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.
HMRC want to ensure this is well tested before the mandate, and that agents and customers have opportunities to feedback on how it will work in practice. That’s why they are running a pilot, inviting agents to recommend clients who can help HMRC test and learn.
MTD ITSA Pilot scheme is still a test environment. Those taking part have the benefit of testing the Making Tax Digital Income Tax Self Assessment before April 2024, including their own internal processes for managing Making Tax Digital.
From next month (July 2022), HMRC plan to bring customers with the following income types into the Making Tax Digital for Income Tax Self Assessment pilot:
- – Self-employment (including multiple self-employments)
- – UK property
- – Gift Aid
- – Pay As You Earn income, including employment income and occupational pensions (excluding those with a coded out liability)
- – UK interest
- – UK dividends
Clients will need to have an accounting period that aligns to the tax year (6 April to 5 April) to join the 2022 to 2023 pilot, and have Making Tax Digital compatible software before signing up (free and low-cost options are available, search ‘Making Tax Digital software’ on GOV.UK).
Who can use MTD for Income Tax Self Assessment
You can voluntarily sign up for the service if all of the following apply:
- – you’re a UK resident
- – you ’re already registered for Self Assessment
- – your accounting period aligns to the tax year — for example, 6 April 2021 to 5 April 2022
- – you have submitted at least one Self Assessment tax return
- – you’re keeping digital records
- – one or more of the following were included in your last return:
- – an existing self-employment income
- – a UK property source
- – a foreign property source
- – you’re up to date with your tax records — for example, you have no outstanding tax liabilities
You cannot sign up yet to Making Tax Digital for Income Tax Self Assessment pilot if you:
- – need to report income from any other sources
- – have an income tax charge — for example, high income Child Benefit charges or certain pension tax charges
- – have a payment arrangement
- – do not have an up to date address with HMRC
- – are a partner in a partnership
- – are currently, or are going to be, bankrupt or insolvent
- – are a Minister of religion, Lloyds underwriter or foster carer
- – have a third party capacitor, this includes (but is not limited to):
- – trusted helpers
- – insolvency
- – practitioners
- – nominees
- – solicitors
When to use MTD for Income Tax Self Assessment service
You can voluntarily use the service now. This will allow HMRC to test and develop the service before 6 April 2024.
You must use this service starting from 6 April 2024, if your qualifying income is more than £10,000. Find out what is included in your qualifying income.
We cover MTD ITSA in a separate article here.
What you need to use MTD ITSA service
To use Making Tax Digital for Income Tax Self Assessment pilot, you’ll need to:
- – get software that is compatible with Making Tax Digital for Income Tax
- – use software to keep digital records
- – send quarterly updates for business income and expenses
- – submit your end-of-period statement
- – submit a final declaration
How to keep digital records using software to comply with MTD for ITSA
You must use compatible software to keep digital records of all your business income and expenses from your self-employment or property business. Find software that is compatible with making tax digital for income tax.
You’ll use this software to keep records and send updates. You should maintain your records using the software:
- – as close to the date of the transaction as possible
- – before you submit the quarterly update for that period
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.
If you’re an agent, there is a different way to sign up your client.
You can authorise HMRC to exchange data with an agent acting on your behalf for any Making Tax Digital service. Once authorised, an agent can sign up your business and use software to create, view, edit and send your data to us. Your agent may also keep and maintain digital records on your behalf.
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 will not necessarily 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 to your digital records.
How to send quarterly updates using compatible software
Before you send quarterly updates, follow the instructions using your Government Gateway user ID and password to authorise your compatible software. You must use the user ID you got when you signed up for either:
- – Self Assessment
- – an agent services account
After your compatible software is authorised, you’ll send updates for each income source to us every 3 months. These updates are summaries of your business income and expenses. Your software will tell you when and how to send the updates.
You must submit quarterly updates within one month of the end of that quarterly period. If you do not submit by this deadline, you may have to pay a penalty.
Use standard quarterly period dates
The standard quarterly periods and deadlines in each tax year are:
|Quarterly period||Quarterly deadline|
|6 April to 5 July||5 August|
|6 July to 5 October||5 November|
|6 October to 5 January||5 February|
|6 January to 5 April||5 May|
Use calendar quarterly period dates
At a later date, you will be given the option to use calendar quarters. We will tell you how you can do this when it is available.
Calendar quarterly periods and deadlines are:
|Quarterly period||Quarterly deadline|
|1 April to 30 June||5 August|
|1 July to 30 September||5 November|
|1 October to 31 December||5 February|
|1 January to 31 March||5 May|
MTD for ITSA – How to submit an end-of-period statement
At the end of the tax year, you need to finalise your business income. For each income source, you’ll submit an end-of-period statement. This is when you:
- – make any accounting adjustments
- – claim any relief
- – confirm that the information you’ve sent is correct and complete
Your software will produce these statements for you.
Check the deadline for end-of-period statements
The deadline for submitting end-of-period statements is 31 January after the end of the tax year. If you do not submit by the deadline, you may have to pay a late submission penalty.
MTD for ITSA – How to submit a final declaration and pay tax
The final declaration under Making Tax Digital for Income Tax Self Assessment replaces your Self Assessment tax return. Once you finalise your income by submitting an end-of-period statement, you need to:
- – tell HMRC about any personal income you have and submit claims for relief
- – submit your final declaration for the tax year
You must submit your final declaration and pay the tax you owe by 31 January the following tax year.
If you miss the deadline for your final declaration, you may need to pay a penalty.
If you do not pay the tax you owe by the deadline, 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 Making Tax Digital for Income Tax Self Assessment 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.