Making Tax Digital for Self-Assessment

4 minutes to read

The Government have once again extended the deadline for Making Tax Digital for Income Tax Self Assessment (MTD ITSA). Following the Government announcement and publication of a new Statutory Instrument on 23 September 2021, further details of the new digital tax administration system have been released including who is affected and how this new system will be implemented.

We have outlined the key points that Self Assessment tax payers should be aware of and will continue to update our news page with any further announcements. More detailed information can be found on the website and we have included some useful links at the end of this article.

Extension to 6 April 2024

The Government’s original 10-year strategy published in July 2020 had intended MTD ITSA to be rolled out on 6 April 2023 however as a result of the continued challenges imposed by the Coronavirus pandemic the Government have now extended this.

MTD ITSA will now be introduced from 6 April 2024 for sole traders and property landlords, and 6 April 2025 for partnerships. However, qualifying individuals can voluntarily start using the MTD ITSA service already.

Who will use MTD ITSA?

Sole traders or UK property landlords can voluntarily sign up for MTD ITSA and start using the service immediately provided they are UK resident, they have no other sources of reportable income, and are registered with Self Assessment with up-to-date tax returns and payments.

From 6 April 2024, UK resident and domiciled Sole traders and landlords (with either UK and/or foreign property income) will be required to use the service where their self-employment or rental turnover is in excess of £10,000. For those with both self-employment and rental income, if the combined total turnover of both sources exceeds £10,000 you will also be required to use MTD ITSA.

Where income is from a joint property the £10,000 requirement will be assessed on an individual’s share and not on the total for the property.

For non-UK resident or domiciled individuals, the £10,000 requirement will be assessed only on UK source income i.e. UK property or UK self-employment income and will disregard foreign property or foreign self-employment income.

Individuals may be able to apply for an exemption from MTD ITSA if any of the following apply:

  • You object to using computers on religious grounds
  • Due to age, disability or location it would be impractical and/or unreasonable for you to use a computer or the internet
  • It would not be reasonable or practical for any other reason

How to use MTD ITSA

Individuals who use MTD ITSA will need to report income and expenses to HMRC using compatible software on a quarterly basis. The deadline for submitting these reports is one month from the end of the quarterly period. There will also be a requirement to submit an end of year statement which will summarise the income disclosed from each income source in each of the four quarterly reports.

Those using MTD with then need to submit a final declaration which will let HMRC know of any other personal income received during the tax year and any reliefs being claimed.

The deadline for submitting the end of year statement, final declaration and paying any tax owed will be the 31 January following the end of the tax year (mirroring the current electronic Self Assessment tax return and tax payment deadline).

You will be required to keep digital records using the MTD ITSA software of your income and expenditure and if you use an agent, they may be able to keep and maintain these records on your behalf.

Those who do use an agent to act on their behalf for Self Assessment will not need to re-authorise them to use the MTD ITSA service.

Changes to the Penalties

Where a submission deadline is missed, rather than issuing an immediate penalty as with the current self-assessment system, HMRC will use a point-based regime. Every time a deadline is missed HMRC will issue one point, once a taxpayer has received four points HMRC will issue a £200 penalty.

Following a penalty any points amassed can be reset to zero provided the taxpayer has reached a required period of compliance. Points will expire after two years provided the taxpayer has not reached the penalty threshold of four points.

Late payment penalties will also be issued but these will continue to be based on a percentage of the outstanding tax with daily penalties reaching a rate of 4% per annum.

When do you stop using MTD ITSA?

Once you meet the requirements for MTD ITSA or voluntarily sign up for the service you cannot be removed until your self-employed or rental business ceases.

Therefore, even if you no longer meet the £10,000 turnover requirement you will still need to continue to use MTD ITSA and submit quarterly reports until the cessation of your business.

The Government will undoubtedly provide further clarity into the MTD ITSA system as we get closer to 6 April 2024 and if you have any queries regarding the new digital system, please get in touch with your usual Newby Castleman LLP contact.

The Income Tax (Digital Requirements) Regulations 2021 – SI