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What does MTD ITSA mean for you?

November 22, 2022
With Making Tax Digital for VAT completing its rollout in April 2022, HM Revenue and Customs (HMRC) turns its attention to the next phase of MTD: Making Tax Digital for Income Tax Self Assessment.

Otherwise known as MTD for Income Tax, or MTD ITSA, this initiative is expected to replace the Self Assessment tax return (SA100), with the first stage set to launch in April 2024.If you currently file a Self Assessment, whether that’s to declare income made through self-employment or property income, you might be wondering how MTD ITSA is due to affect you.If so, you’ve come to the right place. We’ll be diving into who is affected for MTD ITSA and what the changes in legislation mean for you.

Making Tax Digital for Income Tax: Overview

Before we dive in to what MTD ITSA means for those affected, we’ll first recap what exactly MTD ITSA is and where it falls in the overall Making Tax Digital timeline.

What is MTD ITSA?

Making Tax Digital is a government initiative designed to make filing tax returns simpler for small businesses and self-employed taxpayers by using digital links to send tax data from MTD-compatible digital software to HMRC’s systems.

MTD for Income Tax is the second phase of this rollout, due to come into effect in April 2024 for sole traders and landlords with a qualifying income above £10,000.

The full MTD timeline is shown below:

Making Tax Digital timeline from 2019 to 2026

Who will be affected by MTD ITSA?

In its initial rollout in April 2024, MTD ITSA will be applicable to sole traders and landlords who:
    Are registered for Self Assessment Get income from self-employment, property or both Have a total qualifying income of more than £10,000
If you became a self-employed sole trader or landlord after April 2023, you won’t need to register for MTD ITSA by April 2024 as you wouldn’t have filed a Self Assessment tax return at this point;. You can, however, choose to register voluntarily.If you’re in a general partnership, you’ll need to register for MTD ITSA by April 2025 if you:
    Have a qualifying income above £10,000Only have individuals as partners
If you’re in a different type of partnership — for example, a limited liability partnership (LLP) — the MTD for Income Tax registration deadline will be announced by HMRC closer to the time.
It’s worth noting that if you’re already eligible for exemption from MTD for VAT, you won’t need to apply for exemption from MTD ITSA. To find out if you need to adhere to the new rules, head over to our article 'Is Making Tax Digital compulsory?'

What’s changing under MTD ITSA?

MTD ITSA is set to replace the Self Assessment tax return (SA100) as a way of collecting Income Tax from self-employed business owners.
There are 4 main changes taking place under MTD ITSA:

    Digital record keepingQuarterly updatesEnd of Period Statement (EOPS)Final Declaration

Store digital records

When filing a Self Assessment, you can either store your business records digitally or on paper. However, under MTD for Income Tax, paper records are set to be a thing of the past.
Instead, much like Making Tax Digital for VAT, under MTD ITSA you’ll need to use compatible software to store digital records of your sole trader and property business income and expenses.

To store these records, you’ll need to use either MTD-approved accounting software or, if you’re hesitant to go digital straight away, a combination of spreadsheets and bridging software that can connect to HMRC’s systems.As well as storing evidence of your qualifying income, you’ll also need to store:
    Sales receipts and invoicesEmployment incomeBank and building society interestDividendsPension contributionsStudent loan repayments
The full list of digital records you’ll need to keep can be found at GOV.UK.

All records should be made as close to the date of transaction as possible and no later than the quarterly deadline for that period.If you notice any mistakes in your records, you’ll need to make an update as soon as possible, either in your next quarterly update or when confirming your EOPS.

File quarterly updates

Instead of sending a single return off once a year, under MTD ITSA you’ll need to report your transactions to HMRC every 3 months through MTD-compatible software.You can choose to file your quarterly submissions using either standard or calendar quarterly period updates.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
At this stage, you won’t be expected to make any tax or accounting adjustments, but can do so if you want a more accurate picture of your final tax bill. You can also send updates more frequently to see how any purchases affect your estimated tax bill.

End of Period Statement (EOPS)

Set to replace the annual Self Assessment tax return, after filing all 4 quarterly updates you’ll need to confirm an End of Period Statement (EOPS) for each business you run.In this statement, all the information you’d have submitted to HMRC is combined to create an overview of your income and expenses. If you haven’t already, you’ll need to make tax and accounting adjustments, or claim any tax relief you’re entitled to.After making all necessary adjustments and confirming your EOPS, you’ll then see an updated estimate of your Income Tax bill for the year.

Final Declaration

With your business income finalised, before you can get your final Income Tax bill you’ll need to declare any additional income you may have from unaccounted sources of income, such as savings or dividends.Since these sources don’t count towards your qualifying income, you wouldn’t have needed to list them up until this point. With this in mind, be sure to keep records of these additional income streams.After you’ve made your Final Declaration, you’ll finally see your Income Tax bill for the tax year.If you’re worried about keeping track of these changes, you’ll be relieved to find that the deadlines for submitting your EOPS and Final Declaration, as well as paying your Income Tax bill, are 31st January after the relevant tax year — the same as the current Self Assessment.

Self Assessment vs. MTD for Income Tax

Self AssessmentMTD for Income Tax
Can store digital or paper recordsMust store digital records using MTD-compatible software, such as accounting software or spreadsheets and bridging software
Send all records to HMRC with tax returnSubmit quarterly returns detailing transactions for that period
Submit one Self Assessment tax return, either online or on paperConfirm an EOPS to finalise your business income using MTD-compatible software
Submit a Final Declaration finalising your Income Tax position for the year

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