Making Tax Digital for Income Tax Self-Assessment: a basic guide

Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) brings a fundamental change to the way personal tax information must be reported to HMRC.

It will require digital record keeping and digital submissions of income and expense information on a quarterly basis, followed by an annual statement. It is due to become compulsory in April 2024 for taxpayers with gross income of £10,000 or more from self-employment and/or property rental with the following exceptions:

  • Trusts, estates, trustees of registered pension schemes and non-resident companies
  • General partnerships that earn more than £10,000 per year and have only individuals as partners (April 2025) and all other partnerships at a future date which is to be confirmed

Businesses exempt from MTD for VAT will also be exempt from MTD for ITSA and there will be digital exclusions available for some individuals.

Record keeping

The digital record keeping requirement will mean taxpayers will have to use an accounting-MTD software package to prepare the quarterly returns and end of period statement.

Reporting

For each trading or property business, a quarterly report of income and expenses will need to be submitted. The first of these quarterly updates will be due for filing by 5 August 2024, and will cover either the quarter ended 5 July 2024, or 30 June 2024 (where a calendar quarter election is in place).

Separate quarterly updates will be required for each trade or category of property business but there is no requirement to make tax or accounting adjustments to the information provided in quarterly updates.

An end of period statement (EOPS) for each business is required and effectively replaces the tax return for those income sources.

The EOPS will cover the tax year (regardless of the accounting period of the business) and will be due for filing by the normal self-assessment deadline of 31 January following the relevant tax year. All property businesses must use the tax year as the accounting basis period, but trades can use any accounting period.

The MTD for ITSA regime will incorporate all the reporting required on the current self-assessment tax return into a ‘finalisation’ or ‘crystallisation’ statement. This statement will bring together all the information included in the MTD reports, plus other taxable income, such as investment and employment income, to calculate the tax liability for the tax year. This will be due by 31 January after the end of the tax year.

In addition to MTD for ITSA, there will also be changes to the tax year basis of assessment with transitional rules being introduced in 2023-24 under basis period reform for self-employed individuals and partnerships. We are yet to receive detailed guidance from HMRC on the practicalities of the reform.

Get in touch

Making Tax Digital is bringing lots of changes, but we are perfectly positioned to support you and your business before the official launch in April 2024. Prepare now and overcome any challenges with the transition to digital before the new rules come into force. Get in touch to discuss MTD for ITSA in more detail by emailing enquiries@pmm.co.uk.

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