TTR Barnes

Making Tax Digital for Income Tax (MTD ITSA) is coming. From 2024 all self-employed business and landlords with a gross income above £10,000 will need to submit quarterly summaries via MTD-compliant software. 

In this guide learn about:

• What is MTD ITSA?
• MTD ITSA pilot scheme eligibility
• How to enrol on the MTD ITSA pilot
• MTD-compliant software
• The next step for Making Tax Digital roll-out

What is MTD ITSA?

Making Tax Digital (MTD) is the Government’s plan to modernise the UK’s tax processes. Since 2019, the majority of VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 have been mandated to keep digital VAT records and send returns using MTD-compatible software. From April 2022 these requirements also apply to all VAT-registered businesses.

So far the scheme has only covered VAT-registered businesses, however it is now being expanded to include individuals. From April 6 2024, MTD for Income Tax Self Assessment (MTD ITSA) will apply to individuals with a gross income from self-employment or property exceeds £10,000 per tax year.

This means self-employed businesses and landlords with annual business or property income above £10,000 will need to send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software

What is the Making Tax Digital ITSA pilot scheme?

The Government is running a MTD ITSA pilot scheme allowing self-employed businesses and landlords to voluntarily sign-up to Making Tax Digital prior to MTD ITSA’s official launch in April 2024.

Eligible individuals can sign-up through their MTD software provider.

Who can join the MTDA ITSA pilot?

The criteria for who can access the pilot scheme is quite restrictive. HMRC expects to handhold individuals through the new process and potentially make changes to the functionality, and as a result needs to keep the numbers on the scheme low enough to offer adequate support.

You can sign up if:

• You are a UK resident
• You are already registered for Self Assessment
• Your accounting period aligns to the tax year (i.e. 6 April 2021 to 5 April 2022)
• You have submitted at least one Self Assessment tax return
• You already keep digital records
• One or more of the following were included in your last return:
  • an existing self-employment income
  • a UK property source
  • a foreign property source
• You are up to date with your tax records with no outstanding tax liabilities

However, you are not able to sign up if:

• You need to report income from any other sources
• You have an income tax charge (e.g. high income Child Benefit charges or certain pension tax charges)
• You have a payment arrangement
• You do not have an up to date address with HMRC
• You are a partner in a partnership
• You are currently, or are going to be, bankrupt or insolvent
• You are a Minister of religion, Lloyds underwriter or foster carer
• You have a third party capacitor, this includes (but is not limited to):
  • trusted helpers
  • insolvency practitioners
  • nominees
  • solicitors

MTD ITSA software

Those who join MTD ITSA will need to send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software. In response they will receive an estimated tax calculation based on the information provided to help them budget for their tax. At the end of the year, they can add any non-business information and finalise their tax affairs using MTD-compatible software, replacing the need for a Self Assessment tax return.

You may already use MTD ITSA software, however if not you will need to choose which one you plan on using. There are several different softwares available with the most popular being:

• Quickbooks
• Sage
• Xero

Already got software but not sure how to make the most out of it? We offer accounting software training and support to businesses.

What is the next phase of the Making Tax Digital roll-out?

If they don’t join the pilot scheme, self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for Making Tax Digital for Income Tax from 6 April 2024.

Individuals will be added automatically to MTD for ITSA if they meet the criteria per their completed 2022/23 Self Assessment tax return.

Partners in a partnership will not have to enter MTD for ITSA until April 2025 at the earliest.

The next phase of the MTD roll-out is expected to be Corporation Tax. Currently this is not expected to become mandatory before 2026 and there will be an opportunity for businesses to enrol in a pilot scheme first.

Further support

If you are interested in joining the MTD ITSA pilot or need further support with moving to Making Tax Digital, then please don’t hesitate to get in touch with our friendly team.

Stay up to date with the latest tax and accountancy news, and be the first to know about MTD webinars. Sign up to our newsletter.

All information correct at time of going to print/live and on the best knowledge and understanding of the author at the time. This article is for general information only and does not constitute financial advice or recommendations for individual circumstances. No responsibility is taken for any actions taken on the base of the information within this article.