HMRC are set to transform the tax system in a bid to make administration simpler and more efficient for taxpayers. Making Tax Digital is compulsory and so it is important that you are aware of your requirements as a taxpayer. The following information sets out the changes to income tax self-assessments, coming into force in 2023. The sooner you are aware of your requirements, the smoother your transition will be.
What is MTD ITSA
- Making Tax Digital for Income Tax Self-Assessment.
Who could be affected by it?
- Self-employed individuals and landlords with a tax year turnover exceeding £10,000.
- Partnership which consists only of individual partners.
- The turnover threshold takes account of the combined turnover of a person’s total number of businesses and rental properties.
Please note – MTD ITSA has been deferred, until a date yet to be decided, regarding partnerships with a corporate member, LLPs and Limited partnerships.
Are there any exemptions?
- Trades and/or rental income where the turnover does not exceed £10,000.
- A deceased person’s estate.
- Registered pension scheme trustees.
- Non-resident companies.
- Individuals who are able to claim they are digitally excluded.
What constitutes ‘digitally excluded’?
- Location – for example, you cannot obtain internet access at or near home or at work.
- Disability, which prevents you from using the software technology.
- Your religious beliefs.
What will MTD ITSA mean in practice?
- You will be required to maintain your trading/rental records in a digital format.
- Primarily, during the tax year, you will need to make quarterly digital submissions to HMRC of your income and expenses as regards your trade/rental business.
When does this first come into effect?
- April 2023.
When do you have to make the quarterly submissions?
- 5th August – covering the 1st quarter to 5th July.
- 5th November – covering the 2nd quarter to 5th October.
- 5th February – covering the 3rd quarter to 5th January.
- 5th May – covering the 4th quarter to 5th April.
- The very first MTD ITSA submission will need to be made by 5th August 2023.
What will need to be included in the submissions?
- Details of trading/rental income and expenses for the quarter period concerned.
- It is likely to need to be broken down into categories similar to what is presently required for a self-assessment tax return.
Do I have to pay my tax over at the same time as the quarterly submissions?
- At present no, you continue to pay the tax over on 31st January and 31st July each year.
What happens after the 4th quarterly submission has been made?
- You have to make a further digital submission for the tax year called an end of period statement (EOPS).
- The EOPS enables you make the necessary adjustment to what has already been submitted in respect of things like capital allowances and losses.
- The EOPS must be submitted by 31st January following the end of the relevant tax year.
- An EOPS must be submitted for each trade.
Will I need to also complete a Self-Assessment Tax Return?
- Not if you are having to comply with MTD ITSA.
How will I declare my other income and capital gains disposals?
- A finalisation statement (FS) will also need to be submitted by 31st January following the end of the relevant tax year.
- You would include other income and gains not already reflected in the quarterly submissions on the FS.
What happens if I don’t comply?
- Financial penalties are likely to be imposed.
What do I need to do?
DO NOT LEAVE IT TOO LATE TO ACT.
- Check to see if you are caught by the MTD ITSA rules.
Note: TWC have HMRC compatible software to maintain and submit the relevant digital records on your behalf.
How can we help?
- We can carry out an MTD ITSA review.
- Assist with the preparation and submissions of the MTD ITSA returns.
Other training and support.
- Ensure that the MTD quarterly submissions, EOPS and FS are submitted on time and advise on the tax and national insurance (if applicable) to be paid.
This is based upon present HMRC draft proposals which may be subject to change.
If you wish to discuss any of these or other issues please do contact us.