The introduction of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) is set to commence from April 2024. This means that clients who have not yet prepared for the change have less than 18 months to choose and begin using approved software.
What is the Making Tax Digital for income tax self-assessment?
MTD for ITSA is a new initiative by the HMRC to digitise the process of submitting property and self-employed tax. In order to register for MDT, you need to be making use of accounting software that can store and send digital records to the HMRC. Not using any accounting software at the moment? Check out our post on the top 6 accounting software available in the UK.
Why is the HMRC implementing the MTD for income tax?
- HMRC wants to become the most digitally advanced tax system in the world
- More efficient, more effective and, easier for taxpayers to get their tax right
- Send income tax updates digitally instead of submitting a self-assessment tax return.
- Will be a real-time system which will allow you to keep track of how much tax you owe.
How will MTD for income tax work?
MTD for ITSA will fundamentally change the way businesses, the self-employed and landlords, interact with HMRC. The regime will require businesses and individuals to register, file, pay and update their information using an online tax account. The rules will initially apply to taxpayers who file Income Tax Self-Assessment tax returns with business or property income over £10,000 annually.
General partnerships will not be required to join MTD for ITSA until a year later, in April 2025. The date other types of partnerships will be required to join will be confirmed in the future. A new system of penalties for the late filing and late payment of tax for ITSA will be aligned with the introduction of MTD for ITSA.
The MTD regime started in April 2019 for VAT purposes when businesses with a turnover above the VAT threshold were mandated to keep their records digitally and provide their VAT return information to HMRC using MTD compatible software. Since April 2022, MTD has been extended to all VAT registered businesses with turnover below the VAT threshold of £85,000.