Making Tax Digital for income tax

If you run an unincorporated business, the way in which you report your business’s taxable profits will change from April 2024 due to Making Tax Digital for income tax (MTD for ITSA). 

This was originally due to apply to sole traders, business partnerships and landlords in the UK who have total income of £10,000 or more in a tax year from April 2023, regardless of when their current accounting periods end.

But on 23 September 2023, the Treasury announced a one-year delay for sole traders and landlords, while general partnerships will not join MTD for ITSA until April 2025.

That means most businesses will no longer need to file a self-assessment tax return from April 2024. The 31 January 2025 deadline, which would’ve applied to 2023/24 tax returns, will be consigned to history for them.

You might be thinking that you already file your tax returns online through the Government Gateway on or before midnight on 31 January each year, and wondering how this differs from that. Let us explain about MTD for ITSA.

Requirements

The chances are, especially if your business is VAT-registered, you will be familiar with MTD, as UK VAT was the first of the UK’s taxes to be fully digitised, starting in April 2019.

MTD for ITSA is up next in April 2024, followed by MTD for corporation tax from April 2026 at the time of writing, and the same principles with MTD for VAT will apply.

First, you will have to keep digital records of any sales your business makes or expenses it incurs during the tax year. Then, you will need to file quarterly summaries using HMRC-compatible software.

We can help you choose the right software to comply with MTD for ITSA and suit your unincorporated business. At AssureTax, we will set you up and advise on Xero.

Quarterly deadlines

The quarterly deadlines for all unincorporated businesses filing under MTD for ITSA from 6 April 2024 will be 5 August, 5 November, 5 February, and 5 May.

You will need to use your chosen software provider to digitally record your total income from sales as well as your expenses from the quarter in question.

If you’re one of our clients, you will share this information with us for verification before we send these summaries to HMRC on or before the above dates.

An end-of-period statement will also be due on the final submission of the tax year (5 February). This is when any accounting adjustments will be made.

Exemptions

HMRC has confirmed full exemptions from MTD for ITSA for estates, non-resident companies, trustees of registered pension schemes, and trusts (including trusts with property income).

Business partnerships that include a corporate partner, limited partnerships and limited liability partnerships will be exempt for the time being. They will, however, have to join MTD for ITSA at a future date.

To discuss how MTD for ITSA might affect your specific business from April 2024, feel free to email us at info@assuretax.co.uk or call us on 0208 666 0223 and we will be happy to help.

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