Making Tax Digital for income tax self-assessment (MTD for ITSA) will see most self-employed taxpayers change how they report their business’s taxable profits from April 2024.
This point marks the start of the second iteration of the Government’s flagship scheme to digitise the way everyone pays tax, following the launch of MTD for VAT in April 2019.
At Dunkley’s, we make no secret of the fact we’re cloud accounting specialists and this enables us to keep our clients ahead of the ball when it comes to Making Tax Digital.
Most self-employed taxpayers already use HMRC’s online services to submit their personal tax returns on or before midnight on 31 January each year. But MTD for ITSA goes further than this.
Who does it affect?
Like VAT-registered businesses, sole traders and landlords will need to use HMRC-approved software for their accounting, and not just at the end of January.
Most unincorporated businesses in the UK with taxable profits of £10,000 a year or more will need to report their income and expenses under MTD for ITSA from 6 April 2024. General partnerships will follow suit a year later, in April 2025.
For example, if you have £8,000 of rental income and a further £2,500 of trading income in the 2024/25 tax year, you will need to report this taxable profit under MTD for ITSA as your total will exceed the £10,000 threshold.
How will MTD for ITSA work?
If your business has profits that exceed the £10,000 threshold, you will need to send a summary of your business income and expenses to HMRC using MTD-compatible software every three months.
HMRC will then send you a tax estimate based on the information you supply. This should help every business budget for their tax bills well in advance of the 31 January payment deadline.
At the end of the calendar year, you can add any non-business information and finalise your tax affairs using software. This will eventually replace the need for a self-assessment tax return.
What are the filing deadlines?
From 6 April 2024, the quarterly filing deadlines for most unincorporated businesses filing under MTD for ITSA will be:
- 5 August
- 5 November
- 5 February
- 5 May.
Unincorporated businesses with accounting period end dates of between 31 March and 4 April should also prepare to use these quarterly deadlines to file their returns.
Which is the best software?
There are plenty of cloud accounting options out there to choose from, but we’ve whittled it down to four – FreeAgent, QuickBooks Online, Sage Business Cloud, or Xero.
Each offers something slightly different to cater for businesses at different stages of their journey. For example, we might recommend Sage Business Cloud for startups and small businesses and Xero for growing businesses.
If your business stands to be affected by this and has yet to make the move to the cloud, email firstname.lastname@example.org or call us on 01454 619900 to find out how we can help you prepare.