Female tailor with short black hair holding measuring tape next to a mannequin

Who will be affected by MTD ITSA?

September 28, 2022
Making Tax Digital (MTD) is officially underway, with Making Tax Digital for VAT (MTD for VAT) rolling out in April 2022. With the first phase fully launched, HM Revenue and Customs (HMRC) turns its attention to the second phase of the scheme — Making Tax Digital for Income Tax.

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is set to roll out in April 2024, after a year-long delay due to the pandemic, aiming to digitalise the way self-employed small business owners pay Income Tax.

With the registration deadline swiftly approaching, you might be wondering if MTD ITSA applies to your business and when you’ll need to sign up. If so, you’re in the right place: we’ll be outlining who MTD ITSA applies to, the registration eligibility criteria and when you can sign up.

Who does Making Tax Digital for Income Tax apply to?

You must comply with Making Tax Digital for Income Tax if you:
    Are registered for Self Assessment Get income from self-employment, property or both Have a total qualifying income of more than £10,000
While it’s good to know who MTD for ITSA applies to, it’s equally handy to know if MTD for ITSA doesn’t apply to you, too. With this in mind, you cannot sign up if you are a:
    Trustee, including a charitable trustee or a trustee of non-registered pension schemesPersonal representative of someone who has diedLloyd’s member, in relation to your underwriting businessNon-resident company
Eligibility criteria (must meet all criteria to be eligible)Not eligible to register
Accounting period aligns exactly with the tax year (not 31st March)Income Tax charge (e.g. high income child benefit or pension tax charges)
UK tax residentUnder a specific Self Assessment payment arrangement
Everything up to date (e.g. no outstanding tax returns or liabilities)Partner in a partnership (not until April 2025 at the earliest)
Registered for Self Assessment, with at least 1 tax return submittedMinister of a religion, Lloyd's underwriter or qualifying carer
Have a National Insurance numberUndergoing bankruptcy or insolvency procedures
You've provided HMRC with an up-to-date addressThird party capacitator acting (this doesn't include having an agent)
Aside from the above, there are also additional factors to consider in terms of determining whether your business is eligible for MTD for ITSA or not.We’ll explore these factors — from what exactly qualifying income is, to how your business structure determines your registration deadline — in further detail below.

What counts as qualifying income?

In short, your qualifying income is classified as the total income you get in a tax year from self-employment and property income sources. For now, this doesn’t include business income from partnerships, unless you receive disguised investment management fees or income based carried interest.Note: This is your income before any expenses are deducted. For example:💡You make £12,000 a year from self-employment and spend £5,000 in business expenses. Even though your total taxable turnover is £7,000, since your income exceeds the qualifying income threshold, you’ll need to register your business for MTD for ITSA.Outside of self-employment and property income, all other sources of income reported through your Self Assessment do not count towards your qualifying income. This includes employment income, dividends and savings.Instead, under MTD for ITSA you’ll need to report income from these sources through either your selected Making Tax Digital compatible software, or HMRC’s online services account.If you’re getting income from more than one source, your total income before expenses will contribute to your qualifying income. For example:💡 You make £5,000 in rental income and £7,000 from your sole trader business. As a result, your total qualifying income is £12,000.If a jointly owned property is generating income, your share of the property will count towards your qualifying income. For example:💡 You and a sibling rent out a property that generates £30,000 in income. Since you’ve opted for 50/50 ownership, you’ll both have a qualifying income of £15,000 — meaning you’ll both need to register for MTD for ITSA.

How does my residency and domicile affect my qualifying income?

For UK residents domiciled in the UK, any income from foreign property or foreign self-employment will count towards your qualifying income.For instance, if you’re a self-employed resident in the UK renting out property in another country, both your self-employed income in the UK and property income will be included when working out your total income.If you’re deemed domiciled in the UK, income from foreign property or foreign self-employment will count towards your qualifying income.
However, if you’re remitting foreign income from a year where the remittance basis applies to you, you won’t need to count this towards your qualifying income. You can find out more about residence, domicile and the remittance basis over at GOV.UK.

Otherwise, if you’re domiciled outside of the UK, only income from UK self-employment and UK property will count towards your qualifying income. Any foreign income you make won’t count towards your UK qualifying income.For example, if you’re domiciled in France and rent out property in France, but run a business in the UK, only your UK self-employment income would count towards your qualifying income.Once you’ve registered your business of Making Tax Digital for Income Tax, HMRC will ask you to confirm your domicile status to make sure you’re counting all the relevant streams of income as qualifying income.

What if my income drops below £10,000?

If you’ve registered your business for MTD for ITSA but your qualifying income proceeds to fall below the £10,000 benchmark, you will only be considered exempt if this trend continues for 3 consecutive years.

When do I need to register for Making Tax Digital for Income Tax?

You’ll need to register for Making Tax Digital for Income Tax before 6 April 2024 if you meet the following criteria:
    Are an individualAre registered for Self AssessmentWere self-employed or collecting property income before 6 April 2023Have a qualifying income above £10,000
If you became self-employed or a landlord after 6 April 2023, you won’t need to meeting the Making Tax Digital for Income Tax requirements until you’ve submitted your first Self Assessment tax return. You can, however, voluntarily sign up from any time.If you’re in a partnership, you won’t need to register for MTD for ITSA until 6 April 2025. This will only be the case if both partners are individuals and receive more than £10,000 in qualifying income.
As for limited company directors and other partnerships, HMRC is still yet to announce any registration dates. Be sure to check back at Ember for further updates — we’ll keep our eyes peeled for you.

Join us in creating the new age of accounting.

Simple language, simple software, so that you can spend less time dealing with admin and more time focusing on what really matters.