Landlords and the self-employed: the way you report income is changing. Everything you need to know about Making Tax Digital for Income Tax Self-Assessment (MTD ITSA)
Currently landlords and the self-employed submit an annual tax return to HMRC.
A new system is taking over in 2024. Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) will mean more frequent submissions to HMRC. We’ve outlined the plans below. Read on to learn if you’ll be affected.
Making Tax Digital (MTD) explained
Making Tax Digital will revolutionise the UK’s tax system.
The digital system will require filings to be submitted to HMRC quarterly (every 3 months). These returns must be sent via compatible cloud accounting software. Tax records will also need to be kept digitally to allow for the more frequent filing.
Unpaid tax is a huge drain on the Government. In the 2018/19 tax year more than £8.5 billion in tax went unpaid. MTD should improve the accuracy of filings, and help people understand what to budget for their tax bills.
MTD for UK VAT will become mandatory in April 22. With MTD Corporation Tax planned to be implemented in 2026.
MTD for Income Tax Self Assessment
MTD ITSA will require sole traders to submit their income and expenses to HMRC every 3 months. With a 5th return to be made at year end.
It’s obviously a big shake up of the current system. But business owners will benefit from the quarterly returns keeping them updated with their tax bill and helping with budgeting. No more shocking tax bills come January.
When is MTD ITSA starting?
HMRC are allowing people to get to grips with the scheme from April 2022 and you can sign up voluntarily.
Once you’re signed up, you can’t exit the scheme until turnover is below £10,000 for 3 consecutive years.
Does everyone have to sign up to MTD ITSA?
If you earn more than £10,000 in qualifying income and are registered for self-assessment, the new system will be mandatory.
Those earning less than £10,000 per tax year will continue with the current annual self-assessment filing.
How is qualifying income calculated?
HMRC will be looking at your turnover. If you make more than £10,000 per tax year via rental or self-employed income, you will need to be registered for MTD ITSA.
When the scheme starts, this turnover figure will be based on your last tax return. The £10,000 can be made up of both rental and self-employed income. If, for example, you turned over £6,000 in rent and £4,000 from your personal training business, you need to get signed up.
It’s expected that all those paying income tax will be doing so through MTD in the future. There’s no information from HMRC on this yet.
What will I have to submit?
The current annual self-assessment will be replaced by 1 filing every quarter, showing your income and expenses.
Along with a 5th End of Period Statement (EOPS) filing, which will detail the whole year.
When are submissions due?
You’ll need to file your income and expenses with HMRC every quarter. The dates are the same for everyone on the scheme and you will find these below.
The End of Period Statement will be due by 31st January, like with the current self-assessment tax return.
Every income stream will require its own individual EOPS. If you have a rental property and a separate self-employed business, you’ll have to make 2 separate EOPS submissions.
The table below shows the standard filing deadlines for the quarterly returns.
You can request to move the quarter dates, so they fall in line with the start of the month, as shown below. Even if you opt to move the dates the deadlines stay the same, so you’ll have a couple of extra days to submit the filing.
When will I pay income tax?
This is one thing that’s staying the same. Income tax payments will still be due by 31st January. With payments on account due in January and July.
The software you use to submit the quarterly filings will keep track of your tax bill after every filing.
This will make it much easy for people to budget over the year, and ensure enough money is being put away to pay HMRC come January.
When will all the details be available?
The finer details are still being decided by HMRC and should be released in 2022.
FreeAgent and Xero have confirmed that their software will be compatible with the filings and they’ll have an automatic reminder when a deadline is coming up.
We’ll be keeping you updated with news on the scheme as it’s announced by HMRC. If you have any questions, please reach out to the team today.