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All VAT-registered businesses in the UK must now meet new reporting requirements introduced as a consequence of Making Tax Digital. If you don’t run a VAT-registered business, Making Tax Digital won’t have affected you so far. You may not have even heard of Making Tax Digital.

However, if you report income and pay tax via Self Assessment, come April 2024, Making Tax Digital is likely to impact you. And the changes that Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) will bring are significant, so finding out more about MTD for ITSA now is recommended, so you’re better prepared and avoid having to pay a non-compliance penalty.

In this guide you can:

• Find out what Making Tax Digital for Income Tax Self Assessment is.
• Discover whether you’ll be affected by MTD for ITSA.
• Learn how MTD for ITSA will change the reporting of taxable income.

What is Making Tax Digital?

Making Tax Digital is an important government digital initiative that is already transforming the UK tax system. Its introduction got underway in 2019 and it will continue in stages until complete. The VAT reporting system has already been digitised and Income Tax Self Assessment is next, before Corporation Tax gets the MTD treatment. Full introduction of MTD across the entire UK tax system remains some years off.

Why is Making Tax Digital being introduced? The government says it wants to make it easier for people and businesses to more easily and efficiently manage their tax responsibilities, while it hopes MTD will prevent basic tax reporting errors that cost the UK many billions a year in lost tax revenue.

Introduction of MTD for ITSA was to start on 6 April 2023, but it’s been delayed for a year until 6 April 2024 in response to COVID-19 and stakeholder groups asking for more time so that businesses and individual taxpayers could better prepare themselves for MTD for ITSA.

Put in very basic terms, Making Tax Digital for Income Tax is simply a new way of using digital solutions to report income and expenses to HMRC every quarter rather than once a year.

Who will be affected by Making Tax Digital for ITSA?

• If you’re a self-employed sole trader or landlord who is registered for Income Tax Self Assessment and you have a gross income of more than £10,000, you’ll need to comply with Making Tax Digital for Income Tax requirements from 6 April 2024.
• Members of ordinary business partnerships who earn more than £10,000 a year must sign up for MTD for ITSA by 6 April 2025.
• You can apply for a MTD for ITSA exemption if it’s not practical for you to use software to keep digital records or submit them to HMRC digitally, for example, because of your age, disability, location (ie poor broadband connection) or another justifiable reason. MTD exemption can also be granted on religious grounds. You’ll need to explain your reasons to HMRC and an alternative solution will be sought.

How will reporting change under MTD for ITSA?

Sole traders, landlords and other Self Assessment taxpayers with taxable income won’t need to submit a Self Assessment tax return each year (unless they choose to report other income from shares, interest, etc, via Self Assessment, although HMRC would prefer you to report all taxable income via MTD for ITSA).

MTD for ITSA requires you to maintain digital records of your taxable income and expenses/costs, update them regularly and send summary figures to HMRC digitally within a month of the end of every quarter.

If you’ll need to report via MTD for ITSA you must use:

• MTD for ITSA-compatible third-party software or
• “bridging software” that allows you to send the necessary information digitally in the right format to HMRC from non-MTD-compatible software, spreadsheets, etc.

At the end of the tax year (5 April), you must submit your “end of period statement” (EOPS) and a final declaration (MTD version of the current self assessment tax return), confirming the accuracy of the figures you’ve submitted, with any accounting adjustments made and any additional earnings reported. HMRC will then send you your tax bill, which you must pay before 31 January in the following tax year. Unjustifiable late submissions or payments will continue to result in penalties.

Should you sign up for MTD for ITSA now?

For some time, some businesses, landlords and accountants have been taking part in a live Making Tax Digital for Income Tax Self Assessment pilot scheme. 

You don’t have to sign up for MTD for ITSA. However, you can sign up voluntarily now for MTD for ITSA and start using the service if you’re:

• a UK resident
• registered for Self Assessment and your returns and payments are up to date a sole trader with income from one business or a landlord who rents out UK property.
• You can’t currently sign up if you also need to report income from other sources (eg share dividends).

Need to know! At this stage, it’s probably best to delay signing up for MTD for ITSA, until at least April 2023.The new system is very much in its infancy, with HMRC taking steps to refine it to iron out any issues and provide a better user experience.

Conclusion

Preparation is key, starting to use digital software now to record income and expenses on a regular basis will get you into the routine before MTD for ITSA comes into effect.

As April 2023 approaches you will then be in a better place to decide what software or bridging software will be best for your circumstance/business.

About GoSimpleTax

Income, Expenses and tax submission all in one.

GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.

The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way.

GoSimpleTax does all the calculations for you saving you ££’s on accountancy fees. Available on desktop or mobile application.

Recent reports reveal that nearly 90% of people in the UK have noticed a hike in their living costs, with fuel, food and borrowing costs rising. According to the Office for National Statistics (ONS), a quarter of the people surveyed are struggling to make ends meet and pay their bills. Subsequently, around 17% have been forced to take out loans and increase credit card borrowing.

Helen Morrissey, an analyst at the stockbroker Hargreaves Lansdown, said that now, many poorer households were likely “burning through their lockdown savings in a bid to meet their day-to-day living costs while others opt to borrow more to meet their needs.”

With living costs rising so much and many turning to credit cards, it has been argued that tighter rules around credit cards are required to protect credit card users. At The Salary Calculator, we’ll explain:

• What the current rules are
• Why people are calling for reform around credit card rules
• What changes are on the horizon

What are the current rules?

Under the current rules, following EU harmonisation in 2011, the UK uses representative rates of APR, where only 51% of applicants accepted by a credit card provider get the headline rate. Prior to this, 66% of borrowers were given the advertised rate of interest, or “typical” APR.” This change means that 49% of those who borrow may end up being faced with a higher rate.

A new report from consumer advice site MoneySavingExpert (MSE) report found that this can be incredibly harmful to borrowers and pointed out a number of other issues with the current system. Firstly, there is no cap on what a borrower can be charged, with those who fail to receive the advertised rate being presented with any rate. Likewise, MSE revealed that 40% of personal loan applicants and 28% of credit card applicants were offered a higher rate than advertised at least once across the last three years. This, unsurprisingly, was also found to have a “negative impact” on borrowers both financially and emotionally.

The report also highlighted that unless an applicant is approved using a credit card eligibility checker, the only way to find out what rate you’ll get is through an application. This not only means that they may opt for a deal because of a low advertised representative APR and then be left with a much higher rate of interest, but also, due to applications marking your credit file, people will most likely stick with their original choice even if the APR is higher.

Call for credit card reforms as cost of living crisis worsens

The current, ongoing cost of living crisis is detrimentally impacting millions. According to Anna Anthony, UK Financial Services Managing Partner at EY, despite many “already feeling the cost of living squeeze,” it’s only going to get worse with inflation on track to reach a 40-year high. In response to the current climate, with so many already exposed to financial risk, Martin Lewis, founder of MoneySavingExpert, has launched a campaign to put an end to the current credit card rules and has urged the financial regulator to put more safeguarding measures in place for borrowers.

In a statement discussing the issue, Lewis said: “The fact so many people can be charged more than the rate advertised is demoralising and often financially dangerous. Many only find out once they’ve applied, leaving a negative mark against their file, forcing many to accept the higher rate, or making it harder to find a cheaper deal elsewhere.”

Lewis went on to say that the UK should now take advantage of the opportunity Brexit has afforded the country in this area: “For years we’ve railed against this, and now we’ve a golden opportunity for change. We are told there will be a Brexit dividend – well, this change was caused by EU harmonisation, so I’m asking the Government to deliver on this one. Lenders tend to make most of their profits ‘from the tail’ – those people who get charged higher rates – and often they’re the ones with weaker finances. They need protecting.”

Not only did MSE highlight the current issues with the system, but it also made a number of recommendations to improve the situation for borrowers. One of these recommendations is to turn to the old system of typical APRs, where 66% of applicants would be offered the advertised rate, and to implement a cap with regards to the typical and maximum APR.

For greater transparency, MSE has also recommended that firms disclose the “the average proportion of successful applicants who don’t get the advertised APR, and by how much.” Moreover, to help prevent applicants from their credit files being detrimentally affected by checks, MSE recommends ‘soft’ credit searches for credit card and personal loan applications, or, it says, at the very least, prior to application firms should “should communicate prominently the rate range for those not accepted at the advertised rate.”

Change on the horizon?

Chancellor of the Exchequer, Rishi Sunak, is reportedly supporting the reform call by MSE. He commented: “Leaving the EU means we are now able to set our own path on financial services regulation – to ensure our rules act in the interests of UK consumers and respond quickly to our flexible and dynamic markets.

He went on to note the importance of the advertised APRs reflecting the rate the consumer is likely to receive and said that he would request that the FCA “assess the merits of reform in this area”.

The FCA responded: “We are continuing our work to ensure that the credit market works well for borrowers and provides the necessary protections, particularly in light of the cost of living crisis. We welcome MSE’s report and will discuss the findings and recommendations with them and the Treasury.”

According to the OECD England has the most expensive publicly-funded university system in the world. Back in 1998, student tuition fees were £1000 a year, which increased to £3000 in 2006, and then skyrocketed to £9000 in 2012. Alongside this massive hike in tuition fees, since 2012, maintenance grants and NHS bursaries have been abolished, forcing many to take on more debt in the form of loans, rather than benefiting from non-repayable grants.

Student loans come with interest, which is added all the time, and you may have seen recent reports that there are changes coming for student interest rates, which will reach up to 12% in some cases.

Interests and loans can be complicated at the best of times, and circulating reports may have you furrowing your brow, but at The Salary Calculator, we’ll walk you through all the changes and explain:

• What’s going on with student loan interest rates
• How you might be affected
• Whether there are further changes ahead

Student loan interest rates

In England, according to government figures, the average amount of debt a student accumulates from their time studying is £45,000, and with fees and interest so high, few ever fully repay their loans. In fact, this percentage is at 20%

That said, according to the Institute for Fiscal Studies, students who took out a loan after 2012 are in for a “rollercoaster ride”. Interest rates on post-2012 student loans are based on the retail prices index, and after RPI rose in March, most graduates will see interest rates rise from 1.5% to 9%. Higher earners (with an income of £49,130 and above) will be hit the worst, however; the maximum interest rate on their loans will increase from 4.5% to 12% for half a year. 

According to estimates, this increase means that the average graduate with £50,000 debt will incur around £3,000 in interest over six months. The IFS study outlined: ​”That is not only vastly more than average mortgage rates, but also more than many types of unsecured credit,” adding: “Student loan borrowers might legitimately ask why the government is charging them higher interest rates than private lenders are offering.”

Looking ahead, Ben Waltmann, a senior research economist at the IFS, explained that unless the government makes changes to the way student loan interest is determined, there will be “wild swings in the interest rate over the next three years.” He outlined: “The maximum rate will reach an eye-watering level of 12% between September 2022 and February 2023 and a low of around zero between September 2024 and March 2025.”

He said that there is “no good economic reason for this.” Adding: “Interest rates on student loans should be low and stable, reflecting the government’s own cost of borrowing. The government urgently needs to adjust the way the interest rate cap operates to avoid a significant spike in September.”

To learn more about how the changes will specifically affect you, check out the government website, which provides a complete guide to terms and conditions. 

How will this affect you?

According to a Tweet by Michelle Donelan, the Minister of State for Higher Education, this interest rate hike on student loans has “no impact on monthly repayments.” Further to this, she said, “These will not increase for students. Repayments are linked to income, not interest rates.” However, not everyone agrees that the situation is as clear cut as this. 

The IFS’s Waltman explained that while it is true the interest rate on student loans has “no impact” on monthly repayments, it affects “how long those who do pay off their loans before the end of the repayment period have to make repayments and therefore the total amount these students repay over their lifetimes.”

In addition to this, the IFS said that one of the many detrimental effects of the hike could be discouraging students from going to university for fear of mounting financial costs, and with record hikes to the cost of living, this is a valid and reasonable concern. Alongside this, the IFS also said that the change might force some graduates to pay off large sums of debt when it “has no benefit for them”.

Are further changes ahead?

Aside from changes to interest on student loans, the government has announced proposals that will affect loan accessibility, too. In response to the Augar review of post-18 education, in February, the government announced plans to block students who ​​fail to attain English and Maths GCSEs or two A-levels at grade E from qualifying for a student loan.

Experts have warned that these new changes will detrimentally impact students from lower-socio-economic backgrounds the worst and put a “cap on aspiration”. Sir Peter Lampl, founder and executive chair of the Sutton Trust education charity, outlined: “The introduction of any minimum grade requirement is always going to have the biggest impact on the poorest young people, as they are more likely to have lower grades because of the disadvantages they have faced in their schooling.”

The government also outlined that the repayment threshold will be cut from £27,295 to £25,000 for new borrowers beginning courses from September 2023, and further to this; students will now pay off their debt for ten years longer (for 40 years rather than 30 years).

Speaking about the changes and their impact on graduates, Martin Lewis, founder of MoneySavingExpert.com, said: “It’s effectively a lifelong graduate tax for most.” Adding: “Only around a quarter of current [university] leavers are predicted to earn enough to repay in full now. Extending this period means the majority of lower and mid earners will keep paying for many more years, increasing their costs by thousands. Yet the highest earners who would clear [their debt] within the current 30 years won’t be impacted.”

With slow growth following the pandemic and the skyrocketing cost of living, experts have warned that the UK could be heading towards a summer recession. According to research, consumer confidence is now at its lowest in years, even lower than the 2008 financial crisis. This near-record low is indicative of an economic downturn. It’s not just the UK that’s headed for trouble, either, there is a cloud forming around the global economy.

With so much instability and uncertainty across the UK, it’s understandable that many will be concerned about this news, and at The Salary Calculator, we’ll walk you through:

• What the economy is looking like right now
• How a potential recession could affect personal finances
• How you can safeguard yourself against a potential recession

Is there a recession ahead?

A recession, by definition, occurs when negative economic growth takes place across two successive quarters. According to financial forecasts, the economy is likely to shrink by 0.2% between April and June. Recently, the pound also hit its lowest level against the dollar since September 2020.

So, while it’s not imminent, experts say the risk of a recession is rising. Early this month, Deutsche Bank’s chief UK economist Sanjay Raja said: “We continue to think that the risk of recession remains on the rise,” adding: “This is something we will be tracking very closely in the coming months. Consumer confidence data is already consistent with recessionary levels.”

Commenting on the financial forecasts by the industry, Abena Oppong-Asare, shadow exchequer secretary to the Treasury, said that while the figures are “concerning,” they come as “no surprise,” referring to what she called the “double whammy” of the National Insurance increase alongside soaring energy bills.

She added: “Collapsing consumer confidence shows how the cost of living crisis is weighing down growth. How many warnings like this does the chancellor need to grasp the seriousness of the cost of living crisis?”

How might a recession affect you and your personal finances?

Recessions can have a hugely devastating impact on personal finances. Businesses, especially small businesses, typically take a big hit when a recession swoops in. This can result in companies pursuing redundancies, cutting jobs, and pausing new hires. Of course, this can have a knock-on effect on employees. Back in the 2008 recession, unemployment reached its highest rate since 1995 at 8.4%.

Of course, job losses can lead to subsequent financial difficulties, for example, challenges paying bills, mortgages, and rent payments, which can lead to individuals taking on debt to cope. Alongside this, recessions often lead to ​​reduced economic output and consumer spending falls, too.

How can you safeguard yourself against a potential recession?

With so much discussion around the state of the economy, and lots of undeniably concerning headlines, it’s likely that many are worried about what might happen to their personal finances, and will be seeking to find ways to safeguard themselves. However, it’s important not to panic, and note that there are steps you can take to protect yourself and your savings.

With increasing taxes, record inflation, and soaring living costs in the current financial climate, it may be difficult to put some money away and save. Experts, however, recommend that in the midst of a recession, people should try to build up some kind of emergency fund. Typically, common sage advice is to build an emergency fund equivalent to six months’ worth of expenses. This can be done through small contributions, and you can even set up automatic payments to inject money into your emergency fund consistently.

Another way to protect yourself in the face of a potential recession is to cut back on your expenses. Take a look at your overall lifestyle and see if you’re overspending money, or if there’s a subscription you wouldn’t miss and could cut out. Douglas Boneparth, president of Bone Fide Wealth and a member of the CNBC Digital Financial Advisor Council, says it’s a good idea to take stock of your whole life, too. He recommends individuals ask themselves the important questions: “How do you feel about your job? Do you feel safe? What is the risk in your life right now? Did you just have a child? … Are you in good health?” After taking time to reflect on one’s outgoings, creating a reasonable budget is much more doable, and it can also make clearing your personal debt a bit easier.

Some experts advise diversifying and drip-feeding investments. Gold is a go-to for some. According to Adrian Lowry, writing in The Independent, gold has been “lauded variously as a hedge against inflation, a counterpoint to a weakening US dollar, a safe haven in times of crisis, and something to hold in portfolios that are not correlated to equities, as a diversification asset.” That said, it’s also important to be aware that gold is fairly volatile and can be subject to significant price fluctuations, meaning that it can dramatically drop in value as well as increase.

On the other hand, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, recommends that people do not shy away from investment, but if worried about investing their savings in one place, they should drip-feed investments instead. She explained that this enables you to “benefit from pound-cost averaging by continually adding to your investments through different market conditions and economic cycles.” Investment Strategist Whitney Sweeney at ​​Schroders also says that diversification “is key.”

The UK government recently announced its plans to make the country a “global hub” for the crypto industry. This announcement comes after the industry criticised the UK for its stringent regulatory approach and a consultation was also conducted by the government in 2021.

However, while this announcement means that the UK will be set on a path to exploit the potential of crypto, some critics are not so sure the move is a good idea, claiming that cryptocurrency is a hotbed for criminal activity.

At The Salary Calculator, we’ll walk you through:

• How the UK will become a cryptohub
• What stablecoins are
• What the move means for the UK

UK to become home to a crypto hub

Back in 2021, the government held a consultation on its approach to cryptoasset regulation, with a particular focus on stablecoins. HM Treasury published a response to this consultation and call for evidence this month, and with that, made a number of announcements, including that the UK is to become a global hub for cryptoasset technology and investment.

Alongside this, the government said that stablecoins will be brought within regulation, and that it would legislate for a ‘financial market infrastructure sandbox’ named ‘CryptoSprint,’ which it said would encourage firms to innovate, and will be overseen by the Financial Conduct Authority (FCA). Likewise, a new body, namely the Cryptoasset Engagement Group, is to form and will see the government work with crypto companies. The government will also create an NFT (non-fungible token) via The Royal Mint.

Commenting on the government’s decision to move into the crypto space, Chancellor Rishi Sunak said that it was part of his ambition to make the UK a “global hub for cryptoasset technology.” He went on to say that the measures will help ensure firms “can invest, innovate and scale up” the country. Sunak also said with this policy change, the government hopes to attract the “businesses of tomorrow.”

This announcement that the UK will become a cryptohub comes shortly after its top financial regulator issued a warning that those investing in crypto “should be prepared to lose all their money.”

What are stablecoins?

The world of crypto is undeniably steeped in confusion, and you’re not alone if, when hearing the word stablecoin, you find yourself scratching your head. Stablecoins are a form of cryptocurrency which are matched against typical currencies, like, for example, the dollar or the pound.

While both stablecoins and other cryptocurrencies use blockchain technology, stablecoins are different from other cryptocurrencies like Bitcoin or Ethereum, which are much more volatile. Stablecoins will only change in value alongside changes in regular currency. This means that unlike Bitcoin, which seemingly crashes on a regular basis, wiping over $1 trillion from market value, it is just as its name says, stable, or as stable as a currency can be. According to the Treasury’s recent announcement, these coins will be regulated the same way the pound is regulated.

Is this a positive development?

While stablecoins, which came into existence back in the mid-2010s, are arguably a safer form of cryptocurrency, they do somewhat contradict the philosophical basis of such currency. Cryptocurrencies like Bitcoin were created to be decentralised, so there was no need for a trusted third party or governing body. As Ronald Mulder explains, “it is based on code, mathematics, cryptography, and game theory.”

Alpay Soytürk, Chief Regulatory Officer at Spectrum Markets, also points out that another problem with stablecoins are their “unknown or insufficient or both – reserves.” For example, in 2021, writing in The Conversation, Jean-Philippe Serbera, a Senior Lecturer at Sheffield Hallam University, highlighted that while stablecoin providers promise they have reserves “worth 100% of the value of their stablecoins,” this is rarely the case. He gave the example of Tether, which holds 75% of its reserves in cash and equivalents, and USDC, which had 61% as of May 2021.

That said, cryptocurrencies, in general, are increasingly gaining popularity. One report, “Demystifying Crypto: Shedding light on the adoption of digital currencies for payments in 2022,” found that more people are adopting cryptocurrencies for online payments. Young people, in particular, are said to be in favour of using crypto payments. In 2021, for example, it was found that 30% of young people were open to these kinds of payments, and a further 23% of online businesses say they are planning on expanding their payment options to include crypto within the next few years.

Aside from using crypto for payments, studies show that more and more Millennials are investing in crypto. A recent survey found that 38% had invested in crypto to diversify their investments. Likewise, a Royal Mint survey found that the same percentage of Gen Z’s are following suit.

Moreover, despite the UK government seemingly welcoming crypto with open arms, it is addressing the concerns of some, such as Bank of England governor Andrew Bailey who warns that such currencies are a “front line” in criminal scams, and an “opportunity for the downright criminal.” According to John Glen, economic secretary to the Treasury, the government is aware of what kind of nefarious opportunities crypto presents but assured naysayers that it “won’t compromise” when it comes to anti-money laundering regulations.

That said, it is perhaps worth noting the other psychological harms associated with crypto trading.​​ According to addiction experts, some young men trading crypto have begun expressing symptoms of and seeking help for problem gambling. Speaking to The Times, Barry Grant, project manager of Extern Problem Gambling, said that those traders who he had encountered displayed “classic gambling addiction progression”. He explained: “You dabble with it. You do something small, you’re having a bit of fun. Maybe you’re doing a bit of research about it. Then, you have a big win.”