Making Tax Digital is radically changing the accountancy landscape. Practices of all sizes are being brought on a multi-faceted and far-reaching journey. When we regard such an all-encompassing change, it’s best to break it down into small steps. Let’s start at the beginning.
What is MTD for ITSA?
You’ll already be applying MTD to VAT reporting, as part of the United Kingdom government’s modernisation of the tax system.
However, from 6 April 2024, MTD will also apply to Income Tax Self Assessment. Any taxpayer earning £10,000 or more in gross income per annum, derived from business turnover and/or property turnover, will need to comply with MTD regulations.
This will affect more than four million self assessment taxpayers across the United Kingdom.
MTD intends to help people budget for their tax bill more effectively, and reduce the element of human error. Keeping digitised tax records and making quarterly submissions to HMRC should help taxpayers and accountants do just that. However, it’s vital that accountancy practices have HRMC-approved software in place to comply – long before the April 2024 deadline. This will help accountants and their clients take advantage of the opportunities of MTD.
Our priority as a business has always been to transform customer interactions and create a seamless end-to-end digital experience. However, on this occasion, it’s our job to support our clients through a much wider digital transformation.
Download our new ebook to help guide you along that journey, with a clear end goal – Destination: MTD. In this guide, we’ll set out the key steps your practice should take to comply with MTD for ITSA. Within the time left, you’ll need to understand its requirements and prepare both your practice and your clients.
Under MTD for ITSA, the Self Assessment will be replaced with six new reporting obligations.
These are: the
Four reports in each accounting period will be the minimum requirement under MTD for ITSA.
The income and expense figures should be calculated from original digital records – stored either via bookkeeping and accounting software or in a spreadsheet. Taxpayers can choose to file more to HMRC if they feel it will help with their accounting.
A business that aligns to the tax year (6 April – 5 April) would need to submit at least the following reports for the 2024/25 financial year:
- 1st: Due by 5 August 2024 (covers 6 April 2024 – 5 July 2024)
- 2nd: Due by 5 November 2024 (covers 6 July 2024 – 5 October 2024)
- 3rd: Due by 5 February 2025 (covers 6 October 2024 – 5 January 2025)
- 4th: Due by 5 May 2025 (covers 6 January 2025 – 5 April 2025)
At present, you do not need to provide any narrative, or balance sheet figures, or make any tax or accounting adjustments for these submissions.
EOPS (End of Period Statement)
EOPS is the process that allows the taxpayer to finalise their tax position for each trade or property business. This is the equivalent of the current SA103 and SA105 forms.
The EOPS is linked to the accounting period for each source of income. It cannot be completed until the end of the accounting period. However, the taxpayer does not need to complete it until 31 January in Year 2.
Please note that at this stage, this is not enough to finalise your tax affairs. This is because it only covers one element of the taxpayer’s income.;
Previously known as crystallisation, the Final Declaration brings together the details of all other factors. This includes business and non-business income, which will determine the taxpayer’s final tax liability for the tax year.
Unlike the Quarterly Submissions and EOPS, you only need to submit one Final Declaration per taxpayer – not per business. This replaces the usual Self Assessment tax return.
Taxpayers must submit a Final Declaration by 31 January, following the end of the tax year.
A digital link also applies to recapturing or modifying the data when moving it between two digital places.
HMRC says it will accept the following digital links:
- emailing a spreadsheet containing digital records, so the information can be imported into another software product
- transferring a set of digital records onto a portable device (e.g. pen drive, memory stick, flash drive) and physically giving this to someone else, who then imports that data into their software
- XML, CSV import and export, download and upload of files
- automated data transfer
- an API transfer
A digital link also includes linked cells in spreadsheets. For example, if you have a formula in one sheet that mirrors the source's value in another cell, then the cells are linked.
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