15 Making Tax Digital for ITSA FAQs

VAT-registered businesses have already had to prepare themselves for new Making Tax Digital (MTD) record-keeping and reporting rules. But it won’t be too long before sole traders, private residential landlords and others who report income via…

VAT-registered businesses have already had to prepare themselves for new Making Tax Digital (MTD) record-keeping and reporting rules. But it won’t be too long before sole traders, private residential landlords and others who report income via Self Assessment will also need to comply with MTD requirements. You may be one of them, so, here are answers to Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) frequently asked questions, so you can better understand what you need to do.

1. What is Making Tax Digital?

Making Tax Digital is a huge government initiative that will digitise the UK tax system. MTD is being introduced in phases. It got underway in 2019, changing record-keeping and reporting requirements for VAT-registered businesses with a VAT-taxable turnover above the VAT-registration threshold. That was extended to all VAT-registered businesses in April 2022. Income Tax Self Assessment and Corporation Tax are next. Full implementation of MTD changes across the entire UK tax system still remains some years off.

2. Why is Making Tax Digital happening?

MTD is happening because the government says it wants to make tax easier and enable people and businesses to manage their tax affairs more successfully and efficiently. The government also hopes that Making Tax Digital will make basic tax errors less likely. These currently cost the UK many billions in lost tax revenue each year.

3. When will MTD for Income Tax Self Assessment be introduced?

MTD for ITSA was due for introduction on 6 April 2023, but that’s been delayed until 6 April 2024. According to the government, the delay is because of additional pressures brought by COVID-19, while stakeholder representatives also asked for more time so that taxpayers can better prepare for Making Tax Digital for Income Tax Self Assessment changes.

4. Who will be affected by MTD for ITSA changes?

Making Tax Digital changes will affect you if you’re registered for Income Tax Self Assessment and have a gross self-employed or rental income of more than £10,000 a year. Those who currently report taxable income via Self Assessment will also be affected. Ordinary business partnerships with more than £10,000 a year of gross income will be impacted by MTD for ITSA changes from 6 April 2025.

Need to know! To fall under MTD for ITSA’s scope, your taxable gross income (not profit) must be above £10,000 per year. And this can come from combined self-employed and rental income (eg £8,000 a year from rent and £4,000 a year from running a part-time self-employed business).

5. Can I be exempt from MTD for ITSA?

You can apply for Making Tax Digital for ITSA exemption if it’s not practical for you to use software to keep digital records or submit data to HMRC digitally. That could be because of your age, disability, location (ie poor internet connection) or other justifiable reason. MTD for ITSA exemption can also be granted on religious grounds. You must explain your reason to HMRC and an alternative solution will be found if it is accepted.

6. What if I currently maintain paper records?

You’ll have to start using digital record-keeping and reporting software from April 2024, unless you have a justifiable reason to be exempt. Your personal preference for offline bookkeeping won’t enable you to ignore MTD requirements. Failure to comply may result in penalties. 

7. Will I still need to complete an annual Self Assessment tax return?

Depends what income you have and how you choose to report it. By law, from 6 April 2024, unless you’re exempt, you’ll need to report taxable self-employed or property rental income via MTD for ITSA. And although HMRC would also prefer that you report other taxable income (eg from dividends, etc) via MTD when making your final declaration (see below), you’re not required by law at this stage to do so. You can still choose to report other such income via Self Assessment.

8. What are the key differences between Self Assessment and MTD for ITSA?

  • Under Making Tax Digital for ITSA, you must maintain digital records of your taxable income and expenses/costs and send summary data electronically to HMRC each quarter.
  • At the end of the tax year, you must electronically submit an EOPS (end of period statement) to HMRC, confirming the accuracy of the figures you’ve submitted, with any accounting adjustments made.
  • You must also make a final declaration, confirming any other income received. HMRC will then tell you how much tax you owe, which you must pay by 31 January in the following tax year.
  • As stated previously, you could choose to report your other income via Self Assessment, but HMRC does not want you to do this, and it would make your tax affairs more complex anyway.

9. What MTD for ITSA software can I use?

HMRC is not making available any MTD for ITSA software. You have two options:

  • MTD for ITSA-compliant software that enables you to record and report data as required under MTD rules or
  • “bridging software”, which works with non-MTD-compatible software (eg spreadsheets, etc), so that you can send the required digital data in the right format to HMRC each quarter and at the end of the year.

You authorise your MTD-compatible software via your Government Gateway user ID and password. Your existing record-keeping software may or may not be updated to comply with MTD for ITSA requirements.

10. When must I send MTD for ITSA data to HMRC?

You’ll need to send online via your HMRC digital account each quarter. You’ll get up to a month after the end of each quarter to do this. Late submissions or payments may result in penalty fines.

11. How might Making Tax Digital for ITSA benefit me?

One of the big advantages is that you will know, based on the figures you provide, an estimate of how much tax you owe, which could enable you to better budget to pay your tax bill at the end of the year. No longer will you be faced with the shock of an annual tax bill showing that you owe more you expected. And you won’t have to face the more considerable task of gathering together all of your figures at the end of the year so you can complete an annual tax return. No more mad panic as you battle to meet the January online filing deadline.  

12. When do I need to sign up for MTD for ITSA?

If you already report income via Self Assessment, you don’t have to sign up for MTD for Income Tax Self Assessment until shortly before 6 April 2024. But if you want to get used to the new way of recording and reporting income and expenses to HMRC why not record your income and expenses in GoSimpleTax as you as go, that why next year’s tax return will be ready to file.

To sign up now for Making Tax Digital for ITSA, you must be a UK resident who is registered for Self Assessment and your tax returns and Income Tax payments must be up to date. You must also have Making Tax Digital for Income Tax-compatible software before you sign up.

Please note: If you need to report income from other sources (eg wages from employment) you can’t currently sign up voluntarily for MTD for ITSA.

Need to know! We’re busy developing our own MTD for ITSA software, which will help you to comply with HMRC rules. You can keep to update via signing up to our email!

13. Can someone else sign me up for MTD for ITSA?

Yes, your accountant, for example, can sign you up for Making Tax Digital for ITSA and take care of your recording and reporting obligations. They’ll need to make sure that you have the necessary MTD-compatible software or bridging software.  

14. When must I file my final Self Assessment tax return?

If you don’t sign up to join the pilot scheme and leave it until April 2024, you must still file a Self Assessment tax return (SA100) for the 2023/24 tax year.

15. Where can I find more information about MTD for Income Tax?

We have a wide variety of blog content on Making Tax Digital for Income Tax you can view here. You can also sign up to our quarterly MTD for ITSA newsletter.

While existing Income Tax Self Assessment reporting requirements remain, GoSimpleTax offers you an easier and quicker way to complete and file your tax return. It’s simple to use, offers hints and tips, enables you to store receipts for your allowable expenses and is backed up by highly experienced support team. Having already launched a MTD for VAT software solution, GoSimpleTax is also developing its own MTD for ITSA software solution. Details will be released soon – so watch this space!

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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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