Making Tax Digital for Income Tax Self Assessment: What we know so far

The Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) deadline is visibly on the horizon. On 6th April 2023, all unincorporated businesses and self employed individuals with a total income over £10,000 will have to register for MTD for ITSA.

HMRC hasn’t yet published the finalised regulations, they’re expected this October. So what do we know now, what’s yet to be decided and how should you be preparing?

MTD for ITSA: What we know now

From HMCR’s current regulations, we know some of what to expect from MTD for ITSA.

  • The end of your accounting period doesn’t matter, by 6th April 2023, all unincorporated businesses must register.
  • The turnover threshold is £10,000 income in that tax year. You might have different income streams that are individually lower than this, but if their combined total is over £10,000 you’re in MTD for ITSA.

For example, rental income of £8,000 and earnings from trading of £4,000. Both under £10,000, but the total of £12,000 is over the turnover threshold.

  • You will report income and expenses to HMRC every quarter. At the moment these deadlines are 5th August, 5th November, 5th February and 5th May for everyone.
  • Registration deferrals will be possible for certain types of partnership: Limited Partnerships, LLPs, and partnerships that have a corporate partner.
  • Exemptions possible for: Non-resident companies, estates of those that have passed away, registered pensions schemes’ trustees and trusts. There are also possible exemptions for people who are ‘digitally excluded’. But this has a tight definition that means you need to have not internet access at all. It doesn’t’ account for speed or quality of your connection.
  • You won’t get a late filing penalty notice until you’ve been late with four of your quarterly submissions.
  • The date to pay your tax bill is still the same – 31st January, following the end of the tax year.
  • You don’t have to submit a self assessment tax return as well.
  • You do have to complete an End of Period Statement (EOPS) and write a Finalisation Statement to be filed by the same 31st HMRC uses the latter document to calculate your tax bill.
  • Businesses will need to keep digital records.

What’s still to be finalised by HMRC?

Really, the whole policy is yet to be completely finalised. But there are key elements that everyone will be keen to know the answers to, such as:

  • It’s possible that the idea of having one set of reporting deadlines – including the April registration date for all businesses will be considered too overwhelming for HMRC to administer. So there’s a possibility that this will change.
  • Will there be penalties for making mistakes during MTD for ITSA filing?
  • How will the categories of expenses be defined on the quarterly reporting forms? It’s widely assumed that they will be the same as on the current self assessment tax return, but this isn’t confirmed.

What should I do right now, to prepare?

You can get ahead by participating in HMRC’s pilot scheme and start your move into MTD for ITSA now.

If you meet all the criteria, you can sign your business up here.

If you’re leaving this up to your accountant or tax agent, there’s separate guidance for them here.

The first thing you’ll need is compatible software. If you’re already using an accountancy app, they may be building MTD for ITSA capability as you read this. They should be able to tell you when it will be fully ready. You need this both for keeping digital records and submitting your quarterly reports to HMRC.

HMRC publish its own guidance called ‘Find software that’s compatible with Making Tax Digital for Income Tax’. This lists all the HMRC approved software that currently keeps all the necessary records and is compatible with HMRC’s filing portal. They will update this as more becomes available.

Don’t worry you still have time

This is an additional administrative thing to work out. But you still have plenty of time before the official 2023 deadline. You don’t need to panic. It’s wise to figure out the basics, like what software package you’re going to use.

HMRC’s entire Making Tax Digital strategy is intended to make tax administration more accurate and simpler for us. Of course, there’s the teething stage, where tech and knowledge issues need to be worked through. But this can be seen as a useful development for business owners.

No more nasty annual bill that you, perhaps, weren’t quite expecting. Regular reporting gives you the opportunity to be crystal clear about how much tax you owe on that quarter’s income. And put it to one side in your business account. You probably work this out anyway, informally. This just gives you a more detailed picture.

 

Tony Shanks
Operations Director
Member of the ATT

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