Here’s how self assessment tax returns are changing with MTD for ITSA

Self assessment tax returns are changing with MTD for ITSA. Here's all you need to know

It’s not always easy to accept change. Disruption of the status quo can be as welcome as a fly in your soup, even if sometimes the status quo needs disrupting. 

This leads me onto upcoming government legislation Making Tax Digital for Income Tax Self Assessment (MTD for ITSA), with HMRC announcing changes to the way the self-employed and landlords do their self assessment for income tax. 

Yes, MTD for ITSA will result in a change for many of your clients, and may initially seem like an additional burden for accountants. But the change from HMRC, as the government continues its push to digitalise the UK tax system, should make the process more efficient, and ensure it’s easier to get tax right. 

Here, we take a look at how self assessment tax returns are changing for MTD for ITSA, and what your clients need to know about the future of tax. 

Changing times

Starting from April 2024, MTD for ITSA requires landlords and self-employed people earning above £10,000 to send HMRC quarterly updates, an End of Period Statement (EOPS) and a Final Declaration using MTD-compatible software. 

This replaces the current system, which requires landlords and self-employed people to submit one yearly self assessment using the HMRC online portal, postal mail, or software. They might turn to you to help with this. 

Today, in order to pull together the figures for the return, digital or paper records are kept throughout the tax year. The deadline for paper (postal) filings is 31st October, while it’s 31st January for online submissions (through the HMRC portal, or software).

How self assessment will change with MTD

From April 2024, landlords and the self-employed will need to use MTD-compatible software to keep digital records and submit updates to HMRC for MTD for ITSA. They won’t be able to use the online HMRC portal, or the paper (postal) filing system. Instead, they’ll need to send:

• Four quarterly updates in the space of one tax year, using MTD-compatible software. These should include details of income and expenditure for each quarterly period, and can be quickly pulled together using cloud accounting software, providing those affected keep digital records up to date.
• One End of Period Statement (EOPS), by January 31st. This is where affected clients should make final adjustments to the accounts and claim any reliefs, and confirm the information submitted is complete and accurate. HMRC-compatible software can pull the EOPS together quickly and efficiently.
• One Final Declaration, by January 31st. Landlords and the self-employed earning above £10,000 will need to disclose any additional sources of income, such as savings and investments, in the Final Declaration. They can also submit claims for reliefs.

Learning curve

Change may not always be welcome, but once the learning curve of moving to software is overcome, MTD for ITSA should make the tax process easier for landlords and self-employed clients. Encouraging them to embrace MTD-compatible software as soon as possible will help them prepare for the legislation – and they will likely be grateful for it. 

While 2024 may seem a long way away, it isn’t too early to ensure these clients are prepared for this upcoming change, and are ready to embrace a brave new digital dawn. 

By Stuart Miller, Head of Industry Engagement, Xero