Making Tax Digital (MTD)
updated 19 December 2022
Government announces delay to Making Tax Digital for ITSA
The Government has announced today, a delay to MTD for ITSA for self-employed individuals and landlords who will now receive more time to prepare for Making Tax Digital for Income Tax Self Assessment (MTD for ITSA).
Details announced confirmed the following:
- There will be a two-year delay, from April 2026, for mandatory MTD ITSA filing.
- The minimum income reporting level has been increased to £50,000. Individuals earning more than £30,000 will be mandated to join the scheme in 2027.
- Landlords and sole traders who earn less than £30,000 per annum are to be reviewed in order to check whether MTD ITSA can work to meet the needs of smaller businesses.
- Partnerships will no longer be brought into MTD for ITSA in 2025, as previously planned.
- A points-based penalty system will be extended to MTD ITSA filers when they join.
The Written Ministerial Statement made by Victoria Atkins, Financial Secretary to the Treasury outlined the need to delay MTD for ITSA stating, “The government understands businesses and self-employed individuals are currently facing a challenging economic environment, and that the transition to MTD for ITSA represents a significant change for taxpayers, their agents, and for HMRC.
That means it is right to take the time needed to work together to maximise those benefits of MTD for small business by implementing gradually.
To read a full copy of the Ministerial Statement please click here.
What is Making Tax Digital (MTD)?
Making Tax Digital is an initiative set up by HMRC in order to become one of the most digitally advanced tax administrations in the world. Making Tax Digital is the most fundamental change to the administration of the UK tax system for at least 20 years.
HMRC believes that MTD will result in a tax administration that will be more effective and efficient, as well as being easier for taxpayers to submit their income and expenditures correctly.
By moving to digital integration, HMRC can eliminate existing paper-based processes. This will streamline actions, allowing businesses to devote more time and attention to maximizing business opportunities and reducing costly mistakes.
Based on the latest tax gap figures (2018 to 2019) HMRC believe that Making Tax Digital will also save the Exchequer over £8.5 billion per annum in losses due to tax errors/mistakes. This is because digital records generally provide better accuracy.
Making Tax Digital for VAT
MTD first went live on 1 April 2019 for all VAT registered businesses with taxable turnovers of £85k or more, the current VAT registration threshold. Businesses in this bracket must now complete their returns using appropriate software.
Register for Making Tax Digital
At MFW, we can help you with your MTD for ITSA transition – from helping you select the right software and training you to get the most from it, to establishing best practices for your submissions.
To further assist you and relieve the stress of MTD for ITSA we can prepare and make your submissions on your behalf so that you can be free to concentrate on what you do best.
Draft notices issued for MTD for ITSA
HMRC have recently issued four draft notices, which provide more details on how you will need to make your MTD for ITSA submissions. For more details, please visit the GOV.UK website.
If you have more than one business
Please note that if you have more than one business or if, for example, you are a landlord and also run a business you must meet the requirements for each entity and must ensure you keep separate records and make separate submissions for each.
If you receive property income from multiple properties, all properties that are:
- in the UK are treated as one ‘UK property business’
- outside of the UK are treated as one ‘overseas property business’
Software for Making Tax Digital
As paper records will no longer be sufficient, it is mandatory for almost all businesses and landlords (self-employed, partnerships and limited companies) to use software or a spreadsheet to keep accounting records.
The choice of software can often be confusing but do not worry, we will look at your business and provide a solution from the whole market that we believe will be the best option for you and your business’ needs. We provide training and help you to establish best practices to ensure you make the most of your software.
The software you use must allow you to:
- create and store digital records of each of your business transactions
- send updates of the totals of your business income and expenses every 3 months
- confirm end of period statements
You need to authorise your compatible software via your Government Gateway.
Send quarterly updates
Every 3 months, your compatible software will add together your digital records to create totals for each income and expense category. These are referred to as quarterly updates.
After your compatible software is authorised, you need to send updates for each income source to HMRC every 3 months or, if we act as your agent, we can do this for you.
Please note that you must send a quarterly update within one month of the end of the standard quarterly period:
6 April to 5 July 5 August
6 July to 5 October 5 November
6 October to 5 January 5 February
6 January to 5 April 5 May
Please note that if you do not send it by the deadline, you may need to pay a penalty.
Finalise your business income
At the end of a tax year, the information you have sent in your quarterly updates will be combined together to show your income and expenses for the tax year.
Before confirming the statement, you may need to:
- make accounting adjustments
- make tax adjustments
- claim reliefs or allowances
These adjustments will amend the data that you have sent through your quarterly updates. The deadline for confirming an end of period statement is 31 January after the end of the tax year. Please note, that if you do not confirm by the deadline, you may have to pay a late submission penalty.
Finalise your Income Tax position
Once you have finalised your business income you will then need to finalise your income tax. You can make your final declaration through your Making Tax Digital for Income Tax compatible software if either:
- you’re able to submit data on all of your personal income sources through your software
- you do not have any personal income sources to declare
If your software does not support the submission of your personal income sources, you can use your HMRC online services account to submit this data instead.
Once you have declared your income tax you can then make your final declaration. This is the last step of reporting your income to HMRC and replaces the need to send a Self Assessment tax return. You must make your final declaration by 31 January following the end of the relevant tax year. If you miss the deadline for your final declaration, you may need to pay a penalty. If you do not pay your Self Assessment tax bill by the relevant deadlines, you may need to pay a late payment penalty.
How we can help
At McCabe Ford Williams, we are experts in the leading digital tax software packages and can assist you with the important decision of the best package for your business’ needs. We consider options based on your requirements and talk you through the benefits – including how best to implement them – regardless of whether that is a cloud-based solution or not. We do not just recommend one solution as one software solution is not right for everyone. Instead, we use our extensive knowledge and experience to look at the whole software market to ensure you have the right software for you.
We can train you and your team members in how to use your software and help you to establish best practices.
To book a free MTD consultation, complete our contact form or call your local McCabe Ford Williams office.