Time again to start prepping for MTD for ITSA

MTD for ITSA or Making Tax Digital for Income Tax Self Assessment to give it its full title. You remember that? Perhaps you’d prefer not to, but here’s a quick reminder from Mike at GoSimpleTax.

MTD for ITSA was due to be phased in from April 2024 for those with total gross income over £10,000 from self-employment and property in a tax year, with partnerships due to follow in 2025. But then, suddenly, in December 2022, the government announced a two-year delay in the planned introduction schedule, as well as a significant threshold increase up to £50,000 in the first phase and £30,000-£50,000 in the second.

So, why the delay? At the time, HMRC said: “Understanding that self-employed individuals and landlords are currently facing a challenging economic environment, and the transition to Making Tax Digital for Income Tax Self Assessment represents a significant change to taxpayers and HMRC for how self-employment and property income is reported, the government is giving a longer period to prepare for MTD.”

Did you know? MTD for ITSA’s introduction timetable has been delayed four times since it was first announced in 2015 (source: National Audit Office). So far, HMRC has spent some £1.3bn on introducing MTD for VAT and MTD for ITSA, but it expects to raise £3.9bn in additional tax revenue as a result.

MTD for ITSA: how will it change reporting?

For those in need of a quick reminder…

• Under MTD for ITSA, many sole traders, freelancers, ordinary business partnership members and landlords will need to keep digital records of their income and costs and send a quarterly summary to HMRC using MTD-compatible software (or bridging software that enables them to comply with MTD reporting requirements while using their existing accounting software).
• They’ll then get an estimated tax bill, based on the information they’ve provided. HMRC believes that this will enable taxpayers to better budget to pay their tax bills when due.
• Then at the end of the year, taxpayers must digitally send a statement to HMRC, confirming the figures that they’ve submitted, with accounting adjustments made. They must also make a final declaration, confirming any other income received.
• They won’t need to file a Self Assessment tax return if they don’t have any other taxable income to report.
• HMRC will then inform them how much tax is payable, which must be paid by 31 January in the following tax year.

MTD for ITSA: revised introduction dates

From 6 April 2026, sole traders, freelancers and landlords with a gross income of more than £50,000 will need to comply with MTD for ITSA requirements or risk a penalty from HMRC. Those with an income of £30,000-£50,000 will need to do so from 6 April 2027. Many others will be able to join voluntarily before those dates, with HMRC believing that MTD will help them to eliminate basic tax-reporting errors and save time on tax admin.

So, what about those earning below the £30,000 income threshold? In 2022, the government said it was planning a review into the needs of such businesses, to consider how MTD for ITSA can be shaped to meet their needs and help them to fulfill their tax obligations. This review is ongoing, but an eventual introduction is highly likely. Moreover, according to a report published in November 2023, the government also remains “committed to future introduction of MTD for ITSA to partnerships”, although no date has yet been given, following the delay of its scheduled 6 April 2025 introduction.

Accountants, representative organisations and others working with sole traders, freelancers and landlords are being advised to remind them of the need to start to prepare for the introduction of MTD for ITSA in April 2026. This includes getting familiar with the new MTD for ITSA reporting requirements and making sure they have the necessary software.

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