Introduction: As explained on the government website www.gov.uk “Making Tax Digital (MTD) is the first phase of the move towards a modern, digital tax service fit for the 21st century. It supports businesses through their digitalisation journey and provides a digital service that many have come to expect in their everyday lives. MTD and its extension forms a crucial building block in the government’s 10-year strategy”. MTD is further described as a transparent improvement to the tax administration process and a bid to make the tax system more resilient and effective and better support taxpayers.
The first phase of implementing their strategy was the MTD for VAT, in which VAT registered organisations (with taxable turnover above the threshold for registration) have had to keep electronic records and submit their VAT returns digitally, for periods starting on and after 1 April 2019. The same was meant to become mandatory for all other VAT registered organisations on 1 April 2020 but was delayed and comes into effect for returns submitted after 1 April 2022.
MTD for ITSA is therefore the next step in the digitalisation programme.
What is MTD for ITSA? It is a new way of reporting earnings to HMRC. Businesses will be required to keep records of income and expenditure digitally and submit (using MTD-compatible software) quarterly summary of their income and expenses as well as an end of year report. This means rather than the once-a-year self-assessment submission, eligible businesses will now have to submit quarterly reports and an end of year report.
Who does MTD for ITSA apply to and when does it come into effect? In my opinion, as with MTD for VAT, MTD for ITSA will probably become applicable to all with earnings in time. It will however be a staggered process with some starting sooner than others and below is what we currently know about who is eligible and when MTD for ITSA submission becomes a requirement for them.
- Unincorporated companies and landlords with total business and/or property income above £10,000 per year– from April 2024 (it was originally meant to take effect April 2023, but has in the last couple of weeks, been delayed for another year). Note that the threshold applies to income from all businesses and property income and doesn’t apply to individual businesses e.g. if you have 2 business with income of £2,500 each and also earn £6,000 property income i.e. income of £11k, then from April 2024 you will be required to submit digital returns quarterly. This is not optional i.e. you can’t opt-out.
- Unincorporated companies and landlords with total business and/or property income below £10,000 per year, others who submit annual self-assessment – MTD for ITSA is not applicable (Personally, I’ll add the caveat: for now, in so far as we know). It is currently unclear whether this category are able to opt-in to MTD for ITSA.
- General partnerships – MTD for ITSA will become applicable from April 2025 (and date is to be confirmed for other partnerships e.g. those with corporate partners and Limited Liability Partnerships)
Cost of MTD for ITSA
- Cost of migrating to or upgrading software used
- Likely increase in subscription costs for MTD-compliant software
- Additional time spent submitting quarterly returns
- Likely increase in bookkeeping cost
Benefits of MTD for ITSA
- Digitally maintained documents could mean real-time information is available
- It would mean advance visibility of tax liability and ability to plan towards paying the bill.
In summary, digitalisation of the taxes is on the way for all sometime soon, so brace yourself for it and the associated cost and benefits.
Making Tax Digital for Corporation Tax (MTD for CT) is also on its way! Watch this space for information …
Do you have any questions about this? if so, drop them in the comments below.