What is MTD ITSA?
MTD for Income Tax is a service that enables businesses and landlords to keep their records digitally and submit information about their business income to HMRC using MTD-compatible software.
Businesses and landlords must provide the following information through the software:
- Income and expenses for each self-employment and property businesses at least every 3 months
- Allowances and adjustments for each self-employment and property business at least once a year, at the end of the accounting period
- Finalisation of business income sources with an End of Period Statement (EOPS)
Instead of sending an annual tax return, businesses and landlords will be required to send HMRC quarterly summary updates of their business income and expenditure and complete a process to finalise their overall tax position at the end of the year.
The digital means for recording the data does not have to be the same software that submits the data. However, there should be a digital link between the recording software and the submission software.
When should you start preparing for MTD for ITSA?
The MTD for ITSA rules will apply from April 2024, but you could save time in the long run by start preparing for upcoming changes and the transition is likely to run more smoothly if you start preparing ASAP.
What information needs to be recorded under MTD ITSA?
Each transaction must have these data points recorded digitally:
- – the date of the transaction
- – the relevant category of expenses
- – the trade or property business the income relates to
- – the amount.
Retail businesses will be able to elect to record daily gross takings rather than every single transaction , but only if it would be unreasonable for the business to keep digital records of every individual sale.
Businesses will need to confirm whether they keep their records based on cash accounting or accrued accounting.
Can MCL Accountants use my paper records to enter into software to comply with MTD ITSA?
Yes, you can use our bookkeeping services whereby our bookkeeper will record transactions into an accounting software or a spreadsheet on behalf of your business.
Although the aim of MTD ITSA is to encourage businesses to record their business transactions in real-time, as they occur, there is nothing in the draft regulations that stipulates exactly when the data must be committed into the digital record. As long as the data for the quarter is recorded before the quarterly submission is compiled and sent to HMRC, there is nothing to prevent a bulk recording of transactions every few weeks or months.
What do I need to submit quarterly to comply with MTD ITSA?
The quarterly submissions will be the totals for the quarter of:
- – sales income for each trade
- – purchases/expenses for each category
The categories of expenses are expected to be the same as those currently required in the self-employment section (form SA105) and property section (form SA103F) of the self-assessment tax return. More detail will be set out in the final MTD ITSA regulations.
The quarterly submission is an estimated profit and loss account & no balance sheet figures are required to be submitted.
Can you make corrections in the final submission made under MTD ITSA?
This quarterly data submission does not have to be accurate, any misallocation between expense categories can be adjusted at the end of the period statement (EOPS).
It is in the EOPS that you or your accountant can make any adjustments for capital allowances, losses, reliefs, disallowable expenses, transactions that have been missed or double-counted.
One EOPS will be required of each trade or property business by 31 January following the end of the tax year.
Can you submit estimated figures on the quarterly submissions for MTD ITSA?
Yes, if you wish to submit estimated expense figures, or even only the income amounts, in the quarterly submissions, that would be acceptable within the current draft MTD ITSA regulations.
To avoid the risk of a penalty for late filing some form of data needs to be submitted each quarter.
The quarterly submissions do not contain an accuracy statement. The taxpayer (or accountant) is not required to declare that the quarterly submission is a complete or correct reflection of the net or gross income of the business.
The taxpayer must make a declaration of accuracy on the EOPS, once all the adjustments for the four quarters have been made.
An annual summary is defined as a set of summary data for a tax year, containing allowances and adjustments broken down by category.
End of period statement
End of period statement (EOPS) is the process that allows the customer to finalise their business income.
A customer must complete an EOPS for each source of business income (the equivalent of the current SA103 and SA105 forms) E.g. if a customer has a self-employment business and a property business then they will have to complete two EOPS, one for each source of income.
The EOPS is linked to the accounting period for each source of income and cannot be completed until the end of the accounting period. However the customer does not need to complete it until 31st January Year 2.
This is the process that allows the customer to finalise their end of year position. This includes any business and personal data they need to provide to HMRC to reach their final tax liability for a specific year.
Before starting the final declaration journey the software package will need to ensure that, for the relevant tax year the customer:
- has finalised EOPS for all their businesses (self-employment and uk-property)
- has already provided their entire income e.g. interest, dividends, other SA schedules
- does not have any additional information to provide
How can MCL Accountants help?
Contact MCL Accountants on 01702 593 029 if you have any queries regarding MTD for Income Tax (MTD ITSA) or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.Tags: Making Tax Digital