As of April 2022 Making Tax Digital (MTD) has been the way for all VAT-registered businesses to keep track of and file their taxes online. Soon, certain landlords and individuals will have to follow MTD for income tax self-assessment (ITSA) rules.
Starting in 2019 with VAT-registered businesses above the £85,000 VAT threshold, HMRC has promised MTD to be an easier and more streamlined way for businesses to keep on top of their taxes.
The next step is MTD for ITSA, which will replace the current process of filing self-assessment tax returns.
It will kick in from April 2024, with partnerships and individual partners following in 2025.
But why wait? You can sign up to MTD for ITSA now.
What this means for you
MTD for ITSA will require self-employed business owners and landlords who have a business or property income of £10,000 a year to register by 6 April 2024.
Anyone who wants to get ahead of the game can sign up to a pilot scheme now.
Under MTD for ITSA, you will have to send quarterly updates for your business and property income and expenses.
At the end of the tax year, you will also be required to send an end of period statement (EOPS) and a final declaration, instead of the annual self-assessment system currently in place.
To ensure all of your information is an accurate reflection of how your business is running, you will also need to keep digital records of your incomings and outgoings.
Ideally, you will already have this in place but if not, now is the time to start. To comply with MTD rules, you must use cloud accounting software that is compatible with HMRC’s systems.
Fortunately, these include the major providers, such as Xero and Sage, which also allow you to manage your invoices, receipts and expenses so when the time comes you have a reliable database of records.
Updates and statements
As mentioned, instead of carrying out one annual self-assessment, you will be asked to send updates every three months throughout the tax year. This will be applicable to everyone under the MTD for ITSA regime.
The quarterly deadline dates are:
- 5 August
- 5 November
- 5 February
- 5 May.
HMRC warns that if the deadlines are not met, you may incur a late-submission penalty, measured through a point system.
Later on in the scheme, it will be possible to change the calendar quarters you file in, which HMRC will inform people of when it is launched.
Once all of the quarterly updates have been sent, you will need to consider your EOPS and final declaration. This will give you the chance to ensure all your updates have been accurate as well as the opportunity to make any adjustments or apply for reliefs.
Thought to be similar to self-assessment tax returns in layout and structure, the deadline will likewise be 31 January and any late submissions and payments could incur late-payment penalties.
What you can do now
Instead of waiting around until 2024 to register for MTD for ITSA, you can sign up now. The pilot has been running since 2018, so business owners and landlords are encouraged to sign up.
Over the next year there will be a step towards further testing for the platform.
You might think it’s more hassle than it’s worth, especially if the current system works for you. But MTD for ITSA is not a question of ‘if’, but ‘when’, so get started today to get a head start on your competitors.
For more questions or to register for MTD for ITSA, get in touch.