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HMRC are making big changes, are you prepared?

If you’re one of the 4.2 million taxpayers earning above £10,000 from business and property, you may have heard a rumble about some big changes. While the government legislation Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) may have faced the usual HMRC delays, and make us question if it’s ever going to arrive, now is the time to prepare as it rolls into view on 6 April 2024.

So, what does it mean? To keep it simple, Sole traders and landlords with an overall income above £10,000 will need to keep digital records from the start date, using compatible software. This will mean managing, tracking and sending quarterly summary updates of business income and expenditure to HMRC, as well as an end-of-year summary, via this software.

While you may not have kept formal records up to this point, most likely only for the purpose of completing a Self Assessment tax return, accounting software can offer real-time record keeping to ensure this new process is as smooth as possible. And rest assured that while MTD for ITSA will require some work to ensure compliance, the benefits could be significant, and can help you better manage your tax going forward.

All VAT-registered businesses have been required to comply with MTD from April this year, which means that many qualifying sole traders and landlords will have already taken this step forward. But for those at the beginning of this journey, here are some key things you need to know about MTD for ITSA.

What are the key dates, and how to prepare

Regardless of whether you follow the tax year or not, you’ll have a digital start date of 6 April 2024. While this may feel like a long way away, it’s always worth getting stuck in early and getting used to the new rules & regulations.

Do all self-employed people have to go digital?

The short answer is yes. Unless you have an exemption, if you meet the criteria then you have to comply with MTD for ITSA. HMRC will decide this based on the previous Self Assessment tax return. Meanwhile, those earning below the £10,000 threshold can continue to use the old HMRC system for filing their returns (online Self Assessment via HMRC portal).

If you own multiple businesses, the income earned from all of them contributes to the £10,000 threshold.

How do I sign up for MTD for ITSA?

You need to sign up for MTD for ITSA through your compliant MTD ITSA software, and not through the HMRC website. This means that you will need to have HMRC-approved software in place ahead of time!.

As for the details you’ll need, HMRC will request the following information: business name, business start date, email address, national insurance number, accounting period, and accounting type to apply. If you’re looking for more information, HMRC’s guidance on signing up is a handy resource. We will be preparing all of our clients to be registered online early next year. Again, don’t leave this until the last minute, as it’s unknown as to how long HMRC will take to register each individual. If you need any help in registering, please do get in touch, we are happy to help!

What do I need to submit for MTD for ITSA?

From the deadline, you will need to keep digital records of income and expenditure. There are three parts you’ll need to submit in order to comply:

  • Quarterly updates, including a summary of business income and expenditure. (this is for each business you obtain income from).
  • End of Period Statement (EOPS). You’ll need to submit one of these per year, at the end of your fourth quarter, for each source of income.
  • Final declaration. You’ll need to share details of all other taxable income by 31 January each year, including investments and savings interest. (much like the old style of Self Assessment).

What kind of clients CANNOT sign up?

At the time of writing, clients can’t use MTD ITSA to file for the following, so are effectively blocked from using the service. HMRC says this should change as we head towards April 2023:

  • Private pension contribution relief
  • Construction Industry Scheme (CIS) deductions
  • Student Loan repayments
  • Additional Self Assessment income (e.g. usually declared on SA101)
  • Foreign income from property
  • Voluntary class 2 National Insurance contributions (NICs)
  • Capital gains tax
  • Marriage allowance

Additionally, and in line with the MTD ITSA rules, partnerships can’t join just yet, and businesses subject to insolvency proceedings aren’t eligible for MTD ITSA.

While it may feel like you have plenty of time to prepare for MTD for ITSA, it’s absolutely worth getting prepared early. Of course, you might choose to voluntarily sign-up ahead of time via the MTD ITSA pilot programme, and switch at that point to full digital record keeping and MTD-compatible software.

Doing so offers many advantages. You avoid the crush in April 2024, along with problems such as jammed HMRC helplines. Teething troubles can be experienced well ahead of crunch time, and before penalties might apply.

It’s probable although not certain that existing restrictions on the MTD ITSA pilot programme will be lifted by this point, too, meaning many more people will be able to sign-up, such as those outside of the UK.

If you need any more information or have questions around MTD for ITSA, drop us a line at info@evolvebusinessmanagement.co.uk!