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How MTD ITSA and self assessment interact

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How is MTD ITSA reporting going to overlap or replace the filing of self assessment tax returns? Rebecca Cave has some answers, but it’s not going to be simple.

1st Oct 2021
Tax Writer Taxwriter Ltd
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The Income tax (Digital Requirements) Regulations 2021 (SI 2021/1076) for MTD ITSA were passed by Parliament on 23 September, to coincide with the announcement of the delay to the start of MTD ITSA until April 2024.

These new regulations are quite different to the previous draft MTD regulations released on the developer hub, which software producers had been working to.  

Big bang is coming

All sole-traders and individual landlords who are in business on 5 April 2023 will have to comply with the MTD regulations from 6 April 2024, if their gross turnover (trading and property income) exceeds the MTD entry threshold of £10,000. This ‘digital start date’ applies to all of those taxpayers, irrespective of the accounting period end the business uses.

Partnerships are not mentioned in the regulations at all, so a new set of MTD regs will have to be passed to deal with general partnerships which have a proposed digital start date for MTD ITSA of 6 April 2025.

Quarterly updates

All taxpayers within MTD ITSA will have to submit quarterly updates for the same standard quarters to 5 July, 5 October, 5 January and 5 April, with the reporting deadline exactly one month later.

However, a taxpayer can elect to report their quarterly updates for calendar quarters to 30 June, 30 September, 31 December, and 31 March, but the reporting deadlines will remain the same as 5 August, 5 November, 5 February and 5 May.

The regulations appear to be slightly flawed in this regard as they say the first quarterly update period, even where a calendar quarter election has been made, must start on 6 April not 1 April and run to 30 June.

End of period statements

The End of Period Statement (EOPS) is not tied to the quarterly statements at all, but instead will comprise the annual accounts figures in a similar fashion as is currently reported on the self assessment pages (SA103) and property pages (SA105) of the self assessment tax return.

The requirement to submit an EOPS is also not connected to the requirement to submit quarterly updates. A taxpayer must submit their first EOPS for the first accounting period that starts after their digital start date, and this will not necessarily align with the periods for which they must submit quarterly updates (see examples below).

This is a new development and will mean there could long overlap between MTD and SA tax returns, when certain taxpayers have to submit both an SA tax return and quarterly updates under MTD, but not an EOPS.

Where required to be submitted, the EOPS will replace the relevant pages on the SA tax return. But if the taxpayer has other income or charges, eg interest or HICBC, these will have to be reported through the new year-end finalisation service (replacement for SA return) by the same deadline.

For the first few years, until an EOPS is required, the accounting information will be reported on the SA tax return instead.

Example 1: Tim aligns with tax year

Tim is a financial consultant who makes up his accounts to the tax year end: 5 April.

Tim’s digital start date for MTD ITSA is 6 April 2024. Tim will submit his first quarterly updates, SA tax returns and EOPS on this timetable:  

MTD Qrt/ SA return: Income and expenses in period: Deadline for submission:
Y1 Q1 6 April 2024 – 5 July 2024  5 August 2024
Y1 Q2 6 July 2024 – 5 October 2024  5 November 2024
SA 2023/24 Year to 5 April 2024  31 January 2025
Y1 Q3 6 October 2024 – 5 January 2024  5 February 2025
Y1 Q4 6 January 2025 – 5 April 2025  5 May 2025
Y2 Q1 6 April 2025 – 5 July 2025  5 August 2025
Y2 Q2 6 July 2025 – 5 October 2025  5 November 2025
EOPS no.1 Year to 5 April 2025  31 January 2026

Example 2: Sandra has 31 March year end

Sandra is a shopkeeper who makes up her accounts to 31 March. Her first EOPS must be submitted for her first accounting period that starts on or after her digital start date of 6 April 2024, ie the accounting period: 1 April 2025 to 31 March 2026.

Sandra elects to use calendar quarters for her quarterly updates. Sandra will be required to submit quarterly updates, EOPS and SA returns as follows:

Qrt/ SA return: Income and expenses in period: Deadline for submission:
Y1 Q1 6 April 2024 – 30 June 2024  5 August 2024
Y1 Q2 1 July 2024 – 30 September 2024  5 November 2024
SA 2023/24 Year to 31 March 2024  31 January 2025
Y1 Q3 1 October 2024 – 31 December 2024  5 February 2025
Y1 Q4 1 January 2025 -31 March 2025  5 May 2025
Y2 Q1 1 April 2025 – 30 June 2025  5 August 2025
Y2 Q2 1 July 2025 – 30 September 2025  5 November 2025
SA 2024/25 Year to 31 March 2025  31 January 2026
Y2 Q3 1 October 2025 – 31 December 2025  5 February 2026
Y2 Q4 1 January 2026 -31 March 2026  5 May 2026
Y3 Q1 1 April 2026 – 30 June 2026  5 August 2026
Y3 Q2 1 July 2026 – 30 September 2026  5 November 2026
EOPS no.1 Year to 31 March 2026  31 January 2027

Example 3: Giles 30 September accounts

Giles has always drawn up the accounts for his farming business to 30 September. His digital start date for MTD ITSA is 6 April 2024. The first accounting period for which Giles has to submit an EOPS is: 1 October 2024 to 30 September 2025.

Giles makes a calendar quarters election. He will be required to submit quarterly updates, SA returns and EOPS as follows:

Qrt/ SA return: Income and expenses in period: Deadline for submission:
Y1 Q1 6 April 2024 – 30 June 2024  5 August 2024
Y1 Q2 1 July 2024 – 30 September 2024  5 November 2024
SA 2023/24 Year to 30 September 2023  31 January 2025
Y1 Q3 1 October 2024 – 31 December 2024  5 February 2025
Y1 Q4 1 January 2025 -31 March 2025  5 May 2025
Y2 Q1 1 April 2025 – 30 June 2025  5 August 2025
Y2 Q2 1 July 2025 – 30 September 2025  5 November 2025
SA 2024/25 Year to 30 September 2024  31 January 2026
Y2 Q3 1 October 2025 – 31 December 2025  5 February 2026
Y2 Q4 1 January 2026 -31 March 2026  5 May 2026
Y3 Q1 1 April 2026 – 30 June 2026  5 August 2026
Y3 Q2 1 July 2026 – 30 September 2026  5 November 2026
EOPS no.1  Year to 30 September 2025  31 January 2027

Conclusion

The MTD ITSA regulations are quite brief and further details on the practicalities of MTD ITSA are expected to be set out in an HMRC guidance note, yet to be published.

What is clear is that MTD ITSA will create a lot of work for accountants and businesses, some of which will be duplicated by the effort required to submit SA tax returns for a considerable overlap period.

Good luck explaining all that to your clients and billing them for your trouble.

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Replies (68)

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By ireallyshouldknowthisbut
01st Oct 2021 17:18

This again essentially demonstrates the pointlessness of the quarterly submissions.

HMRC ought to remember its role is the collection of taxes.

They ought not be mandating hugely complex bureaucratic systems which have no purpose in the collection of taxes.

Thanks (18)
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By bluebaron
01st Oct 2021 17:33

Thanks Rebecca. So, we currently have a self-assessment tax return, but in future we will have a tax return, an EOPS, a year-end finalisation, plus all the lovely quarterly updates. Totally crazy and pointless, especially for the smallest clients. Good luck HMRC getting all this to work!

Thanks (11)
Replying to bluebaron:
Tornado
By Tornado
01st Oct 2021 17:58

"Good luck HMRC getting all this to work!"

It clearly is not going to work, so I think HMRC will need a lot more than Good Luck with this project.

Thanks Rebecca for another of your well prepared articles.

Thanks (11)
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By AdamMurphy
01st Oct 2021 19:32

Thankful to Rebecca, but I can't waste any more time planning for this.

I don't want to think how many hours I've wasted doing so ever since the first announcement only for the can to be kicked down the road time and time again.

MTD for VAT only went ahead so somebody could say to their superiors "look, it works"

Thanks (7)
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By GHarr497688
01st Oct 2021 19:39

Great so we waste time getting clients Digital increasing the risks or error and then file the garbage four times a year. We then scrap all the garbage and then do the usual Self Assessment. Not one aim of MTD is met. Error risk increase, cost increase , tax burden worse. This will become one of the biggest scandals in the history of HMRC if they push on with it. HMRC are not telling the taxpayers and expecting the Accountants to deliver. It's time Accounting Web - Software Houses - Accountants - Taxpayers - Accountancy bodies spelt out in a united way how this just won't work. Best do it so HMRC can save face by not forcing the mandation on the basis they understand taxpayer concerns. It' not too late to fix the problem.

Thanks (15)
Replying to GHarr497688:
Tornado
By Tornado
01st Oct 2021 20:11

"HMRC are not telling the taxpayers and expecting the Accountants to deliver"

As I have said many times already, it is not our responsibility to deliver MTD, it is solely the responsibility of HMRC, so they need to seriously decide if they can really do this and if not, then they need to knock it on the head now whilst they can still save face.

Thanks (7)
Replying to GHarr497688:
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By johnjenkins
04th Oct 2021 10:49

No good talking to the software houses, they're coining it in. I think HMRC know full well it won't work but they can't or won't back down.

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By Hugo Fair
01st Oct 2021 20:16

RIGHT, THAT'S IT!

Time to lay in a stock of sets of two pencils ... then practice inserting them (one in each nostril - so all that covid testing was a useful practice run for something) and, after donning underpants as headgear, mumbling in a loud voice whenever HMRC are mentioned (all together now):
Wibble! Wibble Wibble! Wibble Wubble Wibble!

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Replying to Hugo Fair:
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By johnjenkins
04th Oct 2021 10:45

What happened to Wobble?

Thanks (1)
Replying to johnjenkins:
By Husbandofstinky
04th Oct 2021 13:20

johnjenkins wrote:

What happened to Wobble?

He got shot for desertion.

The shooting may have stopped, but the desertion will continue.....

Orwell could write a book on this.

Thanks (3)
Replying to Husbandofstinky:
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By johnjenkins
04th Oct 2021 15:36

Having a go at Major Dennis Bloodnok Eh?

Thanks (1)
Replying to johnjenkins:
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By AdamMurphy
04th Oct 2021 13:59

You need to watch Blackadder Goes Forth

Thanks (1)
Replying to AdamMurphy:
By Husbandofstinky
04th Oct 2021 14:37

AdamMurphy wrote:

You need to watch Blackadder Goes Forth

I'm sure he did Darling.

Thanks (1)
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By Open all hours
02nd Oct 2021 03:38

The very good reason why HMRC have chosen the start date as 6 April is that they have done everything in their power to avoid linking MTD with All Fools Day.

Thanks (14)
ghm
By TaxTeddy
02nd Oct 2021 07:17

Thanks Rebecca, as ever you have brought this sharply into focus. As you say, how we will ever explain this to the clients is anyone's guess.

But it strikes me that if this was an article about some emerging nation attempting to put a modern tax system into place we would look down our noses at them and pity the inadequacies of their civil service.

Regardless of whatever "crisis" is in the national press this week (and my goodness aren't there a lot of them) surely this is clear evidence that we have become that third world nation.

Thanks (9)
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By pauld
02nd Oct 2021 13:16

And according to HMRC policy paper on impact to businesses, it will cost just £3 to file an MTD return and just 6 mins to check, so not sure what all the fuss is about........................

Thanks (11)
Replying to pauld:
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By Blondie060177
04th Oct 2021 10:47

Where on earth do they get the ludicrous figure of £3 to file an MTD return?? If you use bridging software it's £9, otherwise the client is paying monthly for cloud software that they potentially wouldn't have needed before, but the costs involved are much more than £3

Thanks (4)
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By Rgab1947
04th Oct 2021 10:39

Started reading the article and started losing the will to live.

I for one will not touch a sole trader or landlord. And retire fully before this nonsense starts for companies.

What an idiotic scheme they have dreamt up. Are they on drugs?

Thanks (12)
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By North East Accountant
04th Oct 2021 10:49

Insanity.

Thanks (5)
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By TaxEye
04th Oct 2021 10:50

Thank you very much Rebecca - you are a star!

Thanks (2)
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By chrisowen
04th Oct 2021 11:02

Have they run this past the Office of Tax Simplification ?

Thanks (9)
Replying to chrisowen:
Tornado
By Tornado
04th Oct 2021 11:19

chrisowen wrote:

Have they run this past the Office of Tax Simplification ?

Probably not, it might be a bit too complex for them to understand.

Thanks (6)
Replying to chrisowen:
By SteveHa
04th Oct 2021 14:59

For crying out loud, don't let the OTS have a say. It's complicated enough without them adding their thruppeny bit.

Thanks (1)
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By whiteways
04th Oct 2021 11:22

I have a question.

Having read the article, what's to stop taxpayers keeping their traditional bookkeeping systems and supplying these for preparation of their accounts as they always have done, but (either us or them) submitting the quarterly returns with "estimates"?

Thanks (3)
Replying to whiteways:
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By pauld
04th Oct 2021 11:28

I'm sure that's what will happen - but then will come the quarterly payments on account for everyone. Its just a ploy to get their hands on our money sooner.

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Replying to pauld:
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By whiteways
04th Oct 2021 11:36

You may well be right eventually, but then one could presumably just submit zero estimates.

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Replying to whiteways:
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By whiteways
04th Oct 2021 11:41

The critical piece of information appears to be:-

"The requirement to submit an EOPS is also not connected to the requirement to submit quarterly updates."

So the quarterly returns would appear to have no bearing on a client's actual tax liability.

Thanks (3)
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By petestar1969
04th Oct 2021 11:43

That confirms it for me then. As soon as possible after 5 April 2024 I'm retiring from accountancy, if I don't do it sooner.

Thanks (2)
Replying to petestar1969:
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By pauld
04th Oct 2021 11:57

But you'll miss all the fun.....................

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Replying to petestar1969:
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By Homeworker
05th Oct 2021 10:19

Me too!

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By Mr J Andrews
04th Oct 2021 12:24

HMRC used to have a duty of Care and Management under Section 1 TMA 1970. It's now a case of couldn't care less and managing to dig deeper holes when they are already in the S###

Thanks (4)
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By Mister E
04th Oct 2021 12:25

Thanks Rebecca.
Those examples just show the craziness of it.
How are we supposed to track these with different EOPS deadlines, SA returns for some and not others. Could they make it anymore complex with so many variances and deadlines.

I suppose all rental clients will be as per example 1.

Thanks (1)
Morph
By kevinringer
04th Oct 2021 12:52

Great article Rebecca but you don't appear to have included the basis period changes into example 3 eg wouldn't SA 2024-25 would include an apportionment of y/e 30/09/2025?

Thanks (2)
Replying to kevinringer:
rebecca cave
By Rebecca Cave
04th Oct 2021 15:32

Its not clear that that basis period change is going ahead, so I haven't included it.

Thanks (1)
Replying to Rebecca Cave:
Morph
By kevinringer
04th Oct 2021 16:06

Thanks Rebecca. I thought the announcement was the same as MTD: postponed. That's what I understood from https://questions-statements.parliament.uk/written-statements/detail/202.... Given that MTD has been postponed multiple times I would say it's as (un)certain as the basis period changes and is just as likely, which is why I feel it would be helpful to see example 3 with the basis period changes.

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By Ian McTernan CTA
04th Oct 2021 13:30

Rebecca, can you suggest to HMRC that they actually team up with a few small or sole practitioner accountants and pay said accountants to run this on a trial basis for their clients. Pick both tech savvy and non-tech savvy accountants and clients- especially considering the £10k turnover so include landlords with one property, small self employed, etc.

Then they might actually see what a complicated mess they have dreamed up, plus how much extra time and resources will be spent filing utterly pointless quarterly reports after first having to take the time to prepare them.

Rather then them talking to software houses and the big accountancy firms who have entire departments etc and other self interested parties.

Thanks (5)
Replying to Ian McTernan CTA:
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By GHarr497688
04th Oct 2021 20:12

I've explained all this directly to my Local MP , HMRC and Software houses. Apparently I need to go to night school to brush up on Computer use !!

Thanks (1)
Replying to GHarr497688:
Morph
By kevinringer
04th Oct 2021 20:47

Maybe ask your MP to have to go at MTD!

Thanks (1)
Replying to kevinringer:
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By djtax
06th Oct 2021 12:43

Round here might just as well condense that to suggest our MP simply to go....

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Replying to djtax:
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By Agutter Accounts
06th Oct 2021 12:54

Our Tory MP here in County Durham was elected 2 years ago, and all he has done since is let his gob go. My wife got a leaflet from him the other day claiming he had done all sorts about traffic on the main road through the village. Most of it was porkies.

Thanks (1)
Replying to GHarr497688:
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By johnjenkins
05th Oct 2021 09:51

Perhaps the only solution is to block the M25. Better still block the fuel distribution centres. Only problem with that is that we would incur the wrath of people. We already have the people on our side. There must be a way of getting around this "blind spot" our politicians have got otherwise we shall just have to wait for it to go t's up

Thanks (0)
Replying to johnjenkins:
Morph
By kevinringer
05th Oct 2021 10:28

We accountants won't have much sympathy from the public: why should they worry if fatcat accountants (as we can be perceived) have more work to do? The sympathy will be for Joe the Plumber who gets nothing from this at all but more wasted time and costs. As for getting this message across to our politicians, the ideal way would be to enrol them all into the pilot so they can see just how much work is required. But that wouldn't work because MPs are exempt from online SA filing (and therefore, I assume, MTD). It's easy to vote something through it you don't have to comply.

Thanks (1)
By tonyaustin
04th Oct 2021 16:28

HMRC have still not said exactly what information has to be provided quarterly. Is it cash book items, bought ledger items, sales ledger items, nominal ledger items, total of unpaid sales invoices, unpaid purchases and expenses invoices, accruals, prepayments, stock and wip? A small business may only keep a cash book and leave it to the accountants at the year end to add on balance sheet items if they do not adopt the cash basis.

Thanks (3)
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By tedbuck
04th Oct 2021 16:30

+It really shows just how incompetent HMRC actually is. They have been sold this by the software companies and are just too stupid to see that it won't work, will cost taxpayers a huge amount of time and money and thus shrink the economy which will mean taxing companies more to pay for all the people on the dole because small businesses just think "Bu***r off" and retire to accept cash only instead. Guess what - the tax gap will expand, Jim Harra will get a promotion to Head of the Treasury and we will become the Third World Country which HMRC obviously hope for.
If you read it in a Sci-fi book you would say 'totally unbelievable' but HMRC lives in cloud cuckoo land these days so they believe it.
Get the Media onto it and expose HMRC for the idiots they are and tell Jo Public what he/she is in for.
Perhaps Guy Fawkes could be resurrected to dispose of wherever these morons operate from.

Thanks (3)
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By RobertD
05th Oct 2021 09:41

I feel more relaxed about it all now. HMRC have given me an extra year to disengage sole trader and rental clients. I won’t be taking any new ones on from now on. The mortgage is paid and from now on only vat registered companies.
If this isn’t going to be simple for accountants what is going to happen to the millions of unrepresented taxpayers?

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Replying to RobertD:
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By johnjenkins
05th Oct 2021 09:55

Some will go on PAYE. Some will go under the radar, some will go mental and some will go on the dole (UC). All in all not what HMRC will want.

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By booksy
05th Oct 2021 12:44

Two things struck me before losing the will to read further (no offence or reflection on Rebecca):
"These new regulations are quite different to the previous draft MTD regulations released on the developer hub, which software producers had been working to. " = recipe for disaster in itself
"All sole-traders and individual landlords who are in business on 5 April 2023 will have to comply with the MTD regulations from 6 April 2024, if their gross turnover (trading and property income) exceeds the MTD entry threshold of £10,000." = lol at this rate (fuel costs, labour costs, etc) I wonder what the value of £10,000 is going to be come 2024...

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Replying to booksy:
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By johnjenkins
05th Oct 2021 13:18

It's stupid having a turnover limit anyway. Business could go up and down every year making it not worthwhile to go above £10k.

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Replying to johnjenkins:
Tornado
By Tornado
05th Oct 2021 13:57

johnjenkins wrote:

It's stupid having a turnover limit anyway. Business could go up and down every year making it not worthwhile to go above £10k.

I am still confused/bemused/angry/dismayed/shocked at how many basic principles have not been taken into account in HMRC's stab at MTD. Many things that are obvious to us seem to have been completely missed by HMRC and they are so surprised when they come across these problems and have to delay again.

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Replying to Tornado:
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By johnjenkins
05th Oct 2021 14:52

What makes it even worse for me is that I was in on SA right from the start. Although there were a few problems the concept of everything under one return was right and it works. Mandatory use of digital bookkeeping and accounts is not a good concept. MTD is not a concept it is an ideal and we all know where they end up. It's an IT concept that should not under any circumstances be mandatory.
Let's look at the life of a business. As it grows so does it's administration and eventually it will naturally go digital. The lack of MTD will not in any way affect the collection of tax. This HMRC will find to their own detriment.

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