With the Making Tax Digital for Income Tax sign-up deadline fast approaching, we often get asked by clients how to meet the MTD ITSA requirements.
Making Tax Digital for Income Tax Self Assessment will become mandatory from April 2024 which means all businesses with annual income from self-employment or property above £10,000 will have to follow Making Tax Digital rules.
When can I sign up for MTD for ITSA?
You can sign up now for Making Tax Digital for Income Tax Self Assessment for your current or next accounting period.
Alternatively, you can authorise an agent to act for you and they will be able to sign up your business.
We cover this in a separate article here.
How to meet the MTD ITSA requirements?
You need to use software that works with Making Tax Digital for Income Tax. The software must allow you to:
- – create and store digital records of each of your business transactions
- – send updates of the totals of your business income and expenses every 3 months
- – confirm the end-of-period statements
You will also need to make your final declaration. This will be possible either through your compatible software or your HMRC online services account.
How to meet the MTD ITSA requirements if you have more than one business
If you have more than one business (for example, if you are a landlord and a builder), you must meet the requirements for each business.
This means you must keep separate records and make separate submissions for each business.
If you receive property income from multiple properties, all properties that are:
- – in the UK are treated as one “UK property business”
- – outside of the UK are treated as one “overseas property business”
Authorise your agent to meet the MTD ITSA requirements
You can authorise HMRC to exchange data with your agent for any Making Tax Digital service. Once authorised, your agent can:
- – sign up your business
- – use software to create and store digital records on your behalf
- – use software to view, edit and send your data to us
If you’ve previously authorised an agent to act on your behalf, you will not need to re-authorise them for Making Tax Digital for Income Tax.
An agent may not have access to all your source data. If an agent cannot make corrections to your digital records, they will need to tell you about any corrections needed.
Keep digital records using software to meet the MTD ITSA requirements
You must use compatible software to keep digital records of all your business income and expenses.
Using the software, you should create records of your transactions:
- – as close to the date of the transaction as possible
- – before you send the quarterly update for that period
- – no later than the quarterly deadline
Authorise your compatible software
You need to authorise your compatible software by entering your Government Gateway user ID and password into your software and following the instructions. Ask your software provider how to do this if you need help.
You must use the user ID you got when you signed up for either:
- – Self Assessment
- – an agent services account
You need to repeat the authorisation process every 18 months. Your software should remind you to do this.
Finalising your business income
At the end of a tax year, the information you have sent in your quarterly updates will be combined together to show your income and expenses for the tax year.
You must have sent HMRC quarterly updates for each quarterly period before you can confirm an end-of-period statement.
If you have multiple businesses, you need to confirm an end-of-period statement for each business.
Before confirming the statement, you may need to:
- – make accounting adjustments
- – make tax adjustments
- – claim reliefs or allowances
These adjustments will amend the data that you have sent through your quarterly updates.
When you confirm an end-of-period statement, you will be declaring that:
- – the information you have provided for that business is correct and complete
- – you have finalised your tax position for that business, for the tax year
After submitting an end-of-period statement, you will be able to see an updated estimate of your tax bill.
When you should finalise your business income
The deadline for confirming an end-of-period statement is 31 January after the end of the tax year.
If you do not confirm by the deadline, you may have to pay a late submission penalty.
Finalising your Income Tax position
After finalising your business income, you may need to send HMRC information on personal income sources, such as savings or dividend income.
These income sources do not contribute to your qualifying income and do not fall under the Making Tax Digital for Income Tax requirements. This means you do not need to report them quarterly, but you can choose to do so.
You can make your final declaration through your Making Tax Digital for Income Tax compatible software if either:
- – you’re able to submit data on all of your personal income sources through your software
- – you do not have any personal income sources to declare
If your software does not support the submission of your personal income sources, it will be possible to use your HMRC online services account to submit this data instead.
Once you have told HMRC about all of your taxable income for the year, you can make your final declaration.
When you make your final declaration, you will be declaring that:
- – the information you have provided is correct and complete
- – you have finalised your Income Tax position for the tax year
This is the last step of reporting your income to HMRC and replaces the need to send a Self Assessment tax return.
When to finalise your Income Tax position
You must make your final declaration by 31 January following the end of the relevant tax year.
If you miss the deadline for your final declaration, you may need to pay a penalty.
The information provided will then be used to generate your final Self Assessment tax bill for that tax year.
If you do not pay your Self Assessment tax bill by the relevant deadlines, you may need to pay a late payment penalty.
How can MCL Accountants help?
Contact MCL Accountants on 01702 593 029 if you have any queries on how to meet the MTD ITSA requirements or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.
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Ishan provides financial management, taxation and transactional advice to business entities of all sizes. His expert areas include statutory compliance, business taxation, personal tax & transactional processing and systems. Industry sectors include professional services, retail, hospitality and entertaining & media and advertising services.