Making Tax Digital - Income Tax Self-Assessment
Making Tax Digital for Income Tax also known as MTD for Income Tax Self-Assessment (MTD ITSA) will change the way millions of business owners and landlords report their earning to HMRC, in essence, making it easier for businesses and individuals to record and declare their tax.
MTD ITSA is the second stage of Making Tax Digital and will replace the current system of annual Self-Assessment tax returns. MTD ITSA comes into effect in April 2024. The most significant change is that instead of sending a Self-Assessment tax return to HMRC once a year, businesses and individuals will submit four quarterly updates. At the end of each tax year, they will also have to send an end of period statement (EOPS) and final declaration.
This forms part of the Government strategy for Making Tax Digital with the aim of HMRC becoming one of the most digitally advanced tax administrations in the world. In the process, this will save businesses and individuals time, helping to eradicate errors for those managing their tax affairs.
Who does this affect?
This is applicable to self-employed business owners and landlords, and in April 2025 for partnerships with individual partners. Other types of partnership will join at a future date.
How should I keep my records?
Businesses and individuals will need to keep digital accounting records. Digital records can be achieved by using compatible accounting software, such as Xero, QuickBooks, Sage, and many others. Where businesses decide not to use an accounting software, an alternative option is to use bridging software. Businesses can maintain spreadsheets which are used in conjunction with the bridging software. Digital links must be in place to ensure records are kept digitally as information is passed between the different platforms.
Bridging software can be a more cost effective and simpler option for businesses who are not yet able to move to an accounting software.
Where businesses currently use a desktop or cloud-based accounting software, you will need to ensure that the package is fully compliant with MTD. The best way to check this is to contact your accountant or the software provider directly.
Are there any exemptions?
As with MTD – VAT, there are likely to be some MTD exemptions if it is not reasonable or practicable for businesses to use digital tools for their tax. Businesses would have to apply for an MTD exemption via the GOV website. Businesses that have previously received exemptions from digital filing are likely to continue to have exemptions to MTD requirements.
What are the next steps?
You can sign up as an individual for MTD ITSA via the GOV website . If you’re working with a recognised provider (typically an accounting firm like Elsby), you can sign up now assuming the provider uses software that works with Making Tax Digital for Income Tax.
For those wishing to help test and develop MTD ITSA before 6 April 2024, you may be able to voluntarily sign up through your software provider.
Businesses who have failed to sign up in time or have failed to retain digital records or digital links may be charged penalties.
Our cloud accounting credentials
We don’t just understand digital and cloud accounting, we excel at it. We are a Xero Platinum Partner and were the first accountancy firm in the world to receive a Xero migration certification. Our 5-star ratings on Reviews.io and Google are a result of the strong relationships, satisfaction and trust we have built with our clients.
We can support you with the following:
- Transitioning to accounting software, including advising on the best options and providing software training
- Providing bridging software
- Registering for MTD
- Reviewing current processes and VAT returns for confidence of compatibility
- Advice/support on claiming MTD exemptions