The Government has announced that Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) will now be mandated to start from April 2026, instead of April 2024. The government recognises that businesses and self-employed individuals alike are facing a challenging economic environment, and that the forthcoming transition to MTD for ITSA for the self-employed and small landlords represents a significant change for taxpayers, agents, and for HMRC. Taking this into consideration it has decided that further time is needed to implement MTD properly.
MTD for ITSA
From April 2026, self-employed individuals and landlords with an income of more than £50,000 will be required (mandated) to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software. Those with an income of between £30,000 and up to £50,000 will need to do this from April 2027. MTD for ITSA will not extend to general partnerships in 2025 and instead this will come in at a later date. The Government will review the needs of smaller businesses, and particularly those under the £30,000 threshold before making any further decisions.
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. MTD is making fundamental changes to the way the tax system works. The government intends for 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.
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.
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.
Prestige Business Management Works for You
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.