Guide to Making Tax Digital for Income Tax Self-Assessment

WHAT IS MAKING TAX DIGITAL FOR ITSA AND DO I FIT?

Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) is the next stage in HMRC’s plan to modernise the UK tax system, making it easier for people to get their tax right. It means individuals and businesses will need to use MTD-compatible software to keep digital records and submit returns.

You will be mandated to report your income and expenses via MTD for ITSA if you are self-employed or a property landlord with a total combined turnover from all businesses exceeding £10,000 per year. For example, if you have a self-employed income of £6,000 and a property income of £5,000, these combined exceed the £10,000 threshold, so MTD for ITSA requirements will apply.

HMRC will look at your income from tax years ending 5 April 2022 and 5 April 2023 to determine whether you fall into MTD for ITSA. If either of these years shows business profits exceeding £10,000, you will fall into the scope of MTD for ITSA and will need to start reporting your income digitally from 6 April 2024.

WHAT ARE THE MAIN CHANGES TO THE SUBMISSION REQUIREMENTS?

If you fit these criteria, for each business, you will have to:

Keep digital records on MTD-compatible software
Submit quarterly updates to HMRC
Submit an end-of-period statement (EOPS)
Submit a final declaration that includes all other taxable income by the usual 31 January deadline
Pay your tax by the same deadline
These quarterly submissions are in line with the tax year. All businesses will have to report for these quarters regardless of their accounting period end.

CHALLENGES YOU MAY FACE WITH MTD

Converting manual records to a digital version (ie. Cashbooks)
Converting spreadsheets into recognised cloud accounting packages 
Keeping software that will link directly with HMRC (ie. Xero or Quickbooks)
Additional costs associated
Additional time processing

HOW WE CAN HELP?

Get in touch with one of our experts, to talk through how we can help you with Making Tax Digital.