Making Tax Digital for income tax self-assessment (MTD ITSA) might have been delayed until April 2024, but that doesn’t mean it’s any less important to get ready today.

MTD, the Government’s flagship policy to modernise the tax regime, has been in the works for multiple years. 

David Gauke, former financial secretary to the Treasury, explained how the Government thinks the changes will help businesses: 

“Tax returns will be replaced by digital tax accounts for millions of individuals and businesses.”

“They will bring together each taxpayer’s details in one place, just like an online bank account, so they can register for new services, and understand quickly and easily what they need to pay – without ever having to complete a tax return again.”

After MTD for VAT was rolled out to every VAT-registered business in April 2022, MTD ITSA will be introduced.

The Government was meant to roll out MTD ITSA in April 2023, but the Treasury pushed it back by 12 months to give businesses more time to prepare for the changes and recover from the pandemic.

That doesn’t mean you shouldn’t get ready now, as those businesses who fully understand their new obligations will have an edge over their competitors.

Who will MTD ITSA affect?

MTD ITSA will affect most self-employed taxpayers with business or property income over £10,000 a year. General partnerships are excluded, for now.

As part of the scheme, all unincorporated businesses will need to file quarterly returns on or before 5 August, 5 November, 5 February and 5 May every year.

Quarterly returns are thought to be very similar to the current format of a self-assessment tax return, consisting of total sales and expenses that arise every three months.

You will also have to file an annual end-of-period statement on or before 31 January following the end of the relevant tax year.

From 6 April 2025, most unincorporated business partnerships that have business or property income and only individuals as partners, will also have to abide by MTD ITSA rules.

When exactly all other partnerships, such as those with corporate partners and limited liability partnerships, will join the scheme is yet to be determined.

Accounting software

To be compliant with MTD ITSA, businesses will have to keep digital records of all their sales and expenses using MTD-compatible software, including Sage, Xero and Quickbooks.

Alternatively, you can use regular spreadsheets to keep records as long as they use special bridging software that links to HMRC’s systems.

Cloud accounting software like Xero will benefit you much more, however, as the benefits of such platforms go beyond the difficult task of keeping you MTD-compatible. 

For instance, you can use accounting software to do your VAT, generate reports, sign off on payments, scan receipts and much more.

It’s difficult to know which platform will suit your business the best, though, given how the different functions some platforms can perform. So, if you need advice on which software to use, don’t hesitate to contact us

What else you need to know about MTD

VAT-registered businesses will be familiar with MTD, with the ones with a taxable turnover above the registration threshold (£85,000) having been part of MTD for VAT since 2019.

Since 6 April 2022, every VAT-registered business has had to follow MTD rules, regardless of turnover.

Up next, of course, will be MTD ITSA, before MTD for corporation tax comes into effect, which HMRC says won’t be until at least April 2026.

It proposed April 2024 as the month when it intends to commence a voluntary pilot scheme for MTD for corporation tax, however.

There is currently a pilot scheme running for MTD ITSA, which gives businesses a chance to get used to the processes that will one day be compulsory.

Talk to us about MTD ITSA.