Making Tax Digital for Income Tax Self Assessment (MTD ITSA)
As you’ll be well aware already, VAT-paying companies have had the (pleasure?) of Making Tax Digital since it was launched back in April 2019. But the government is now keen to expand it out to all individuals who have made any self-employment income they need to declare, including landlords and sole traders.
Basically, if your clients have any income that is normally declared via Self Assessment they’ll need to be made aware of the new rules. There’s also a wealth of information available about MTD for ITSA on the Gov.uk website.
What is Making Tax Digital for Income Self Assessment?
In a nutshell, from spring 2024, sole traders and landlords will be required to use Making Tax Digital (MTD) compatible software to report their figures every quarter to HMRC. This is instead of doing a yearly Self Assessment tax return as would happen now.
Previously MTD has applied only to VAT-registered companies. However, eventually no one with any self-employed income will be able to escape it, so it’s something your non-VAT registered clients should be made aware of ASAP.
Just to note, non-resident companies, estates, trusts and trustees of registered pension schemes will not be required to join MTD for ITSA.
When is MTD for ITSA being launched?
Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) has already been delayed for a year, having originally been expected to start next year. However, it will now be introduced in the tax year starting in April 2024. As this date has now been legally set, it does give a decent timeframe for small businesses, landlords and individuals to work to.
General partnerships (not including LLPs, corporate or mixed partnerships) will not be required to use MTD for ITSA until April 2025. This date may still change though, as unlike the April 2024 launch it’s not set in legislation. The government also hasn’t said yet if or when complex partnerships will be expected to join the MTD scheme. It’s also not clear if MTD for Corporation Tax will be launched as planned in 2026.
How do my clients sign up for MTD for Income Tax?
If you have clients that are landlords or sole traders with income of over £10,000 they will need to use MTD-compatible software to report their income to HMRC at least every quarter. They will also be required to keep records of your accounts. This includes essentials like invoices and expenses data (remind them of the requirement to keep them for at least five years after the current tax year ends).
6th April 2024 is the absolute deadline here and although it seems like ages away it will soon rattle round. Therefore you should support your clients in identifying suitable MTD software and the requirements around it as early as possible. Don’t forget, if they have already signed up for MTD for VAT, they will still need to sign up separately for MTD for ITSA as they won’t automatically be transferred over.
Once MTD software is in use, the good news is that businesses and individuals will no longer need to complete Self Assessment tax returns (unless they need to declare other untaxed income outside of MTD). This is because they will use the MTD software to provide their quarterly updates to HMRC.
By the 31st January after the end of the tax year, sole traders and landlords will also need to use their MTD software to submit an end of period statement (EOPS) to HMRC. This will show all their income plus any allowable expenses.
If your client owns more than one sole trader business or rental property, a separate EOPS will need to be submitted to HMRC for each one.
Another thing to flag up with your clients is that by the 31st January each year they’ll need to send HMRC a final declaration of all their income. This is when they will also need to pay any applicable tax and NI. As with the Self Assessment there will still be a payment on account system, so they will likely need to submit an additional payment on the 31st July of the same year.
Agent Services Account (ASA)
If you plan to access MTD services and supply HMRC with updates on your clients’ behalf, you will need to set up an Agent Services Account (ASA). In practice this is a new Government Gateway that allows accountants and other professional parties to access the new service. Only one ASA per practice is allowed, and you’ll be able to set up staff with administrator or assistant access to the account. Many practices have done this already for submitting MTD for VAT returns or Trust Registration Service returns.
A quick guide to the ASA and how to set one up can be found here.
This article was written by Myriad Associates
Based in Leicestershire but working remotely with accountancy practices across the UK, Myriad Associates is a leading UK R&D tax and grant funding consultancy whose results speak for themselves.
Having spent the last 10 years in business we’ve supported hundred or clients and accountants in achieving the R&D Tax Credits and grants they need to innovate and grow.
Have any of your clients recently completed a project that involved scientific or technical research? Perhaps they’ve invested in a new product, process or service, or substantially upgraded an existing one?
No matter what their company’s size, sector, location or industry, R&D tax relief could well be on the cards. This is where partnering with us makes sense.
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