Boom! 6 common MTD for ITSA myths exploded

By now you may (or may not) have heard about Making Tax Digital (MTD), the comprehensive digitisation process that’s transforming the UK tax system. It has already changed VAT reporting rules for all VAT-registered businesses and…

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Last Updated: 14th November 2022

By now you may (or may not) have heard about Making Tax Digital (MTD), the comprehensive digitisation process that’s transforming the UK tax system.

It has already changed VAT reporting rules for all VAT-registered businesses and Income Tax Self Assessment (ITSA) is next, with significant recording and reporting changes planned from April 2024 for sole traders and landlords with gross income of more than £10,000 a year. Reportedly, it will affect some 4.2m UK taxpayers.

Already some people have some very weird and wonderful ideas about MTD for ITSA, so let’s separate fiction from fact by exploding six common MTD for ITSA myths. 

MTD for ITSA Myth #1 – “I’ll need to file four tax returns a year!”

Who told you that? In reality, all you’ll need to do is keep digital records of your income and expenses/costs and send summaries to HMRC digitally every three months.

At the end of the tax year, all of your quarterly update information is combined to show your total income and expenses. Then you claim any reliefs and allowances to which you’re entitled and your tax data is amended.

You have to submit an “End Of Period Statement” (EOPS), declaring that you’ve provided correct and complete information and that you’ve finalised your tax position for the tax year. You can then see an updated estimate for your tax bill. You must also make a final declaration before 31 January following the end of the relevant tax year. Simple, really.

Need to know! If you’re a sole trader and landlord, you must keep separate digital records and follow the above process for both sources of income, you cannot combine them.

MTD for ITSA Myth #2 – “HMRC will provide me with free software”

Fraid not, you’ll need to sort that out yourself (unless you get an accountant to do it). There are two options. The first is MTD for ITSA compliant software that can:

  • maintain financial records as required
  • prepare and send quarterly updates and EOPS using the data in your records
  • finalise your business income and submit your declaration after the end of the tax year
  • Communicate digitally with HMRC.

Alternatively, you can use HMRC-approved “bridging software”, which can link non-MTD-compatible bookkeeping software (including basic spreadsheets) to HMRC’s systems as per MTD-reporting requirements.

Need to know! GoSimpleTax is developing its own MTD for ITSA bridging software, which we’ll be launching soon, so – watch this space!   

MTD for ITSA Myth #3 – “MTD means I’ll need to keep extra records”

That’s not so, you’ll basically just carry on recording your income and expenses as previously, the MTD software will take care of the rest. Obviously, if you’re not already maintaining digital records, you’ll need to start when MTD for ITSA is introduced. There are exemptions, but these are granted for specific reasons (eg where a disability means you can’t use a computer or the internet connection where you live is poor).

Need to know! Just because you prefer completing paper tax returns, it won’t give you grounds for exemption from MTD for ITSA. Time to embrace digital software.

MTD for ITSA Myth #4 – “MTD for ITSA is going to be a huge hassle”

Doesn’t have to be. Think of it as a new way of managing tax, one that requires a “little and often” approach to maintaining your financial records (which you might already be doing), while reporting tax information to HMRC more frequently. The software will be taking care of much of the heavy-lifting, in any case. And, gathering all of the necessary information to work out your income and expenses to complete a Self Assessment tax return each year is a hassle that many people won’t miss. MTD for ITSA might even make your life easier.

MTD for ITSA Myth #5 – “MTD for ITSA won’t benefit me”

In reality, MTD for ITSA could bring many benefits. You’ll get ongoing tax estimates, so you can put aside enough money to pay your tax bill. Gone will be the days when you get a tax bill that’s far higher than you expected – and far more than you can afford to pay.

MTD for ITSA recording and reporting requirements will mean that you’ll have a much more accurate and current idea of your costs and income, giving you greater control over your true business finances and enabling you to make better-informed business decisions. The changes should mean you’re less likely to forget to claim some allowable business expenses, which could lower your future tax bills. And with no more Self Assessment tax returns to complete, your Januarys might become a whole lot more productive and enjoyable. 

MTD for ITSA Myth #6 – “I’ll need to pay an accountant to do it for me”

If you’re not already paying an accountant or bookkeeper to take care of your financial records and tax reporting, there’s probably no need to start when MTD for ITSA is introduced. The new system has been designed to be as user-friendly as possible, although it might take some time for it to become second nature to you, it shouldn’t take too long.

We’re developing our own MTD for ITSA software, which will help you to comply with HMRC rules. Keep up to date by signing up for our MTD for ITSA email. In the meantime, GoSimpleTax is award-winning software that offers you a time-saving way to complete your UK Self Assessment tax return. Although easy to use, it comes with support from our Self Assessment experts. Start your free trial now.

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.

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