MTD for ITSA means Making Tax Digital for Income Tax Self Assessment and is HMRC's terminology for the new way of preparing and submitting your income and expenses to them. MTD for ITSA was due to take effect from April 2023 but due to the pandemic it has been delayed until April 2024.
What is MTD for ITSA?
HMRC wants to become one of "the most digitally advanced tax authorities in the world" and is working towards all sole traders, landlords and partnerships submitting their income and expenses quarterly. HMRC believe this will be advantageous to tax payers as they will know their tax liability on a quarterly basis rather than not knowing the total until perhaps several months after their financial year end.
When does it happen?
From April 2024 sole traders and landlords who have income of £10,000 or more per annum will be required to prepare their accounts quarterly in a digital format and submit the figures to HMRC every quarter. Accounts records will need to be kept in accounts software so that they can be submitted online directly from the software to the HMRC portal.
From April 2025 partnerships will be required to prepare and submit their accounts quarterly.
Submissions will need to be made within one month of the end of the quarter.
How will it affect me?
Now is the time to plan for this change and consider these two questions:
- Do you want to do your accounts and the submission's yourself?
- Do you want someone to do it for you?
If you want to do it yourself you need to:
- Identify the software you want to use
- Calculate the annual cost so that you can plan to increase your prices if you need to
- Decide when to implement the move to software which should be at the start of a financial year
- Set up the software prior to starting to use it with relevant account codes and VAT codes (if you are VAT registered)
- Learn how to record your transactions accurately in line with VAT (if you are VAT registered) and/or tax rules
- Work on your accounts regularly (weekly makes sense) so that you don't have 3 months of accounts to do prior to the submission date
If you want someone to do it for you you need to:
- Ask your accountant (if you have one who currently submits your tax return for you) how much it will cost for them to prepare quarterly accounts and submit them from April 2024 and plan for any additional cost
- If you currently have a bookkeeper ask them what additional cost there would be to prepare and submit the quarterly returns.
- If you don't have a bookkeeper currently and you would like one to keep your accounts up to date find one you would like to work with well in advance of the start date
Do your research now so that you are organised to start when you need to. There is no point planning to start keeping your accounts in accounts software from April 2024 if you haven't already looked into the options of how you are going to do it. Accountants and bookkeepers will be busy leading up to and during that first quarter and will be working with the clients which they already have on board, probably having little, if any, capacity to take on new businesses.
If you plan ahead and get your accounts set up digitally from the start of your next financial year you will have a good understanding of how it works, whether you do it yourself or not. You will have time to work it out for yourself without feeling under pressure each quarter or, if you have taken on a bookkeeper, you will realise the advantage of having someone experienced do your accounts for you.
MTD for VAT
VAT returns for businesses with turnover over the £85,000 threshold have had to submitted VAT returns via MTD since April 2019 and those below the threshold will have to submit VAT returns via MTD from April 2022. This was a big change for many businesses but submission of returns in this way is much quicker and easier. Of course the accounts need to be brought up to date for each quarter and the information being submitted needs to be correct just as it will for MTD for ITSA.
Can quarterly submissions be corrected?
It will be important that each submission is as accurate as possible as your tax liability for the quarter will be calculated from it (although you don't have to pay tax quarterly). This means that each submission should include all income for the quarter and all expenses for the quarter. By doing this you will have a more accurate picture of your business health as well. If you leave out any expenses your projected tax liability will be higher.
Quarterly returns will be corrected or adjusted with a fifth return which will most likely be done by your accountant once the year end is completed.
More than one income stream?
We don't yet know how information from different sources will be submitted from one accounting package. - for example if you have business income as well as income from rental properties which is shared with one or more others. HMRC and software providers have just a couple of years to find a solution.
For more help
We work with Xero software to provide a digital solution for our customers. Those who are VAT registered have their VAT returns submitted quarterly via MTD and we will be working with those sole traders and landlords who are not VAT registered to produce quarterly accounts and MTD FOR ITSA submissions from April 2024. Maintaining your accounts on accounts software means documents can be stored electronically too, eliminating the need for printing and filing.
Don't leave it until the last minute. Contact us soon to see how we can get your accounts organised in preparation for April 2024.