Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will be introduced from 6th April 2024. That might seem like a long time away but it will soon be upon us and early preparation will make it a smooth transition.
Who will be affected?
All sole traders, partnerships and residential landlords (including those with overseas properties) who have a gross income of £10,000 or more will have to register although partnerships get an extra year before registration is required.
What will it mean?
Not all the details are clear as yet but what we do know is that quarterly reports will need to be made to HMRC for each type of income. There will be 4 quarterly returns, an End of Period Statement (EOPS) and a Finalisation Statement that will replace the current Self Assessment Return. That means for a sole trader who also has residential property let out and the gross income from each is over £10,000, they will need to make 8 quarterly returns, 2 EOPS's and a Finalisation Statement - 11 returns in total from the current single Self Assessment Return!
What other requirements are there?
As with MTD for VAT, it will be mandatory to keep digital accounting records and for there to be a digital link between those records and the submissions to HMRC. This is where early preparation will be invaluable as there will be new penalty regimes in place for non-compliance. We'll be recommending moving to online accounting software but, like MTD VAT, spreadsheets and bridging software are likely to be acceptable but this is yet to be confirmed.
There will also be a move away from basis period accounting to tax year accounting - only announced in July last year. That means for those whose year end is not between 31st March and 5th April, adjustments will be needed for the returns or a change in the accounting date of the annual accounts - the latter probably being the most straight forward. There will be a transition year in 2023/24 to get prepared.
There are still known unknows but we'll keep you updated and abreast of developments to ensure compliance.
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