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Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) offers self-employed business owners and landlords a new way to report their earnings and pay income tax. MTD ITSA hopes to revolutionise tax administration so it is easier for taxpayers to get their taxes right.
Partnerships with individuals as partners and a business or property income of £10,000 will have to follow the MTD rules from 6 April 2025. They will no longer be required to submit a Self Assessment tax return on the income earned.
The tax year two years before April 2024 (tax year 2022/23) is considered to establish whether a self-employed business owner or landlord has to enrol into MTD for ITSA mandatorily.
Estates, trusts, and trustees of registered pension schemes and non-resident companies are not required to join MTD for ITSA.
If you are a sole trader or landlord affected by MTD for ITSA, there are a few things you have to sort out before the program commences in 2024. Even though there is still time, there is no harm in starting preparations from today because, frankly speaking, the list of tasks can overwhelm you. So, here is what you need to do:
1. Sign up
No provision automatically switches you to MTD. You or your accountant must sign up ahead of your first whole accounting period, starting on or after 6 April 2023. If you follow the tax year for your accounting period, you must sign up in advance of 6 April on an MTD-compatible software, such as FreeAgent, Xero, and Sage.
Do be aware that even if you are signed up for MTD for VAT, you still need to sign up separately for MTD for income tax as the schemes are separate.
2. Quarterly updates
3. Maintain digital records
You have to keep digital records of all business incomes and expenses in sync with the existing tax record-keeping requirements. For instance, right now, you may keep records related to investments, savings, pensions, and certain types of grants in the case of Self Assessment.
4. End Of Period Statement (EOPS)
5. Finalise your business income and pay your tax
By not later than 31 January following the end of the tax year, you must make a single final declaration, which involves bringing all the data together, including business and non-business incomes, to finalise your tax position and reach your final tax liability. In addition, pay your outstanding tax liability by 31 January each year.
Over to you
Frequently Asked Questions (FAQs)
1. Do all self-employed people have to go digital?
Digital record-keeping is a core aspect of Making Tax Digital. Anyone who is a sole trader or a landlord with a total business and/or property income above £10,000 per year is mandated into MTD for ITSA from 6 April 2024. And that means digitalising the records of all your business incomes and expenses using HMRC-approved MTD-compatible accounting software.
2. What do I need to submit for MTD for ITSA?
You are required to submit three things for MTD for ITSA – quarterly updates, End of Period Statement (EOPS), and the final declaration.
3. What is MTD for the self-employed?
With the help of an MTD-compatible software, the self-employed – having a total income above £10,000 per year – can keep digital records of income and expenses and submit their quarterly updates and annual submissions.