Making Tax Digital for Income Tax Self Assessment

Making Tax Digital for Income Tax Self Assessment

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will be introduced by HMRC from 6 April 2023.

This is an important part of the modernisation of the UK tax system as the government seeks to realise its objective of a modern digital tax system that operates closer to real time making it easier for taxpayers to pay the correct amount of tax.  In April 2019 MTD for VAT was successfully introduced and now the modernisation agenda is turning to income tax for sole traders and landlords.

 

Who will be affected by Making Tax Digital for Income Tax Self Assessment ?

Sole traders and landlords who have an annual income above £10,000.

Those who have adopted MTD for VAT are almost certainly going to have to comply with MTD ITSA but it is important to note that the two MTD registrations are totally separate.  If you are registered for MTD for VAT you will also have to complete the registration process for MTD ITSA when this arrives.

 

What will change?

Affected businesses will be required to use compatible software for income tax accounting for the first accounting period starting on or after 6 April 2023.

A self-assessment tax return as we understand the term today will not be required.  Instead business owners will be required to submit

  1. A quarterly digital submission of specified information directly from compatible software to HMRC.  This has to be submitted within one month of the end of the quarter.
  2.  An End of Period Statement (EOPS) which draws together the previous quarterly submissions and enables adjustments
  3. Final declaration which must be filed by 31 January as is the case for the current self assessment return

 

Can you opt out?

In a word … No.   If you fall within the scope – business or property landlord with income above £10,000 – then it is mandatory that you adopt MTD ITSA

 

What about Software?

This doesn’t exist at the moment but you can be sure that there will be numerous options available before April 2023.

The major cloud accounting software providers are busy preparing their systems  and they will undoubtedly be very user friendly and widely marketed.  Whilst software can always be upgraded it seems likely that the major investment required will be focused on the cloud accounting packages rather than the older desktop software.

As a Xero accounting practice we are eagerly awaiting the release of the Xero product offering and have every confidence that this will be a compelling offer in respect of functional quality, user interface and value for money.  We don’t expect Xero to deviate from the principles that underpin their core product and you can read more about the world of digital accounting software by clicking here

 

Preparation

6 April 2023 sounds like it is a long way off but it really isn’t that far away.  Business owners will need to be ready to move into the digital accounting world and to do so in plenty of time will be an advantage.  We saw with MTD for VAT a last minute dash that resulted in much less availability of professional advisers, and consequent higher costs, given a huge demand for their services.   There were only 1.4 million conversions required for VAT but the number for Income Tax will be much higher.

For those who are apprehensive about the required changes then, firstly, please don’t be and secondly this is even more reason to get ahead with this before it becomes mandatory.  You will be able to adapt to the new software in your own time and at your own pace rather than being forced to do so by HMRC deadlines.  We are supremely confident that the software will be very easy to use and will in fact make things much easier for you.

 

We are here to help and guide you through this process and would welcome the opportunity to assist you.  Please contact us by clicking here and choosing the best option for you

 

Further Reading

You can read the government’s overview of the MTD agenda here

This page deals with tax matters
While we endeavour to use reasonable efforts to furnish accurate, complete, reliable, error-free and up-to-date information, the information on this page does not constitute advice. Your individual circumstances are important, and we recommend you always obtain specific professional advice from us or another accountant before you take any action or refrain from action.

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