Making Tax Digital for income tax self-assessment (MTD ITSA) will change how the self-employed and landlords keep their records and report their income for tax purposes.
In April, we wrote an overview of MTD ITSA and what it’s all about. But what exactly will you need to do when the new rules kick in in 2024? Read on to find out everything you need to know.
Who will MTD ITSA affect?
Initially, MTD ITSA will affect self-employed business owners and landlords with a total business and/or property income above £10,000 a year from 6 April 2024.
Partnerships with individuals as partners will have to follow the new rules from 6 April 2025.
Meanwhile, limited liability partnerships and partnerships with corporate partners will be required to join at a future date that is yet to be confirmed.
What will I have to do under the new rules?
If you’re a self-employed business owner and/or landlord, there are three main actions you’ll have to start following from 6 April 2024.
First, you’ll need to keep digital records of all your business income and expenses, including all your income from self-employment and property.
This doesn’t mean an extra task – you don’t need to keep any additional records because of MTD. Instead, it’s the focus on ‘digital records’.
The easiest way to do this will probably be to use cloud accounting software, such as FreeAgent, Sage or Quickbooks (we’re big fans of Xero ourselves).
However, you can continue to use spreadsheets if that’s your preference, but you must submit them to HMRC by using special MTD-compatible software called bridging software.
In short, bridging software allows data to transfer to HMRC from spreadsheets via ‘digital links’ and, like accounting software, removes the need to enter information to HMRC manually.
Send quarterly updates
Under MTD ITSA, you’ll need to send a summary of your business income and expenses to HMRC every three months, again, through MTD-compatible software.
The deadlines for submitting these updates will be the same for everyone and are as follows from the start of the tax year on 6 April:
- 5 August
- 5 November
- 5 February
- 5 May.
These updates will be quarterly summaries of the business’s income and expenses. In response, HMRC will send an estimated tax calculation based on the information, which should help you budget for your tax.
Finalise your business income
At the end of the tax year, you’ll still need to finalise your business income. This will be in the form of an end-of-period statement (EOPS) for each source of income and a final declaration that will replace the current self-assessment tax return.
Because HMRC will already have details on your income and expenses from your quarterly updates, this should be a relatively straightforward process focused on confirming the updates you’ve sent are correct. You’ll also get a chance to add any details about personal income or reliefs and make other necessary adjustments.
As with the current self-assessment process, you’ll have to submit the EOPS and final declaration and pay the tax you owe by 31 January of the following tax year.
Stay on the lookout for more information
Talking about reporting income and expenses for tax purposes is easier to read about than it is to do them. That’s why we’re in the last stages of preparation for our MTD campaign.
So, keep an eye out on your email inboxes for detailed guidance on getting MTD ready. This is the biggest change to the tax regime in a generation, so we don’t want you getting left behind.