The impact of MTD ITSA

Making Tax Digital for Self-Assessment of Income Tax (MTD for ITSA)

A new Income Tax Self-Assessment system called Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) will take effect on April 6, 2023. What does MTD for ITSA mean, how will it affect you, and what action will you need to take?

We hope to answer all your questions in this article without getting bogged down in unnecessary detail and jargon so that you can be fully prepared.

What exactly is MTD?

Making Tax Digital, or MTD as it is commonly known, was first introduced in the 2017 Finance Act and went into effect in April 2019 for all VAT-registered businesses trading over the VAT registration threshold of £85,000

What is the purpose of MTD?

MTD was implemented by the government to “close the tax gap.” According to the government, there is an estimated £8.5 billion annual tax gap between what should be paid and what is collected.

HMRC believes that requiring businesses to keep digital records and submit information more frequently will help to reduce the deficit.

So, what is it exactly?

In making tax digital, or MTD, all businesses are required to endpaper bookkeeping eventually, keep their records digitally, and submit their business tax figures directly to HMRC via a compliant software quarterly.

As previously stated, it went into effect in April 2019 for all businesses trading above the VAT registration threshold, with the following phases of implementation to follow:

MTD for VAT will be implemented in April 2022 for all VAT-registered businesses, regardless of turnover.

A turnover of more than £10,000 is required for sole traders, landlords, and partners under Income Tax Self Assessment (ITSA) in April 2023.

Corporation Tax MTD (CT)

April 2026 – Corporation Tax will be available online for quarterly submissions.

MTD for VAT is complete, with all our clients registered to the appropriate HMRC gateway and returns filed digitally. MTD for ITSA will be discussed in the remainder of this article.

What is the impact of MTD ITSA?

You will be affected if you earn more than £10,000 per year from a sole trader, a partnership, property, or a combination of these sources.

What should I do?

Digital Documents:

You must keep digital records of all business income and expenditure.

HMRC Web Portal:

You must open a new MTD for the ITSA account with HMRC by April 6, 2023, but you can sign up now if you are eligible.

Quarterly Reports:

You must provide HMRC with a summary of your income and expenses at least every three months.

Using compatible software (more on that later) or spreadsheets and an API is the only way to achieve this without manually manipulating the data.

EOPS (End of Period Statement)

Any profit or loss position must be finalised via an end-of-period statement (also known as an EOPS). This is where you will be able to adjust allowances and reliefs.

Final Statement

Final declarations are essentially an absolute representation of everything done previously. It is necessary to submit them by January 31 of the following year.