The UK’s tax system has undergone significant changes in recent years, driven by a vision to become one of the most digitally advanced tax systems globally. One of the flagship initiatives to realise this vision is ‘Making Tax Digital’ (MTD). While many businesses are already familiar with MTD for VAT, it’s time to shed light on Making Tax Digital for Income Tax Self Assessment (MTD for ITSA). Here’s what you need to know.

What is MTD for ITSA?

MTD for ITSA is an extension of the MTD initiative, aiming to make the process of income tax submissions more accurate and timely. By leveraging digital records and online submissions, HMRC intends to streamline the reporting process, reduce errors, and facilitate a more continuous reporting mechanism.

From When Will It Operate?

The MTD for ITSA initiative will come into full swing from April 2024. It’s crucial for businesses, landlords, and self-employed individuals to be aware of this date to ensure compliance.

Who Will It Affect?

MTD for ITSA will impact:

1. Self-employed businesses and landlords with an annual business or property income above £10,000. This threshold takes into consideration total combined income if you are both self-employed and a landlord.
2. Trusts and estates with income above the £10,000 threshold.

If you fall into these categories, you’ll need to follow the MTD for ITSA guidelines from the specified date.

Reporting Obligations

The MTD for ITSA model brings about a new approach to reporting:

1. Quarterly Reporting: Instead of an annual Self Assessment tax return, you’ll need to submit a summary of your income and expenses every three months.
2. End of Year Declaration: After the fourth quarterly report, there’s a “finalisation” process. This is essentially your end-of-year declaration where you confirm your income and expenses, claim allowances, and reliefs.
3. Digital Records: All records relevant to ITSA must be maintained digitally using MTD-compatible software. This means manual or spreadsheet-based record-keeping won’t suffice unless the spreadsheets can integrate with HMRC systems.

How Can Your Accountant Assist?

Now, if this all seems a bit overwhelming, don’t fret. Your accountant is here to guide and assist you through these changes.

1. Finding the Right Software: With a multitude of software solutions out there, choosing the right one can be daunting. Your accountant can recommend MTD-compatible software tailored to your business type and size, ensuring a seamless transition.  Some software is available on mobiles to allow, for instance, capture of receipts and issuing invoices which may give greater ease to running a small business and not just be an administrative burden.
2. Training and Integration: Once the software is selected, you might need training. Accountants can provide hands-on guidance, ensuring you’re comfortable using the software and making the most of its features.
3. Ongoing Support: From setting up digital records to submitting quarterly reports, your accountant can manage these tasks, ensuring accuracy and timely submissions.
4. Staying Compliant: With the expertise and knowledge of the latest updates, your accountant will ensure that you remain compliant, avoiding any potential penalties.

In Conclusion

The move to MTD for ITSA represents a significant shift in how income tax information is reported to HMRC. While it might seem like a massive change, with the right software and the guidance of an experienced accountant, the transition can be smooth and even beneficial in the long run. By embracing digital, businesses can gain better insights into their finances, make informed decisions, and ensure they’re paying the right amount of tax.

If you’re unsure about any aspect of MTD for ITSA, or if you need assistance in preparing for these changes, don’t hesitate to reach out. Together, we can navigate the digital tax future with confidence.