HMRC are currently consulting on the precise details of what needs to be reported each quarter.
These are important changes for self-employed individuals and landlords so let’s first do a quick recap of what MTD for ITSA is, who this effects and when.
What is MTD for ITSA?
MTD for ITSA stands for Making Tax Digital for Income Tax Self Assessment, and will be one of the biggest changes to the Self Assessment system since its introduction.
In short, it will change the way business owners and landlords keep their records and how they report their profits to HMRC.
Under the MTD for ITSA rules self-employed individuals and landlords must keep their business records digitally and make quarterly submissions to HMRC, known as quarterly updates. Then, at the end of the tax year an end of period statement (EOPS) and final declaration will also be required to be submitted.
Who is effected by this?
All self-employed individuals and landlords with sales and/or rental income of over £10,000, unless HMRC agree you are digitally excluded.
It is important to note that the £10,000 threshold relates to income before any expenses are deducted. In addition, if you have both self-employment income and rental income it is the combined income figure that will be used by HMRC when determining if you are above the £10,000 threshold.
When does it start?
MTD for ITSA starts on 6 April 2024.
The first quarterly update will cover the period 6 April to 5 July 2024, or 1 April to 30 June 2024 if you make a ‘calendar quarter election’, and will be due for submission by 5 August 2024.
If you believe you will effected by these changes you should consider whether you have the necessary software and processes in place to submit digital returns every quarter. If not, we strongly recommend looking into this now so that you’re ready for when the changes come.
If you’re looking for MTD compatible software we recommend having a look at Xero https://www.xero.com/uk/accounting-software
Xero is a cloud based bookkeeping software which can link to your business bank account to help reduce the time spent keeping your records and helping maintain compliance with MTD.
What needs to be reported each quarter?
HMRC are currently consulting on the precise details of what needs to be reported each quarter. However, as expected, it seems the accounting software will need to report income and expenditure in the same categories currently used for Self Assessment.
The main categories are:
- Turnover/gross rents
- Cost of goods sold
- Materials
- Wages and salaries of employees
- Sub-contractor costs
- Rent, rates, power and insurance
- Repairs and renewals
- Professional fees
- Telephone and other office costs
- Interest on bank and other loans
- Motor and travel expenses
For the self-employed, HMRC also propose that those businesses with turnover below the £85,000 VAT threshold will only need to report the totals of income and expenditure each quarter, which will be a welcome simplification.
If you have any queries please do not hesitate to get in touch and we’ll be happy to help
Rachel Roberts is a Senior Tax Accountant and would be happy to chat through any queries or concerns you have on MTD for ITSA, please call 01242 776000 or email Tax@randall-payne.co.uk.
