HM Revenue & Customs (HMRC) recently published several updates on the upcoming changes to Making Tax Digital for Income Tax self-assessment (MTD ITSA).
Due to come into force from April 2024, MTD ITSA will require all taxpayers with property and/or business income in excess of £10,000 to report their income tax information digitally each quarter.
This will include more than 4.2 million landlords, sole traders and partnerships who would normally only file information on this income annually via a self-assessment tax return.
What is the latest update on MTD?
The notices prepared by HMRC are fairly limited in their scope and mainly focus on the categories of income that will have to be reported via the new quarterly MTD updates.
According to the new information, taxpayers within the MTD ITSA regime must keep digital records of each transaction, including details of which category the transaction falls within and the total amount of income in each category.
These categories are themselves separated into two types of income for unincorporated businesses:
- Businesses with trading profits
- Businesses with property income
A full breakdown of the various categories that will need to be recorded in these quarterly returns can be found here.
This notice also confirms that businesses with turnover below the VAT registration threshold (£85,000) can continue to use the simplified three-line accounts approach, by allowing them to “provide the total of all income and the total of all expenses instead of the totals of the amounts falling within each category of transaction listed in this Update Notice”.
As well as outlining the expectations for quarterly submissions, the new notices also cover the additional information that must be submitted at the end of the accounting period for each source of income within the scope of MTD ITSA.
HMRC has also confirmed that similar to MTD for VAT, those affected by these changes must use ‘functional compatible software from the point of transaction through to the submissions made to HMRC to maintain ‘digital links’.
The tax authority will be publishing further guidance later this year that will “explain how customers can reflect any accounting and tax adjustments that may be required to reconcile the quarterly submissions to the final taxable profits for the year”.
