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MTD: Monthly reports may be needed

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Four million taxpayers will need to submit quarterly plus end of period reports for each trade and property business, leading to multiple submissions for different periods under MTD for income tax.

19th Feb 2021
Tax Writer Taxwriter Ltd
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MTD for income tax has now morphed into MTD for income tax self-assessment (ITSA), and HMRC are now referring to the regime as ‘MTD ITSA’.

HMRC estimates there are four million businesses that pay income tax, but who are not VAT registered, so they are not already keeping digital business records. All of these businesses need to enter the MTD ITSA regime from April 2023 (see start dates below).  

What reports are required?

For each trading or property business the taxpayer operates they will have to submit a quarterly report of income and expenses in defined categories. The taxpayer will also have to submit an end of period statement (EOPS) for each of those businesses (the fifth report).

The MTD ITSA regime will incorporate all of the reporting required on the current SA tax return into a ‘finalisation’ or ‘crystallisation’ statement. This statement will bring together all of the information included in the MTD reports, plus other taxable income (such as investment and employment) to calculate the tax liability for the tax year. 

The draft MTD ITSA regulations (see developer hub policy update) indicate that individual landlords must submit separate quarterly updates for each category of property business (eg long term letting, FHL, overseas lettings).

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Replies (210)

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By Crouchy
19th Feb 2021 15:19

Great piece, thanks

you have to wonder what the benefit of this is, to either the taxpayer who has to comply with it all and will most likely incurr increased costs for software and accoutancy fees or to HMRC, who'll be overloaded with info that ultimatley they are unlikley to use - they'll just rely on the final returns, because evrything before them is just work in progress

so much for simplyfing tax or reducing admin that will allow businesses to be more productive

Thanks (13)
Replying to Crouchy:
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By Babs Harris
15th Apr 2021 11:43

Ahhh but I am sure they will then role out quarterly payments of tax and NI so this will be of benefit to the exchequer!

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Replying to Crouchy:
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By Babs Harris
15th Apr 2021 11:43

Ahhh but I am sure they will then role out quarterly payments of tax and NI so this will be of benefit to the exchequer!

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By memyself-eye
19th Feb 2021 15:20

Completely and utterly bonkers, bonkers, bonkers.

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Replying to memyself-eye:
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By wilcoskip
22nd Feb 2021 10:14

As good a summary of the situation as we're likely to see.

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By Jo Nokes
19th Feb 2021 15:26

Just over two years to go, and the debate is still ongoing as to the reporting periods. Why is there not more fuss concerning £4m tax payers who are going to have to deal with this ridiculous regime.

One SA return is perfectly doable, even if the underlying records are digitally maintained, but what is being proposed is just completely over the top. How will joint property landlords each file digitally? And where do they get the records from when an agent is doing the collecting?

Come on, Rebecca, we need to make a bigger fuss

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By ireallyshouldknowthisbut
19th Feb 2021 15:50

The big unanswered question to all of this is "WHY?"

For what insane reason is our government imposing this massive crucifying high burden on small business?

HMRC's job is to collect taxes. Not to impose massive regulatory burdens on a whim.

I can only hope that when the many MP's who are landlords realise how much extra work they will have to do the penny might drop about what an appalling plan this is.

We have already been through the farce that is MTD for VAT - reporting the exact same 9 numbers to HMRC in a very complex and more expensive manner to HMRC.

This has achieved none of the claimed objectives of tax raising revenues whilst magically saving money for businesses [The two cannot of course co-exist]

Any savings for clients have been due to use of digital software - which they could have done with or without MTD.

its simply not good enough to hear arguments along the lines of "we must modernise", or "we need a digital system fit for the modern world". it seems anyone opposing this is seen as some sort of backward dinosaur to be laughed at by those making the decisions. There is no credible justification that stands up to even a few minutes analysis for these plans.

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Replying to ireallyshouldknowthisbut:
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By JonWright-ConceptAccounts
22nd Feb 2021 10:23

The answer why - is quite simple. HMRC are aiming to align all taxpayers to PAYE. One of the major questions has always been why should employees pay tax on a monthly basis whilst self-employed only pay annually. With MTD - eventually all will be aligned and the cash flow implications to HMRC will be enormous!

Thanks (2)
Replying to JonWright-ConceptAccounts:
blue sheep
By Nigel Henshaw
22nd Feb 2021 10:35

JonWright-ConceptAccounts wrote:

The answer why - is quite simple. HMRC are aiming to align all taxpayers to PAYE. One of the major questions has always been why should employees pay tax on a monthly basis whilst self-employed only pay annually. With MTD - eventually all will be aligned and the cash flow implications to HMRC will be enormous!


Precisely, has always baffled me why tax for the self employed is treated so differently, VAT isn't, PAYE isn't, even CGT isn't anymore to some extent.
If you are genuinely in business, reporting quarterly how much you earn should not be difficult and should be an accepted part of being self employed
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Replying to NH:
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By johnjenkins
22nd Feb 2021 11:42

Self-employment is different to PAYE. With self-employment you have to get the work, do the work, then get the money. With PAYE you do the work and get paid. The end user on PAYE doesn't have to do any reports. I could go on but suffice to say that reporting quarterly or whatever for those under the VAT threshold will never work.

Thanks (5)
Replying to johnjenkins:
blue sheep
By Nigel Henshaw
22nd Feb 2021 11:59

johnjenkins wrote:

Self-employment is different to PAYE. With self-employment you have to get the work, do the work, then get the money. With PAYE you do the work and get paid. The end user on PAYE doesn't have to do any reports. I could go on but suffice to say that reporting quarterly or whatever for those under the VAT threshold will never work.

I am a huge supporter of the self employed (I am SE myself after all) but whatever differences there are between SE and PAYE, in this day and age of real-time information I just don't see how one can argue any longer that the SE pay taxes almost 2 years later in some cases than their PAYE friend

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Replying to NH:
RLI
By lionofludesch
22nd Feb 2021 12:51

NH wrote:

johnjenkins wrote:

Self-employment is different to PAYE. With self-employment you have to get the work, do the work, then get the money. With PAYE you do the work and get paid. The end user on PAYE doesn't have to do any reports. I could go on but suffice to say that reporting quarterly or whatever for those under the VAT threshold will never work.

I am a huge supporter of the self employed (I am SE myself after all) but whatever differences there are between SE and PAYE, in this day and age of real-time information I just don't see how one can argue any longer that the SE pay taxes almost 2 years later in some cases than their PAYE friend

It's only real time for the self employed if the owner takes on the onerous responsibility of maintaining the records in real time.

And, for those not capable, the daily visit to the bookkeeper or whoever they pass the work on to.

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Replying to NH:
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By johnjenkins
22nd Feb 2021 13:02

If you can't see the argument, then I must despair at your clients.
Let's put it very simplistic for you. Someone on PAYE works a week/month and gets paid their contractual amount. Someone who is self-employed may not be paid regularly and may have to find money to pay suppliers and/or subbies. Bank borrowing may be needed etc. etc. etc. I'm not going to go on.
PAYE has always been on RTI with the employer, and what good has it done for HMRC. They can't even get the payments allocated right or issue the right codes.
We all know it's just a ruse to get rid of the small self-employed.

Thanks (4)
Replying to johnjenkins:
blue sheep
By Nigel Henshaw
22nd Feb 2021 13:23

Putting in crudely what you are saying is that if I am Self Employed and my year ends 31st March, instead of putting away enough to cover my tax bill in April what I should be allowed to do is take an extra 10 months to pay my tax on that years profits because I might need some time to borrow money, pay suppliers etc.

I realise it is not always that simple, but playing the devils advocate I can see why things need to change.

Why should income tax be any different to VAT for example, if I am a responsible business person I should know at the end of each month, quarter or year how much I need to put aside for tax surely.

Many of my clients do know that, and put the money aside, they are able to do that because they have quarterly reporting, however for most it needs a stick not a carrot

Thanks (0)
Replying to NH:
RLI
By lionofludesch
22nd Feb 2021 13:40

NH wrote:

I realise it is not always that simple, but playing the devils advocate I can see why things need to change.

Something we've been doing for nearly two centuries urgently needs to change ?

How have we managed all these years?

Thanks (1)
Replying to NH:
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By johnjenkins
22nd Feb 2021 14:21

Wow, you really do need a lesson in reality.
There are many reasons why a self-employed business may not have money to pay their tax on RTI. The thinking behind yearly accounts is that turnover, expenses, can vary during a year. In fact this very process was talked about when SA was in its infancy ( I know, I was there) but is was deemed not to be practical (for many reasons) to change the way the self-employed are taxed.
As for the difference between income tax and vat, I'm gobsmacked (even thinking that your post is a windup) that you don't know. The simple answer is (if you really don't know) that VAT is a tax collected from other business on behalf of HMRC. In return for that collection process HMRC allow you to use that money until its time to pay it over.

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Replying to johnjenkins:
blue sheep
By Nigel Henshaw
22nd Feb 2021 14:55

Don't treat me with disrespect please, I have been in practice for many years.
My point was that tax is tax whatever you call it, VAT, PAYE or Income Tax. if you are in business you need to make provision for it as you earn it not spend it.

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Replying to NH:
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By johnjenkins
22nd Feb 2021 16:23

I'm not treating you with disrespect. I am genuinely amazed in what you say and find it difficult to understand how you are still in practice, never mind for many years.
If I have understood you correctly a business that has a profit should pay the tax due on that profit immediately instead of buying plant that might enhance the business, resulting in perhaps no tax liability. The structure of business is over 12 months not quarterly. VAT registered business do not (at the moment) have to submit updates to HMRC. The quarterly returns are merely to account for VAT.

Thanks (1)
Replying to johnjenkins:
blue sheep
By Nigel Henshaw
22nd Feb 2021 16:39

johnjenkins wrote:

I'm not treating you with disrespect. I am genuinely amazed in what you say and find it difficult to understand how you are still in practice, never mind for many years.


there you go again, disrespect - I am well aware of how the system works thanks, I understand it perfectly well dealing with and supporting thousands of small businesses over the years.
I am still of the opinion that MTD will ultimately be to do with getting money in earlier from Self Employed people, and I cannot see how anyone can argue with that intention given the length of time between when profits are made and when tax is paid.
That will be my last reply, it is only my opinion, I dont expect people to agree but neither do I expect them to show disrespect to me when they know nothing about me.
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Replying to NH:
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By johnjenkins
23rd Feb 2021 09:38

You say you know the system well, yet you don't seem to understand the workings of the self-employed and why tax is based on the profits in a year. There has always been an ability to pay tax earlier than due but why should someone pay earlier than necessary? HMRC have stated that the dates of paying tax will remain the same with MTD.
I know you are not going to reply but as a person I do not disrespect you, as you quite rightly say, I don't know you. However I find it very difficult to understand how you can advise clients when you think they should pay tax as soon as they make profits rather than the yearly basis which is widely accepted as practical.

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Replying to NH:
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By memyself-eye
22nd Feb 2021 14:59

I don't know any small business 'persons' (yuk) who put funds aside monthly for an anticipated tax bill. Doesn't happen in the real world.

You're not a HMRC mole are you?

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Replying to memyself-eye:
Morph
By kevinringer
22nd Feb 2021 15:07

You can spot a HMRC mole a mile off because they call clients 'customers'. I was at a HMRC MTD event in Manchester and someone on one of the agent tables referred to taxpayer as 'customers'. One of the agents was an ex-inspector and accused the person of being a HMRC plant, and they admitted it!

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Replying to memyself-eye:
blue sheep
By Nigel Henshaw
22nd Feb 2021 15:30

memyself-eye wrote:

I don't know any small business 'persons' (yuk) who put funds aside monthly for an anticipated tax bill. Doesn't happen in the real world.

You're not a HMRC mole are you?


Precisely my point! And yet they make sure they pay vat and paye on time (mostly)
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Replying to NH:
RLI
By lionofludesch
22nd Feb 2021 16:11

NH wrote:

memyself-eye wrote:

I don't know any small business 'persons' (yuk) who put funds aside monthly for an anticipated tax bill. Doesn't happen in the real world.

You're not a HMRC mole are you?

Precisely my point! And yet they make sure they pay vat and paye on time (mostly)

Naw - you've lost me now.

Folk paying their tax debts on time - why the need for any change at all?

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Replying to johnjenkins:
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By Open all hours
23rd Feb 2021 12:24

Maybe it’s time to have a mandatory date on which the previous months invoices are all settled?

In principle I don’t mind quarterly payments ( might diminish my premium bond hopes though) but we don’t need to make reports in order to do so. Annual VAT schemes work well enough?

Will a proportion of the Personal Allowance be taken into the quarterly calculations?

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Replying to ireallyshouldknowthisbut:
By Nick Graves
22nd Feb 2021 11:55

I increasingly suspect that it's really aimed at making small businesses completely unviable and driving the deplorable middle-classes to the wall.

Looks like HMRC was in on The Great Reset before it was announced.

It's all so Baldrickesque, I have to dismiss any more reasonable explanations.

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By memyself-eye
19th Feb 2021 16:49

Like HS2, MTD will roll remorselessly on, out of sight and out of mind of Joe Public (or Joe Landlord) until in two years they find out the awful reality (and quadrupled complexity) of compliance.
I'll be out of it by then - except as a taxpayer, and I suspect many agents of a certain age will quit also.

40 days to go...

Thanks (13)
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By Geoff56
19th Feb 2021 17:30

I will be 66 when this utterly unworkable tripe is due to come in. Financially, I do not know if I will be able to afford to retire. However, I do know that for the sake of my sanity, I will have to retire if this goes ahead as planned.

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Replying to Geoff56:
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By Jo Nokes
19th Feb 2021 18:08

I'll be even older, Geeoff, but will have to battle on. I'm hoping a concerted campaign might stop the sillier aspects of it

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Jennifer Adams
By Jennifer Adams
19th Feb 2021 18:08

And just how exactly are we supposed to break this bad news to our clients?

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Replying to Jennifer Adams:
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By memyself-eye
19th Feb 2021 18:18

They won't understand, most never do (why should they) - will blame you/us!

Thanks (1)
Replying to Jennifer Adams:
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By Hugh Simpson
19th Feb 2021 21:21

Send them a link to this page, let them digest the wonderful comments and await an arise in anonymous questions.

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Replying to Jennifer Adams:
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By Seadog
20th Feb 2021 21:56

How the Tory benches roared with approval when the then Chancellor Phillip Hammond stood up and said he was doing away with annual tax returns.

Be careful what you wish for.

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Replying to Seadog:
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By RobertD
22nd Feb 2021 10:03

I think it was that weasel George Osborne.

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Replying to Jennifer Adams:
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By Homeworker
22nd Feb 2021 10:25

I've have been trying to do this for over a year but until it actually kicks in, I don't think anyone wants to think about it.

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Replying to Jennifer Adams:
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By BryanS1958
22nd Feb 2021 15:49

With a bill? :-)

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By Geoff56
20th Feb 2021 07:34

Why are our professional institutes not up in arms about this and seriously pushing back? Unless I've missed something, mine (ICAEW) is just fiddling around the edges and suggesting things like changing the tax year end. They seem to have chosen to adopt a very deferential position with HMRC.

I want my institute and others to shout from the rooftops with a megaphone "This is madness; it will not work. It will impose unworkable and intolerable burdens on our members and their clients. What's more, it will achieve less than zippo. We cannot do it."

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Replying to Geoff56:
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By Ajtms
22nd Feb 2021 12:51

So do I. I have been complaining to my professional bodies and the tax press about the stupidity of MTD for 2 years now and nobody other than the majority of this forum understands. It will force most of us sole practitioners out of business or stop us taking a holiday (when holidays are allowed again)

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Replying to Ajtms:
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By Carolynne
23rd Feb 2021 09:59

I agree, I am a sole practitioner and can only take my annual leave twice a year between the 05th and 19th of the month, to accommodate timely submissions of VAT returns and monthly payroll RTIS etc. There is only me and I've been doing this now for 17 years just fine. If I return on the 19th, I don't know how I would get everyone's work done in time for these additional month end submissions, when already snowed under, and it would not be possible for me to employ anyone to help.

Thanks (2)
Replying to Carolynne:
Tornado
By Tornado
23rd Feb 2021 10:26

Hello Carolynne

Do not worry about this too much. I have been around for a while and none of these grand plans ever end up the way they are promoted. Even Self-Assessment took 20 years to get nearly right.

MTD for VAT is essentially just a different way of submitting VAT Returns and despite the massive hype about using accounting software and all that, my clients are compliant using the spreadsheets they were already using and the only additional expense to me or any of them was £150 additional cost per annum just to me for bridging software.

My advice is not to worry but just monitor progress with this and do not make any decisions now as you may find yourself wasting a lot of time and money on something that will never be needed.

A further example of a non-show was the grand Idea behind Real Time Information. If this had gone to plan then by now employers would be paying gross salaries and wages directly to HMRC and then HMRC would be paying employees directly. This was the plan, the reality is much different, mainly because it is too complicated and the HMRC IT systems are rubbish and cannot cope.

At the moment MTD for income tax looks unworkable to me so I believe it will be unworkable and will not happen the way it is promoted, but there may be a watered down version that we can all cope with.

Thanks (1)
Replying to Geoff56:
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By BryanS1958
22nd Feb 2021 15:54

The professional bodies are too busy snuggling up to HMRC and deciding 'how best to introduce' the farce instead of pulling out all stops to say the farce should never be allowed to happen in the first place.

I'm not totally against quarterly payments on account, it helps smooth cash flows, but I am against quarterly (or more frequent) detailed filings, especially when they will be accompanied by yet more deadlines and penalties.

Thanks (1)
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By BudgetB
20th Feb 2021 07:52

This is complete craziness! 11 returns instead of the current 5 for that scenario. From an accounting perspective we're going to end up with more deadlines than we know what to do with, never mind how much all of this is going to cost the client. This is the most unnecessarily over complicated thing ever and I really hope that someone sees sense before 2023.

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By SXGuy
20th Feb 2021 08:15

If this doesn't get pushed back or squashed, all we can do is explain to the client what's happening. (I've been telling clients for a while this was coming) explain why the need for fee increase, get them all on monthly d/d, give them a schedule of when info is due to be received, and leave them to it.

Im not about to chase 200 clients every 3 months for their work, they need to start taking responsibility.

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RLI
By lionofludesch
20th Feb 2021 13:44

Why does the ICAEW want to change the tax year end to 31 March ?

In two years time, you might be wishing you had five extra days to submit rental returns after completing the trading returns.

Could be a massive own goal.

And Anna Monteith's crazy idea of moving the year end to December will no doubt be warmly welcomed by financial advisers doing their end of year tax planning over Christmas. It's change for the sake of change.

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By seitler
20th Feb 2021 22:21

The reason why HMRC want all this information is that eventually they will base tax payments on it. That way they get their money a lot earlier. Otherwise why do it. Nothing is submitted to HMRC unless it involves payment of something

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By Marlinman
21st Feb 2021 00:26

Complete madness. What if I'm away on holiday for 4 weeks at the quarter end and don't have internet access?

The current system is fine and we've all got into the swing of it so why change things? A lot of extra work for no benefit. Those who want to evade taxes will still do so.

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blue sheep
By Nigel Henshaw
21st Feb 2021 09:41

I am confused about those still asking why this needs to be done.

In the UK you can start trading making thousands of pounds of profit in April YR1 and you will pay no tax whatsoever until 22 months later by which time you might have spent all your money, gone bust or died!

With a company its even worse as even though the payment deadline is 9 months after year end, the return is not due until 3 months after that, and by the time HMRC get around to chasing for the money well over 2 years has gone by.

In other countries you pay your tax quarterly from your first quarter, that means you only have 3 months or less for all of the above to happen.

This is about getting money out of people sooner, and having seen so many clients over the years not put money aside for tax and then complain bitterly when you tell them they have a large bill, it all makes perfect sense to me. It is after all precisely why I built my own business model on clients paying me monthly from day one.

Thanks (2)
Replying to NH:
RLI
By lionofludesch
21st Feb 2021 10:16

NH wrote:

I am confused about those still asking why this needs to be done.

In the UK you can start trading making thousands of pounds of profit in April YR1 and you will pay no tax whatsoever until 22 months later by which time you might have spent all your money, gone bust or died!

With a company its even worse as even though the payment deadline is 9 months after year end, the return is not due until 3 months after that, and by the time HMRC get around to chasing for the money well over 2 years has gone by.

In other countries you pay your tax quarterly from your first quarter, that means you only have 3 months or less for all of the above to happen.

This is about getting money out of people sooner, and having seen so many clients over the years not put money aside for tax and then complain bitterly when you tell them they have a large bill, it all makes perfect sense to me. It is after all precisely why I built my own business model on clients paying me monthly from day one.

Then change the POA structure. No need to be sending in returns so frequently. Nor to insist on digital submission.

Thanks (9)
Replying to lionofludesch:
blue sheep
By Nigel Henshaw
21st Feb 2021 10:57

POA? Based on what in your first quarter of trading? Payments on account just make everything more complicated

Thanks (1)
Replying to NH:
RLI
By lionofludesch
21st Feb 2021 13:04

NH wrote:

POA? Based on what in your first quarter of trading? Payments on account just make everything more complicated

Are you claiming that these quarterly payments on account will be the definitive liabilities ? If not, it's still a payment on account. If so, it'll be even more chaotic.

Thanks (5)

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