MTD for landlords and sole traders will become mandatory from 6 April 2024 onwards.
Businesses, self-employed people and landlords will be required:
- – to operate MTD from 6 April 2024 in relation to their trading and property income chargeable to Income Tax and Class 4 NICs if their gross income from these income sources for a tax year exceeds £10,000
- – to keep their records digitally (for ITSA purposes only), provide digital quarterly updates and provide their ITSA return information to HMRC through MTD compatible software
The new MTD for Landlords under ITSA regulations require a relevant person to keep and preserve their tax records electronically and to submit reports to HMRC using approved software. A report of the business’s trading or property income, allowable expenditure and claims for allowances or reliefs against such income must be submitted in relation to each tax year (property businesses) or basis period (trading businesses). See further details here.
When does a business need to join MTD for income tax?
MTD for ITSA also referred to as MTD for Landlords and Sole Traders for income tax will be effective from 6 April 2024 for all unincorporated businesses i.e. sole traders, partnerships, landlords etc. irrespective of when their current accounting period ends.
The base year for testing the MTD turnover threshold will be the tax year 2022/23. The turnover figures for 2022/23 will not be distorted by Covid-related grants so it should reflect normal trading beyond the pandemic for most businesses.
We discuss this in further detail here.
What are the filing deadlines for MTD for Landlords under ITSA?
HMRC has confirmed that the quarterly filing deadlines for all unincorporated businesses filing under MTD for Landlords and Sole Traders will be: 5 August, 5 November, 5 February, and 5 May.
Those businesses with accounting dates of 31 March or 1, 2, 3, 4 April, will also file by these deadlines, so a business with a 31 March accounting date will have 5 extra days to file.
The first mandated MTD for Landlords and Sole Traders under ITSA submission for the first quarter to 5 July 2024 will have to reach HMRC by 5 August 2024, which is a Saturday in the Summer Bank Holiday weekend in Scotland.
MTD for Landlords under ITSA and discovery assessments
If HMRC discovers a ‘loss of tax’ for a tax year they may issue a ‘discovery assessment’.
Assuming the taxpayer has filed a return for the relevant year, a discovery assessment can only be made if:
• the under-assessment was attributable to the careless or deliberate conduct of the taxpayer (or a person acting on their behalf); or
• a hypothetical HMRC officer could not reasonably have been aware of the under-assessment based on the tax return and other information available to them at the time the officer concluded (or is treated as having concluded) their enquiries into the return; and
• the return did not reflect the practice generally prevailing at the time it was made.
The normal rule is that a discovery assessment cannot be made more than four years after the end of the relevant tax year. Where the loss of tax was brought about by careless behaviour the deadline is six years after the end of the tax year and where the behaviour was deliberate, involved a failure to notify, or a failure in a duty under the DOTAS or POTAS rules, the deadline is 20 years after the end of the tax year.
Extended 12 year time limits apply for assessing tax involving an offshore matter or transfer, where the loss of tax was caused by either a mistake despite taking reasonable care or a failure to take reasonable care.
To avoid a discovery being made, taxpayers must ensure their tax returns contain adequate disclosure.
Rupert has been within the ITSA regime for several years. His only income is from his work as a self-employed consultant. Given his profit levels, he is required to make payment on account of his ITSA liability. In respect of 2022–23, Rupert receives a notice to file on 7 April 2023.
Rupert is required to make payments on account of his 2022–23 income tax and Class 4 NIC liability on 31 January 2023 and 31 July 2023, with the balancing payment of income tax and Class 4 NIC, and his Class 2 NICs, due on 31 January 2024.
The filing date for Rupert’s ITSA return is 31 October 2023 if he files on paper or 31 January 2023 if he files online.
If Rupert files his return on 31 December 2023, HMRC will have until 31 December 2024 to open an enquiry.
Assuming HMRC do not open an enquiry into Rupert’s 2022–23 ITSA return, he is required to keep records of his income and expenses until 31 January 2029.
How can MCL Accountants help?
Contact MCL Accountants Southend on 01702 593 029 if you have any queries regarding MTD for Landlords and Sole Traders 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