any pain points you currently have. We’ll also consider the industry you’re in and what options work best for your type of business, as well as a convenient time to transition to MTD.
- Implementation – we can assist with converting historic data, or software setups from scratch. We can also integrate systems into your accounting software and provide training on software to you and your staff if applicable. If you’d rather someone else took care of the bookkeeping, we can provide this service or give recommendations on outsourcing it instead.
- Support – we’ll point you in the direction of direct free software support if suitable, but where more complex support is required, we have experienced staff who can help.
- Signing up to MTD for Income Tax – once you’re up and running with a MTD for ITSA compliant solution, we can sign up for MTD for Income Tax on your behalf. We’ll need agent authority and a few details from you, but we can help ensure your first submission goes smoothly.
- Tax payments – There’ll be no change to how/when Income Tax is currently paid
- Penalties – The penalties for not complying with MTD will be covered by the non-submission penalty points system.
- VAT registered businesses – You will still have to make separate submissions for VAT, but HMRC may come up with a system where you can align the quarterly periods so both will be due around the same time.
This is a big change for taxpayers and we will be posting regular updates as the date for compliance draws closer. In our experience the more time you allow to get everything in order, the easier the process will be.
For any other questions please either contact your Account Manager or if you are not currently a client of PKF Francis Clark – please feel free to contact me.