Will Farmer FMAAT 
January 14, 2022

Making Tax Digital for Self-Assessment (MTD for ITSA)

Introduction

Making Tax Digital (MTD) is set to be extended by HMRC to cover Self Assessment tax returns (MTD for ITSA) from April 2024 having been successfully implemented for VAT and other taxes.

This will have signficant implications for how Self Assessment tax returns are prepared and filed for businesses, individuals and landlords with a total turnover above £10,000 per year.

Making Tax Digital for Self-Assessment (MTD for ITSA)

Under MTD for ITSA it is proposed that the current Self Assessment tax return will be replaced by five new reporting obligations made during and after the tax year. There will be quarterly updates required and a year-end "end of period statement" (EOPS).

Quarterly updates plus an "end of period statement" (EOPS) must be submitted to HMRC, adhering to the following dates:

- Period 1  - 6th April to 5th July - Deadline of 5th August

- Period 2 - 6th July to 5th October - Deadline of 5th November

- Period 3 - 6th October to 5th January - Deadline of 5th February

- Period 4 - 6th January to 5th April - Deadline of 5th May

- End of Period Statement (EOPS) - 6th April to 5th April - Deadline of 31st January

MTD for ITSA is due to commence for accounting periods starting on or after 6th April 2024 for self-employed businesses, individuals and landlords with total turnover above £10,000 per year.

Digital records of all transactions will be required. These records will form the basis of the quarterly updates. Accountancy Software such as Xero (www.xero.co.uk) is a vital tool in this respect.

Most businesses will have two years to prepare and test MTD for ITSA voluntarily prior to its introduction.

Tax Payments

The tax liability will need to be paid by 31st January of the following year (as is currently the case). It is possible in future that tax payers will be required to make four payments per year on account.

Penalties

There will be no late filing penalties for at least a year while the new system beds in. After that, penalties will be applied for late returns.

Penalties will apply for errors in returns or documents (as is currently the case).

Exemptions from MTD for ITSA

- Non-resident companies.

- Trustees, executors and administrators.

- Foreign businesses of non-UK domiciled individuals.

- A limited number of individuals and businesses considered "digitally excluded."