Making Tax Digital, the Government’s flagship policy to transform the UK’s tax regime, will extend to income tax self-assessment (MTD ITSA) from 6 April 2024. MTD ITSA was meant to come in in April 2023, before the Treasury pushed it back by 12 months to allow businesses more time to recover from the pandemic.
When it arrives, it will mean the end of tax returns submitted through self-assessment, which are usually due by 31 January every year. Instead, new rules will kick in with digitalisation at their core, most VAT-registered businesses will be familiar with these already.
Who will MTD ITSA affect?
MTD ITSA will affect most self-employed taxpayers with business or property income in excess of £10,000 per year. For now, general partnerships are excluded.
Under the scheme, all unincorporated businesses will need to file quarterly returns on or before 5 August, 5 November, 5 February and 5 May each year. An annual end-of-period statement will also need to be filed on or before 31 January, following the end of the relevant tax year.
Quarterly returns will consist of total sales and total expenses arising every three months, similar to the current format of a self-assessment tax return.
From 6 April 2025, most unincorporated business partnerships that have business or property income and only individuals as partners will have to abide by MTD ITSA rules, as well.
When exactly all other partnerships, such as those with corporate partners and limited liability partnerships, will have to join MTD ITSA is yet to be revealed.
To stay compliant with MTD ITSA, you will have to keep digital records of any sales your business makes or expenses it incurs during the tax year. HMRC has a list of MTD-compatible software for you to consult. The list includes the major cloud accounting softwares, such as Xero, Quickbooks and Sage. It is in your best interest to start searching for advice on which software would be best for you, so you can be prepared for changes well ahead of time.
Bear in mind too that there’s an MTD ITSA pilot scheme currently open to eligible taxpayers which you can join to get ahead of the competition and get used to the accounting methods everyone will soon have to use.
What else do you need to know about MTD?
Most VAT-registered businesses with a taxable turnover above the VAT-registration threshold (£85,000) will be familiar with the scheme, having been part of MTD for VAT since 2019.
From 6 April 2022, MTD for VAT will expand to include all VAT-registered businesses, irrespective of their turnover in a 12-month period. Up next will be MTD ITSA, before MTD for corporation tax, which HMRC has said won’t come into effect until at least April 2026.
At Simpson Wreford & Partners we work with a wide variety of software, so you can keep your options wide open. Please get in touch if you would like some advice from us about cloud accounting.
Talk to us about MTD ITSA.