Making Tax Digital ITSA (Income Tax Self Assessment) mandation has been delayed again until April 2024.
HMRC is nudging taxpayers again with letters about discrepancies between PAYE and benefits reported under RTI, and the details shown on their tax returns.
The Financial Secretary to the Treasury released a written statement to the House of Commons on 23 September confirming that individuals would be mandated into Making Tax Digital ITSA from 6 April 2024 (not April 2023 as previously proposed). All general partnerships have a further one-year deferral before they have to start Making Tax Digital ITSA reporting, and complex partnerships and LLPs have no confirmed start date for Making Tax Digital, as yet.
The Treasury statement also confirmed that the proposed change from the current year basis of assessment to the tax year basis, for reporting profits to HMRC, is to be kicked into the long grass for now. However, that has led to some confusion as how businesses with accounting periods that don’t align with the tax year will report under Making Tax Digital ITSA.
The Making Tax Digital ITSA regulations were rushed through Parliament with no scrutiny on 23 September.
This is what the regulations tell us:
- All sole-traders and individual landlords who are in business on 5 April 2023 will have to comply with the MTD regulations from 6 April 2024, if their turnover exceeds the MTD entry threshold. This digital start date applies, irrespective of the business accounting date.
- The entry and exit turnover threshold are both fixed at £10,000 per year, which includes all gross taxable income before any deductions, from both property and businesses.
- Quarterly updates will be required from all taxpayers within MTD ITSA for the same standard quarters to: 5 July, 5 October, 5 January and 5 April, with the reporting deadline exactly one month later.
- Businesses can elect to report quarterly updates to a calendar quarter: 30 June, 30 September, 31 December, and 31 March, but the reporting deadlines will remain the same as; 5 August, 5 November, 5 February and 5 May.
- The End of Period Statement (EOPS) will not necessarily be comprised of the sum totals from the quarterly updates, but instead will be a report of the annual accounts figures in a similar way to the self-assessment pages (SA103) and property pages (SA105) of the current self assessment tax return.
- The taxpayer will only be able to withdraw from the MTD ITSA regime if they have turnover of £10,000 or less for three successive tax years – the procedure for withdrawing in the first three years of the MTD regime is not clear.
- Trustees, executors, PRs of deceased estates, and non-resident companies will be exempt from reporting under MTD ITSA.
Why begin preparing for MTD now?
The benefits to business owners by preparing now for MTD will mean far more certainty for businesses. The change over to digital allows business owners to have a much better understanding of their monetary situation and business. You will be aware of your tax liabilities at a much earlier stage and you’ll be able to manage cashflow and decision making in a more informed way.
By preparing now, you can overcome any challenges now with the transition, before the new rules come into force – meaning when the rules do come into force, you and your business are better placed to have a smooth transition.