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What does MTD ITSA mean for you?

November 22, 2022

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?

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: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.

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.

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.

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

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 updatesCalendar quarterly updatesAt 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