Brought to you by
xero

Xero is an easy-to-use platform for businesses and advisors.

Save content
Have you found this content useful? Use the button above to save it to your profile.

What your clients need to know about Final Declarations ahead of MTD for ITSA

16th Sep 2022
Brought to you by
xero

Xero is an easy-to-use platform for businesses and advisors.

Save content
Have you found this content useful? Use the button above to save it to your profile.

MTD for ITSA is around the corner, and your clients will need to know what’s expected of them. Here, we break down what they need to know about Final Declarations. 

xero-mtd-for-itsa-final-declarations
Xero

Change is afoot in the world of tax, with MTD for ITSA coming soon and requiring self-employed and landlord clients earning above £10,000 to use MTD-compatible software to keep digital records and submit Quarterly Updates, an End of Period Statement (EOPS) and a Final Declaration to HMRC. 

In this brief guide, we’ll break down what your clients need to know about Final Declarations ahead of the arrival of the government legislation. 

What is a Final Declaration and when does it need to be submitted? 

The Final Declaration will replace the current annual Self Assessment Tax Return. It describes the process of taxpayers finalising their end-of-year position for tax and determining what they owe – once known as ‘crystallisation.’

Submitting a Final Declaration is part of the new MTD for ITSA rules, coming into effect in April 2024. It can only be submitted once the relevant UK tax year has come to an end. The deadline for submission is 31 January following the end of the tax year.

While clients can submit non-business income information to HMRC at any point during the year, it must be done before making the Final Declaration.

What do clients need to submit a Final Declaration? 

For the landlords and self-employed who are required to submit a Final Declaration, the most efficient way to do so is by using HMRC-approved MTD software. While they’d need to have this in place before the start date in April 2024, the sooner they adopt this software the better – helping them keep digital records earlier, and making a smoother transition to MTD for ITSA compliance. 

Meanwhile, the right accounting software will drive other benefits, too, offering features from bank reconciliation, to  invoice generation, to sending quotes and capturing bills and receipts.

If your client has the software in place, they’ll then need to complete the following steps before submitting the Final Declaration: 

  • Submitted all four quarterly updates for the tax year
  • Finalised the End of Period Statement (EOPS) for all businesses
  • Provided entire income for the relevant tax year 
  • Provided relevant additional information

They won’t actually need to include any specific information in the Statement itself. Instead, it’s important to let clients know that it’s a declaration statement to ‘accept’ your final tax position for the year, which is calculated by HMRC.

What are the penalties for missing a Final Declaration?

Missing the deadline for a Final Declaration or failing to pay tax you owe on time may result in a penalty. The HMRC’s new points-based system for MTD for ITSA will come into effect from April 2024, and you could be liable to pay a fine, depending on the points you accrue. 

While MTD for ITSA may feel far away, it’s important for landlord and self-employed clients to understand what’s expected of them before time. Thankfully, as their most trusted advisors, you can lead them through this transition and ensure they’re well placed to thrive in the future.

By Stuart Miller, Head of Industry Engagement, Xero

You might also be interested in