Are you ready for MTD for income tax?

by | Apr 21, 2022

Making Tax Digital for income tax self-assessment (MTD for ITSA) will be compulsory for certain individuals from April 2024. Although that may seem far away, now’s the time to get ready.

MTD for ITSA is the Government’s flagship policy to digitise the UK tax regime and will be introduced in April 2024.

It was supposed to arrive in April 2023 until the Treasury delayed it by a year to give people a chance to get their finances back in order after the pandemic.

The new system will require you to follow new rules with digitalisation at the core, changing the way tax is done. It’s therefore in your interest to get ready sooner rather than later to start feeling the benefits of MTD for ITSA as soon as possible.

Who will MTD for ITSA affect?

MTD for ITSA will affect most self-employed taxpayers with business or property income above £10,000 a year. For now, general partnerships are excluded.

Under MTD rules, unincorporated businesses will have to file quarterly returns on 5 August, November, February and May pluss an annual end-of-period statement on 31 January after the relevant tax year.

From 6 April 2025, most unincorporated business partnerships that have business or property income will have to abide by MTD for ITSA.

When all partnerships, including limited liability partnerships, will have to follow MTD rules is unclear.

Software for MTD

To stay compliant with MTD rules, you will need to invest in cloud accounting software that is also compatible with MTD.

HMRC has a full list of software that you can use. Fortunately, the most popular brands of software, including Xero and Sage, are included on that list.

You will use this software to maintain your business records, prepare your quarterly updates, finance your business income and communicate with HMRC.

You should get advice from us as to which cloud accounting software will suit your needs, as the programmes can do much more than just MTD.

What else you need to know

MTD started with MTD for VAT in April 2019 for VAT-registered businesses with a taxable turnover above £85,000 (the VAT-registration threshold).

Businesses below the registration threshold were recently mandated to follow MTD rules from 6 April 2022. Contact us for more information if you’re struggling with your new obligations.

After MTD for ITSA begins, MTD for corporation tax will kick in from April 2026 at the very earliest.  If you have any questions or wish to talk to us about any aspect of MTD please call us on 020 7330 0000.

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