With Making Tax Digital (MTD) for VAT already in place, the government is pushing forward with the digitalisation of tax. The next step is aimed at self-employed individuals and landlords which will MTD for Income Tax Self-Assessment (ITSA). However, there have been changes to the timeline, and the threshold for who needs to comply, which we will cover in this article.
What is MTD for ITSA?
MTD for ITSA is set to replace traditional Self-Assessment returns. Instead of the annual tax return process, self-employed individuals and landlords will need to:
- Use MTD-compatible software: Keep digital records of all business transactions.
- Submit quarterly updates: Send summaries of these transactions to HMRC.
- Finalise tax information: Provide details of any tax adjustments, additional income sources, and tax reliefs by the following January.
This aims to simplify tax reporting by making it more frequent and digital.
New Timeline and Income Thresholds
For anyone earning over £10,000 annually, MTD for ITSA was expected to start in April 2024. However, due to various economic and technical challenges, HMRC decided on a phased roll-out:
- April 2026: Self-employed individuals and landlords earning over £50,000 annually must comply.
- April 2027: MTD will apply for those earning over £30,000 annually.
At present, there is no plan to include individuals earning less than £30,000, but this could change.
Key Changes
Several updates have been made to ease the transition:
- Cumulative Quarterly Updates: Instead of standalone updates, your latest submission will overwrite the previous one, reducing the need to resubmit historical data.
- End of Period Statements Removed: You will now only need to finalise your tax return at the end of the year.
- Relief for Jointly Owned Property: Landlords of jointly owned properties can opt for less detailed record-keeping and skip submitting expenses quarterly.
- Support for Multiple Agents: HMRC is working to allow multiple agents to manage a single taxpayer’s submissions.
Hopefully, these changes will make the transition smoother and more manageable for businesses.
What’s Next?
Although dates and rules have changed, we still advise individuals to prepare for MTD for ITSA now. Begin familiarising yourself with compatible software, and keeping digital records, or try joining the early testing phases if you meet the criteria. These steps will help you stay ahead of the changes and ensure a seamless transition when the new rules begin.
