Making Tax Digital for Income Tax

By Chrissy Leach, associate accountant at Irwin Mitchell

HMRC have recently released further information about Making Tax Digital (MTD ITSA) and have now announced that it will be delayed by a year beginning in April 2024.  The final rules are yet to be published.  

Who will this affect?

This will affect self-employed individuals and property landlords who have an annual turnover of more than £10,000, although it should be noted that this £10,000 turnover threshold is the total of all businesses and property so an individual with self-employed turnover of £6,000 and rental income of £7,000 will be required to report under MTD.

For unincorporated partnerships it’s the nominated partner that will be responsible for MTD ITSA record keeping and filing for the partnership itself rather than the individual partners, if turnover is over £10,000.

Exemptions

There are expected to be exemptions for trusts (including ones with property income), estates of deceased persons and trustees of registered pension schemes, along with an opportunity for individuals to claim an exemption on the basis that they are digitally excluded.

Quarterly updates and final declarations

MTD ITSA will require accounting records to be kept digitally (either using bookkeeping software or spreadsheets) and reported to HMRC quarterly within 30 days after the end of the accounting quarter, which will vary depending on the business year end. The quarterly report will consist of total sales income in the period and totals of expenses in defined categories. Accounting adjustments won’t need to be made at this point.

At the end of the tax year, a finalisation statement will be reported to HMRC which will have a deadline of 31 January after the end of the tax year, as it’s now for self-assessment tax returns. This will contain any adjustments for the year and give the final profit figure, plus any income not included in the quarterly returns such as employment, pension and investment income.

HMRC insist that there are no plans to change any tax payment deadlines; these will remain at 31 January (and 31 July if you make payments on account).

There are unanswered questions around the how MTD ITSA will work for jointly owned properties and non-resident landlords which HMRC are working through and we expect to have some further updates over the coming months.

Find out more about our tax returns and compliance team and how they can help.