Making Tax Digital for Income Tax (ITSA)

Some of you may remember Making Tax Digital for VAT, introduced in April 2019, which required all VAT registered businesses to report their VAT returns through digital software.   Up until now, some VAT registered businesses have continued to use manual records and used the HMRC portal to file their VAT returns.   However, from April 2022 MTD for VAT is mandatory and you need digitalised software to do this.

For VAT registered businesses, the quarterly return, whether manually or digitally processed, is a normal part of their business.   Not so for those who are not VAT registered!

As from April 2024, HMRC are extending the requirements of quarterly reporting to unincorporated businesses and landlords with gross income over £10,000. The rules will also apply to partnerships and trusts with business or property income, through Making Tax Digital for Income Tax.

This represents a major change for people who are used to filing just ONE single tax return each year.   Instead of one annual return, HMRC are now moving to four quarterly returns, an End of Period statement (EOPS) and a final return so SIX in total.

Under the requirements of MTD for Income tax, individuals who are subject to income tax on the profits of their trade, profession, vocation or property business will be required to keep their accounting records electronically (either using suitable software or on spreadsheet) and file quarterly returns to HMRC with details of their income and expenditure together with any other information that HMRC specifies.

The deadlines for submitting quarterly updates will be the same for everyone who has to follow the MTD for ITSA rules. From the start of the tax year on 6th April 2024, these deadlines are:

  • 5th August
  • 5th November
  • 5th February
  • 5th May

At the end of the tax year, you’ll need to finalise your business income by completing an end of period statement (EOPS) for each source of income, along with a final declaration that replaces the current Self Assessment tax return.

At NATA, we would like to guide our clients through this process.   You may feel that you can cope with everything yourself, or you may wish to do the four quarterly updates, but revert to NATA as the agent to do the EOPS and final year end declaration.      Whatever your needs, we have a solution to help.

April 2024 may seem a while away, but it is important to put plans in place as soon as possible, as this represents a huge mindshift for most people, and certainly a major revolution for all accountants, agents and tax advisers.

NATA would recommend those self-employed individuals or companies who currently have paper-based accounting records or excel spreadsheet accounting records, to start considering changing to a digital accounting system before the beginning of their next accounting period.  For many, this is NEXT WEEK.   Changing NOW will give you time to adjust to using digital accounting software and get used to the processes involved.

We are happy to give any advice and guidance but would recommend that clients take advantage of the many free software trials available with most software companies.  What an accountant perceives as “easy to use” software is not necessarily what an individual would see as easy to use.  So it is important for you to decide what works best for you and your business.

How will MTD ITSA benefit me?

Moving to quarterly returns will allow sole traders to get a much more accurate and timely idea or how their business is doing, and equally important, it will allow us to give you a much better idea of any potential tax liability.

With this in mind, you may feel encouraged to make the move NOW.  So you may wish to join the HMRC pilot.   The MTD for ITSA pilot scheme has been running since 2018, and certain eligible businesses and landlords can already choose to sign up and follow the rules voluntarily.

Eligibility for the pilot scheme is quite restricted at the moment, for example if you have received any SEISS grant income, you are not eligible at present.   However, the pilot scheme is being gradually expanded during the 2022 to 2023 tax year, ready for larger-scale testing in the 2023 to 2024 tax year.

If we can help in any way, please just give us a ring on 01670 528416.  NATA are here to support their clients through this major change in reporting to HMRC and we would encourage you to start planning now.