The government has recently confirmed that Making Tax Digital (MTD) will apply to income tax self assessment (ITSA) from 6th April 2024. This includes all unincorporated businesses. This applies to sole traders, partnerships and landlords, who file their taxes via self assessment, and are earning over £10,000.

MTD for ITSA Start Date Confirmed

On 23 September parliament legislated this new start date for MTD for ITSA, which was postponed by a year. This latest clarification means that the base year for testing MTD for ITSA will now be 2022/23. The figures for which will not be distorted by Covid-related business support grants. Which means this first year of MTD for ITSA will be more representative of typical trading conditions for most businesses. So unincorporated businesses with an annual turnover of over £10,000, will be required  to report income and expenses through MTD for ITSA from 6th April 2024. That includes income from all businesses, property and trades. For example, if you receive £7,000 from rental income and £8,000 from trading, you will be required to report under MTD for ITSA, because your total turnover will be £8,000 + £7,000 = £15,000, which exceeds the threshold of £10,000. 

Limited Partnerships

No date has been announced for when MTD will come into force for limited partnerships, limited liability partnerships (LLP) and partnerships that contain a corporate partner. However any partnership which has individuals as partners, whereby each partner is registered for self assessment, will have to join MTD for ITSA from April 2024Talk to Prestige Management about what business model applies to you. The most recent MTD for ITSA policy update indicates that a full exemption from MTD for ITSA will apply for these taxpayers:

 

• Estates of deceased persons
• Trustees of registered pension schemes
• Trusts (including trusts with property income)
• Non-resident companies

 

The Benefits of Digitisation 

Many businesses are already using accounting software for their banking, payroll and bill paying as well as increasingly interacting with customers online. There are other benefits to digitising the tax process, besides compliance with MTD for ITSA. The government says that digital record keeping will help businesses to declare their profits accurately and avoid making mistakes which is one way that they hope to recoup the huge sums of money spent stabilising the economy throughout the Covid19 pandemic. MTD is making fundamental changes to the way the tax system works. HMRC has declared that it wants the UK to become one of the most digitally advanced tax administrations in the world. The aim is to make paying tax more efficient by implementing an effective system, which will not only be more simple for taxpayers to use, it will help to ensure that tax records are accurate and that there are fewer opportunities for mistakes to happen.

Less Paperwork

MTD for ITSA will replace many of the existing paper-based processes, thereby reducing errors and allowing workers to devote more time to running their business without worrying about compliance or maintaining accuracy when transcribing records because this work will be done by the software. Spreadsheets may continue to play a role in filing your tax records under MTD for ITSA, however you may save time and accuracy with digital record keeping by migrating over to a fully digital system, which will also achieve compliance with MTD for ITSA. Digital record keeping will reduce the risk of costly tax investigations and penalties. MTD for ITSA will also help businesses manage cash flow more effectively. Keeping digital records in real time can also reduce the risk of errors due to lost or incorrectly recorded invoices, giving businesses more control and better capability to forecast financial activity. Furthermore HMRC will be able to manage its own resources more effectively and hopefully devote more of its activities to customer support. The government has not announced any plans to subsidise the cost of implementing MTD for ITSA for unincorporated businesses. Most small businesses & landlords will be expected to submit their own quarterly returns detailing total sales income in the period and totals of expenses broken down into categories for each quarter. Any adjustments for capital allowances or losses, will be made on the final submission for the year, called the end of the period statement (EOPS). HMRC recommends that unincorporated businesses submitting their MTD for ITSA seek assistance from their accountant with their EOPS. Talk to Prestige Business Management about how best to keep tax records for your business, or let us take the whole thing off your hands so you can do business as usual.

End of the Period Statement

The EOPS will need to be submitted by 31 January, following the end of the tax year those records relate to. HMRC hopes that tax software providers will incorporate the EOPS into the tax software, which also compiles and submits the finalisation statement. The Self Assessment tax return will be replaced with the finalisation statement which calculates the tax liability for the year. Any sources of income that have not been reported on the quarterly MTD submissions or EOPS is included in the finalisation statement. Any taxpayers who are not within MTD for ITSA who are currently required to submit an SA return will continue to submit a SA tax return. This might be to report gains or taxable interest for example.

Filing Deadlines

 

Accounting Period	MTD Filing Deadline
April, May & June	5th August
July, August & September	5th November
October, November & December	5th February
January, February & March	5th May

Penalties

Late filing and late payment of tax will be subject to a new system of penalties which is being introduced alongside MTD for ITSA. The government’s statement confirms that the start date for this is also delayed until the 2024/25 tax year.

Quickbooks

QuickBooks is the world’s number one online accounting software. They are pioneers and they are also HMRC recognised which means their software is ‘Making Tax Digital’ ready. Prestige Business Management are platinum partners of QuickBooks and together we can help you navigate the future of your business and tax paying. We will be setting up our clients who need this capability with Quickbooks from April 2023. This will allow clients time to get used to a new system and undergo training with us.

At Prestige Business Management we can help your Business

At Prestige Business Management all of our clients are MTD ready and we can help you with all your tax and accounting needs. Find out what we can do for you. Call us today on 0203 773 2927.