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Watch out MTD ITSA is coming April 2024

What is MTD ITSA?

  • Making Tax Digital for Income Tax Self-Assessment.

Who could be affected by it?

  • Self-employed individuals and landlords with a tax year turnover exceeding £10,000.
  • Partnership which consists only of individual partners.
  • The turnover threshold takes account of the combined turnover of a person’s total number of businesses and rental properties.
  • Please note – MTD ITSA has been deferred, until a date yet to be decided, regarding partnerships with a corporate member, LLPs and Limited partnerships.

Are there any exemptions?

  • Trades and/or rental income where the turnover does not exceed £10,000.
  • A deceased person’s estate.
  • Registered pension scheme trustees.
  • Non-resident companies.
  • Individuals who are able to claim they are digitally excluded.

What constitutes ‘digitally excluded’?

  • Location – for example, you cannot obtain internet access at or near home or at work.
  • Disability, which prevents you from using the software technology.
  • Your religious beliefs.

What will MTD ITSA mean in practice?

  • You will be required to maintain your trading/rental records in a digital format.
  • Primarily, during the tax year, you will need to make quarterly digital submissions to HMRC of your income and expenses as regards your trade/rental business.

When does this first come into effect?

  • April 2024 – Sole Traders and Landlords
  • April 2025 – General partnerships

When do you have to make the quarterly submissions?

  • 5th August – covering the 1st quarter to 5th
  • 5th November – covering the 2nd quarter to 5th
  • 5th February – covering the 3rd quarter to 5th
  • 5th May – covering the 4th quarter to 5th
  • The very first MTD ITSA submission will need to be made by 5th August 2023.

What will need to be included in the submissions?

  • Details of trading/rental income and expenses for the quarter period concerned.
  • It is likely to need to be broken down into categories similar to what is presently required for a self-assessment tax return.

Do I have to pay my tax over at the same time as the quarterly submissions?

  • At present no, you continue to pay the tax over on 31st January and 31st July each year.

What happens after the 4th quarterly submission has been made?

  • You have to make a further digital submission for the tax year called an end of period statement (EOPS).
  • The EOPS enables you make the necessary adjustment to what has already been submitted in respect of things like capital allowances and losses.
  • The EOPS must be submitted by 31st January following the end of the relevant tax year.
  • An EOPS must be submitted for each trade.

Will I need to also complete a Self-Assessment Tax Return?

  • Not if you are having to comply with MTD ITSA.

How will I declare my other income and capital gains disposals?

  • A finalisation statement (FS) will also need to be submitted by 31st January following the end of the relevant tax year.
  • You would include other income and gains not already reflected in the quarterly submissions on the FS.

What happens if I don’t comply?

  • Financial penalties are likely to be imposed.

What do I need to do?

  • Check to see if you are caught by the MTD ITSA rules.
  • Check to see if you have HMRC compatible software to maintain and submit the relevant digital records.

How can we help?

  • We can carry out an MTD ITSA review.
  • Assist with the sourcing of the MTD ITSA compliant software.
  • If required, train you on how to use that software.
  • Ensure that the MTD quarterly submissions, EOPS and FS are submitted on time and advise on the tax and national insurance (if applicable) to be paid.

Please note

  • This is based upon present HMRC draft proposals which may be subject to change.

If you wish to discuss any of these or other issues

please do contact us.