MTD for ITSA – Come again??!

2024 is closer than you think!

Here’s what you need to know about Making tax Digital for Income Tax Self Assessment.

We imagine you’ve come across the ‘latest’ three letter acronym MTD by now? Making Tax Digital is something which has been rumbling since 2017 when legislation was passed but due to covid has had its staggered introduction plans delayed.

However the time is getting ever closer to ‘mtd’ day and some more guidelines have been released to explain how it will work in practice, and have confirmed that it will start in April 2024.

So brace yourself for some new acronyms to expand your mind! Step forward MTD, ITSA, EOPS…

But never fear, we are at hand to explain what’s involved and David is always on hand to go through how it will affect your business so if you have any questions please email David@theaccountancypractice.com or call us on 01763 257882.

If your business is VAT registered you may already be familiar with MTD. However limited companies who are not VAT registered have a longer period to adjust – with the 2026 being the earliest expected time. And it will be via the corporation tax route.

MTD for general partnerships is expected to be rolled out in 2025.

So what is coming in April 2024 (which is only just over 18 months away)?

Making Tax Digital for INCOME TAX SELF ASSESSMENT

MTD for ITSA…

Which will include sole traders and landlords with an income over £10,000.

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What does it mean in practice? ie how will it affect you?

MTD for ITSA means that individuals who declare income tax on the profits of their trade, profession, vocation or property business will be required to keep their accounting records electronically (either using suitable software or on spreadsheet) and file quarterly returns (as opposed to annual) to HMRC with details of their income and expenditure together with any other information that HMRC specifies. A final end of period statement (EOPS) will then be submitted after the tax year to complete the individual’s tax affairs.

Although the frequency of reporting is to change, the timing of tax payments will not and the current system of payments on account and balancing payment by 31 January after the tax year is expected to remain in place for the foreseeable future.


WHO EXACTLY IS AFFECTED?

All businesses which were in existence immediately before 6 April 2023 will join MTD for ITSA from 6 April 2024, regardless of their accounting period end.

The rules will apply from April 2025 to general partnerships with business or property income that only have individuals as partners.

All other partnerships (e.g. those that have corporate partners and Limited Liability Partnerships) are not required to join MTD for ITSA in April 2025 but will be required to join MTD at a future date (currently expected to be not before 2026).


Who will not be affected?

People who are submitting self assessment tax returns which show an income of under 10,000 per year.

The threshold of £10,000 applies to gross income or turnover, not profit, and it applies to the total gross income where the individual or entity has more than one trade or property business.

For example, if the individual has £6,000 of rental income and £7,000 of sales from a sole trader business, they will exceed the limit and be in scope.


Who can get away with not doing MTD even if they otherwise qualify?

In line with the exemptions for MTD for VAT, individuals should not have to follow the MTD for Income tax rules if any of the following apply:

  • It’s not reasonably practicable for them to use digital tools to keep their business records or submit quarterly returns due to age, disability, remoteness of location or any other reason (often referred to as ‘digital exclusion’).
  • They are subject to an insolvency procedure.
  • The business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.

Where any of the above apply, the individual has to apply to HMRC to claim an exemption, with HMRC having 28 days to either grant or deny the application.

We understand that where a business has already qualified for an exemption from MTD for VAT, they will also be exempt from MTD for ITSA.

Other exemptions

The following are also exempt from MTD for ITSA:

  • Non-resident companies
  • Trustees, executors and administrators
  • Foreign businesses of non-UK domiciled individuals.

More detail about the Quarterly submissions

All businesses within MTD for ITSA will have to provide quarterly updates of their income and expenses for the following periods, by the following deadlines, regardless of their accounting period end:

Period covered Filing deadline
Quarterly update 1 6 April to 5 July 5 August
Quarterly update 2 6 July to 5 October 5 November
Quarterly update 3 6 October to 5 January 5 February
Quarterly update 4 6 January to 5 April 5 May

 

Alternatively, businesses can make a ‘calendar quarter election’ which allows them to draw up quarterly updates to the end of the previous month.  Where this election is made, the quarterly updates will be as follows:

Period covered Filing deadline
Quarterly update 1 1 April to 30 June 5 August
Quarterly update 2 1 July to 30 September 5 November
Quarterly update 3 1 October to 31 December 5 February
Quarterly update 4 1 January to 31 March 5 May

 

The first quarterly updates under MTD for ITSA will therefore be due for filing by 5 August 2024, and will cover either the quarter ended 5 July 2024, or 30 June 2024 (where a calendar quarter election is in place).

Separate quarterly updates will be required for each trade or property business carried on by an individual.  There is no requirement to make tax or accounting adjustments to the information provided in quarterly updates.


End of Period Statement (EOPS)

The EOPS performs a similar role to the self-employment or property pages on the current ITSA return –  i.e. making the required tax and accounting adjustments and finalising the tax position of the trade or business.

The EOPS will, following the implementation of basis period reform, be required to cover the tax year (regardless of the accounting period of the business) and will be due for filing by the normal self-assessment deadline of 31 January following the relevant tax year.

A separate EOPS will be required for each trade or property business carried on by an individual.


Final declaration

Filing the EOPS alone is not enough to finalise a taxpayer’s affairs for any one tax year. Instead, they will also need to submit a final declaration or crystallisation.

This will bring together all business and personal information needed to determine their final tax liability, including information from EOPS and information on non-MTD sources of income like dividends and interest.

Unlike the EOPS, only a single final declaration will be required for each taxpayer. This will be due by the normal self-assessment deadline of 31 January following the relevant tax year.


AND FINALLY

Feeling a bit bamboozled!?? Head spinning a bit?

Of course, we’re here to help you with all this. Our mission is to keep you informed of what’s required in plain English and help you understand what’s going on via a variety of methods, using our newsletter, social media and of course, email, phone and face to face conversations.

If you’d like the more personal touch please visit our office at 41 High Street, Royston or call David on 01763 257882 or email him at David@theaccountancypractice.com