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Contents

  1. 1. What are the Making Tax Digital for Income Tax requirements?
  2. 4. Confirm end of period statements (EOPS)
  3. 2. Keep digital records
  4. 3. Send quarterly updates
  5. 4. Confirm end of period statements (EOPS)
  6. 5. Final declaration

What are the requirements for MTD ITSA?

October 20, 2022
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is approaching fast, with its launch in April 2024 set to change how business owners and landlords report their earnings and pay Income Tax to HM Revenue and Customs (HMRC).
If you’re one of the 5.6 million taxpayers due to be affected by MTD ITSA, you might be wondering what you need to do to stay compliant under the latest phase of Making Tax Digital.

If so, you’ve come to the right place. We’ll be outlining what the MTD ITSA requirements are and what exactly you need to do to meet them.

What are the Making Tax Digital for Income Tax requirements?

Under Making Tax Digital for Income Tax, you’ll need to use Making Tax Digital compatible software to:
    Create and keep digital business records of all transactions using either accounting software or spreadsheetsSend updates to HMRC every 3 months detailing your business and property income and expenses for the quarterConfirm end of period statements (EOPS)Make a final declaration
If you have more than one business, you’ll need to meet the requirements of MTD ITSA for each. For example, if you’re a self-employed business owner earning rental income on the side, you’ll need to keep separate records for and making separate submissions for each.If you’re generating income from more than one property, all UK properties are grouped together as one ‘UK property business’, while properties outside the UK are treated as one ‘overseas property business.

Keep digital records

Much like Making Tax Digital for VAT, all eligible business owners and landlords will need to create and store digital records under MTD for Income Tax.
Using MTD compatible software, you’ll need to keep records of your personal, property and business income and expenses. This includes not only evidence of your qualifying income, but also:

    Sales receipts and invoicesEmployment incomeBank and building society interestDividendsPension contributionsStudent loans repayments
You can find the full list of the records you’ll need to keep over at GOV.UK.

To successfully submit these records to HMRC, you’ll need to authorise your MTD-compatible software every 18 months by entering your Government Gateway user ID and password into your software. Your user ID will be the one you got when you signed up for either Self Assessment or an agent services account.

Send quarterly updates

Once every 3 months, your digital software will add together your digital records to find your total income and expenditure for the quarter. These will make up your quarterly updates, which you’ll need to file to HMRC once every quarter.For these updates, you won’t need to make any tax or accounting adjustments before sending them over to HMRC, but can do so if you want a more accurate picture of your final tax bill.

When do I need to send my quarterly updates?

As mentioned above, you’ll need to send quarterly submissions for each of your businesses to HMRC every 3 months. You can send updates more frequently if you want to understand how any large business receipts or expenses affect your estimated tax bill.If you know you won’t be making any more transactions, you can send an update up to 10 days before the end of your quarterly period. For example, if you go on holiday a few days before the end of the period and won’t be working, you can send an update before you jet off.

Quarterly period dates

Under MTD ITSA, you can choose between using standard or calendar quarterly period dates.Standard quarterly updates
Period coveredFiling deadline
Quarterly update 16th April to 5th July5th August
Quarterly update 26th July to 5th October5th November
Quarterly update 36th October to 5th January5th February
Quarterly updated 46th January to 5th April5th May
Calendar quarterly updates
Period coveredFiling deadline
Quarterly update 11st April to 30th June5th August
Quarterly update 21st July to 30th September5th November
Quarterly update 31st October to 31st December5th February
Quarterly update 41st January to 31st March5th May
As mentioned above, you’ll need to file separate quarterly updates for each sole trader or property business that you run.
According to draft tertiary legislation published on 1 July 2022, if your business has an annual turnover below the VAT registration threshold, you can choose to provide the totals for your income and expenditure in this quarter, instead of each category of transaction.

Confirm end of period statements (EOPS)

At the end of the tax year, your quarterly statements will be combined to create an end of period statement (EOPS), an overview of your income and expenses for the tax year in question.An EOPS has the same purpose as the self-employment or property pages on the current Self Assessment tax returns you submit. In your EOPS, you’ll need to make any final tax or accounting adjustments and finalise your tax position for your trade or business.If you have more than one business, you’ll need to create an EOPS for each one.Before confirming your statement, you may need to make adjustments to amend the data shown in your quarterly updates. This can include tax or accounting adjustments, or claiming reliefs or allowances that could lower your tax bill.If you’re happy with how everything looks, you’re free to submit your statement. In confirming your EOPS, you’re declaring that:
    The information you’ve provided for your business is correct and completeYou’ve finalised your business’s tax position for that year
After you’ve submitted your statement, you’ll then be able to see an updated estimate of your tax bill.The deadline for confirming your end of period statement is 31st January after the end of the tax year in question. If you haven’t confirmed by then, you may need to pay a late submission penalty.

What if I notice a mistake in my digital records?

Whether it’s a duplicated transaction or you’ve missed a receipt or two, be sure to update your records as soon as possible — either when sending your next quarterly update or when confirming your end of period statement.To update your records, be sure to change, delete or create a new record, so the transaction is recorded in the correct quarterly period.After you’ve resent the correct quarterly update, the new quarterly update will overwrite the previous one.

Final declaration

After confirming your EOPS, you might need to send HMRC some extra information around your personal income sources, such as savings, interest or dividend income.This is done by submitting a final declaration, and is used to finalise your Income Tax position for the tax year. You’ll need to make a final declaration using your MTD-compatible software, even if it’s to declare that you don’t have any personal income sources.Since these personal sources of income don’t count towards your qualifying income, there’s no need to include them in your quarterly updates. You can, however, choose to do so if you wish.As with your end of period statement, you’ll need to file your final declaration by 31st January after the end of the tax year. Failing to do so could land you a penalty.Once you’ve submitted your final declaration, the information submitted will be used to generate your final Self Assessment tax bill for the year. Payment will be due on 31st January.
Rachel Cameron-Potter
Rachel Cameron-PotterContent Marketer

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