What is it and will it affect me?
Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) will apply to the self-employed and property landlords who have annual sales or rental income of more than £10,000. It will apply from 6 April 2024, with partnerships proposed to fall under the scheme from 6 April 2025.
MTD ITSA will require these taxpayers to register for the service via their HM Revenue & Customs Government Gateway account and file quarterly returns of income and expenditure via software. These returns will need to be filed on 5 August, 5 November, 5 February and 5 May, with an annual “end of period statement” (EOPS) being filed in place of the self-employment section of the tax return by 31 January following the tax year.
The digital software will need to categorise income and expenditure for the quarterly returns, although no further accounting adjustments are required. One the quarterly return has been filed, HMRC will provide an estimate of the tax liability based on the results for the period.
The EOPS return will include the accounting adjustments normally forming part of the annual accounts/tax return figures
The annual tax return will be replaced by a finalisation statement, similarly filed by 31 January following the tax year end. The finalisation report will include self-employment and rental figures from the EOPS, as well as other income and gains to be reported for income tax. However, the facility to file paper tax returns will be removed. Instead, all returns will have to be filed using compliant software.
Why is MTD ITSA being introduced?
It is easy to be cynical when looking at any new tax system, but following the introduction of Making Tax Digital for VAT, HMRC has reported that benefits identified through the process include business efficiency, reduction of errors and a reduction in the overall cost of processing/collecting tax.
Will penalties be enforced for non-filing?
Yes, a penalty system will be introduced for non-compliance. This is likely to be similar to that introduced for MTD VAT, with a cumulative points system.
I don’t use computers and currently prepare paper bookkeeping records. Do I need to comply with MTD ITSA?
Some businesses have already been given exemption from digital filing under the current system. Examples of this include on the grounds of religion, age, disability or lack of internet access. Businesses currently exempt are expected to remain exempt.
To help with the switch, HMRC have developed a pilot scheme allowing taxpayers to voluntarily use the system early to familiarise themselves with MTD ITSA and digital software.
How can Bennett Brooks help?
There have already been a number of changes to the proposed scheme ahead of its introduction and the legislation may change again before 6 April 2024. We will continue to monitor the updates and will report back to clients. Please talk to your usual contact within the firm and continue to look at the emails and website updates that will be issued over the coming months.
We can also recommend software solutions that meet your requirements and that are compliant with MTD ITSA. New software offerings are being made available at all the time, both for the self-employed and property landlords, so please contact us to discuss the options available to you.