ITSA
Making Tax Digital for Income Tax – Should you start to prepare now?
[Sponsored post by GoSimpleTax]
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.
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.
None of the content on this website, including blog posts, comments, or responses to user comments, is offered as financial advice. Figures used are for illustrative purposes only.
Categories
Tags
-
50% tax
2022
April 2010
April 2011
April 2012
budget
coronavirus
cost of living crisis
covid-19
debt
dollar
economics
Economy
election
Employed and Self Employed
Foreign Currency
foreign exchange rates
HMRC
holiday
holiday money
house prices
houses
income tax
interest rates
Jobs
Loans
Mortgages
national insurance
Pay As You Earn
pension
Pensions
personal allowance
pound
recession
recovery
savings
Self Assessment
self employed
self employment
student loans
tax rates
The Salary Calculator
unemployment
us
VAT
Sponsored Links
Archive
- November 2023
- September 2023
- August 2023
- July 2023
- June 2023
- May 2023
- April 2023
- March 2023
- February 2023
- January 2023
- December 2022
- November 2022
- October 2022
- September 2022
- August 2022
- July 2022
- June 2022
- May 2022
- April 2022
- March 2022
- February 2022
- January 2022
- December 2021
- November 2021
- October 2021
- September 2021
- August 2021
- July 2021
- June 2021
- May 2021
- April 2021
- February 2021
- January 2021
- December 2020
- November 2020
- October 2020
- September 2020
- August 2020
- July 2020
- June 2020
- May 2020
- April 2020
- March 2020
- February 2020
- November 2019
- September 2019
- April 2019
- March 2019
- December 2018
- April 2018
- March 2018
- January 2018
- May 2017
- March 2017
- February 2017
- September 2016
- June 2016
- March 2016
- February 2016
- January 2016
- June 2015
- April 2015
- March 2015
- February 2015
- January 2015
- November 2014
- October 2014
- July 2014
- June 2014
- May 2014
- March 2014
- February 2014
- January 2014
- November 2013
- October 2013
- August 2013
- July 2013
- June 2013
- May 2013
- April 2013
- March 2013
- February 2013
- January 2013
- December 2012
- November 2012
- October 2012
- September 2012
- August 2012
- July 2012
- June 2012
- May 2012
- April 2012
- March 2012
- February 2012
- January 2012
- December 2011
- October 2011
- May 2011
- April 2011
- March 2011
- January 2011
- December 2010
- August 2010
- July 2010
- June 2010
- May 2010
- April 2010
- March 2010
- February 2010
- January 2010
- December 2009
- November 2009
- October 2009
- September 2009
- August 2009
- July 2009
- June 2009