Making Tax Digital for Income Tax Self-Assessment
6th April 2024 might seem to still be a long way in the future, but it is now less than 2 years away and will arrive upon us before we know it. This is the date that Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will come into force and represents a seismic change in the reporting requirements for Self-Assessment.
Under the current Self-Assessment rules, the deadline for submission of the tax return is 31st January following the end of the tax year (the previous 5th April). Depending upon the business year end, this can give taxpayers between 10 months (31st March/5th April year-end) to 21 months (30th April year-end) to report to HMRC and pay their tax liability.
MTD for ITSA will require quarterly interim reporting to HMRC, along with an End of Period statement. This essentially means that five tax returns per year must be submitted to HMRC.
The MTD for ITSA rules will apply for self-employed businesses and landlords with business turnover above £10,000 and will require digital records of all transactions to be kept. The returns will be submitted to HMRC via MTD compatible software.
The deadlines for the submission of the returns will be as follows:
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
Businesses can make a calendar quarter election which will change the dates 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 End of Period Statement will essentially perform the same function as the current self-assessment return. It will be required to cover the tax year and will be due by the normal filing date of 31 January following the end of the tax year.
Payment of tax liabilities will also remain unchanged. Balancing payments will be due by 31 January with payments on account being made by 31 January and 31 July.
A separate End of Period Statement will be required for each trade or property business carried on by an individual.
A final declaration will also be required. The final declaration will include all business and personal information needed to calculate the final tax liability, which will pick up non-MTD income such as interest and dividends. The deadline for the submission of the final declaration will be 31 January following the end of the tax year.
The change to quarterly reporting will mean the end to the current basis period rules. The actual year-end date of the business will not be relevant because the quarterly returns cover the tax year. Individuals and businesses that do not currently have a 31st March/5th April year-end will have a transition year in 2023/24 which will mean that profits for a period of greater than 12 months will be taxed. They will get relief though for profits that were taxed twice in their opening years (overlap profits).
It will be possible to transition to a 31st March/5th April year-end before 2023/24 if desired. This could potentially be useful if your business has been affected by the pandemic and has lower than normal profits. Please contact us if you would like to explore this option.
General partnerships will be required to comply with MTD for ITSA from 6th April 2025. Dates have not yet been announced for other partnerships (mixed, LLPs).
What does this mean for you?
If you are VAT registered, then you will be aware of MTD already and will be submitting your VAT returns to HMRC via MTD compatible software. You will be able to submit the quarterly updates via the same software so the requirements will not be as onerous as they are on non-VAT registered businesses.
For non-VAT registered businesses, our advice is to start looking at solutions as soon as possible. We are here to help you choose the right accounting software for your needs and to provide training on the software if required. Although your initial reaction might be to panic, by acting now you will be completely ready by 5th August 2024 to submit your first quarterly update and will be familiar with your accounting software.
There are also many potential benefits that will arise from keeping digital records in a timely manner. You will have a vast amount of information at your fingertips that will enable your business to become more efficient, profitable and allow you to plan ahead. For example, if your first couple of quarterly reports are showing higher profits than usual, we can look at ways to reduce your tax liabilities by making personal pension contributions or investing in capital equipment.
Please contact us if you would like more information about MTD for ITSA and how it will impact on you.