Making Tax Digital for income tax self-assessment (ITSA), the mandatory change to how some self-employed businesses and landlords report their taxes, has been delayed.
Although this gives you more time to prepare, there’s no reason why you shouldn’t get to grips with the system now and enjoy all the benefits.
MTD ITSA delay explained
MTD is the Government’s spearhead policy to digitise the tax regime and has been in the works for a while now – in April 2022, MTD for VAT became compulsory for all VAT-registered companies in the UK.
MTD ITSA, the next stage, was supposed to become mandatory for some taxpayers in April 2024; now, the Government will introduce it in April 2026.
However, that’s not all that’s changed.
Firstly, the Government has increased the minimum income reporting level, so self-employed individuals and landlords earning over £50,000 will have to join the scheme.
From April 2027, this threshold will be lowered to £30,000. Will it be lowered again to £10,000 as initially intended? Potentially, but HMRC has not said anything about that.
Secondly, partnerships will not have to join MTD ITSA in 2025 as originally planned. HMRC is yet to provide us with a replacement date.
What do you need to do?
There are three main requirements within MTD ITSA: quarterly updates, an end-of-period statement (EOPS) and a final declaration.
Quarterly updates
Businesses within MTD ITSA will have to provide quarterly updates of their income and expenses for the following periods by the deadline shown, regardless of their accounting period end:
| Period covered | Filing deadline | |
| Quarterly update 1 | 6 April to 5 July | 5 August |
| Quarterly update 2 | 6 July to 5 October | 5 November |
| Quarterly update 3 | 6 October to 5 January | 5 February |
| Quarterly update 4 | 6 January to 5 April | 5 May |
Alternatively, businesses can make a ‘calendar quarter election’, allowing them to draw up quarterly updates to the end of the previous month, as follows:
| Period covered | Filing deadline | |
| Quarterly update 1 | 1 April to 30 June | 5 August |
| Quarterly update 2 | 1 July to 30 September | 5 November |
| Quarterly update 3 | 1 October to 31 December | 5 February |
| Quarterly update 4 | 1 January to 31 March | 5 May |
Draft tertiary legislation sets out the categories of income and expenses that you must include in the quarterly updates. HMRC will require separate updates for each trade or property business carried out by an individual. Still, there’s no requirement to make tax or accounting adjustments to the information you provide.
The most important part is that these reports must be sent to HMRC through compatible software, like Xero, a cloud accounting software.
End of period statement
This performs a similar role to the self-employment or property pages on the current ITSA return – i.e. making the required tax and accounting adjustment and finalising the tax position of the trade or business.
Following the implementation of the basis period reform, the statement will be required to cover the tax year and will be due by the following 31 January deadline.
A separate EOPS will be required for each trade or property business carried out by an individual.
Final declaration
The EOPS alone is not enough to finalise a taxpayer’s affair for the year, so they’ll have to submit a final declaration to determine their final tax liability.
Unlike the EOPS, only a single final declaration will be required for each taxpayer and will be due by 31 January following the relevant tax year.
Why worry about MTD ITSA?
You’ve got at least three years to prepare for MTD ITSA, which is a fair while away. However, if done right, some aspects of the new system could benefit your business right now.
In particular, we like the principle of keeping detailed and digital records of your income and expenses for a number of reasons.
Firstly, by connecting your software with HMRC, the tax man will be able to look at your income and expenses to give a predicted tax bill, which could really help you budget for it.
Secondly, regular reporting with cloud software means you could save time each month maintaining your financial records and managing your tax admin. You even get back the time you might sometimes spend on rectifying mistakes in your reporting.
You’ll also have an accurate picture of your business’s cashflow and financial health, which can help you stay in control and make decisions informed by the reality of your finances.
Lastly, your accountant will be able to do your self-assessment tax returns far quicker and more accurately – and without having to bombard you with requests for information and documents!
Getting your business records into the cloud has more benefits than just complying with MTD ITSA. Get in touch for help getting yours online.
