Changes to Self Assessment filing – delayed but on their way
In previous news articles, we have mentioned HMRC's plan to introduce Making Tax Digital for Income Tax and Self Assessment (MTD for ITSA). This was initially due to come into effect in 2023. However, due to the Covid pandemic, this was put back to 2024, but it has now been delayed until April 2026. The criteria for who will be affected have also changed.
MTD for ITSA will require many self-employed individuals and property landlords to submit digital tax returns quarterly instead of annually. The new system aims to make tax reporting more efficient, accurate, and timely. Here's what we know so far about the new rules.
Who is affected?
The rollout of MTD for ITSA will take place on two key dates:
From April 2026, it will apply to individual taxpayers with an annual income of £50,000.
From April 2027, individual taxpayers with annual revenue between £30,000 and £50,000 must comply.
HMRC is currently reviewing when partnerships will be brought into the scheme. They are also assessing what will happen to individual taxpayers with an annual income of less than £30,000.
What is Making Tax Digital?
Making Tax Digital is an HMRC initiative to digitise the tax system in the UK. It was first introduced in 2019 for VAT registered businesses, requiring them to submit VAT returns digitally. The new rules for MTD for ITSA will extend the digital reporting requirements to a broader group of taxpayers.
What are the new rules?
Under the new rules, self-employed individuals and landlords must keep digital records of their business or property income and expenses. These records must be maintained using MTD-compatible software. Using this software, taxpayers must submit a summary of their income and expenses to HMRC every quarter, not annually, per the current Self Assessment rules.
The deadlines for the quarterly submissions are as follows:
5 August for the period from 6 April to 5 July
5 November for the period from 6 July to 5 October
5 February for the period from 6 October to 5 January
5 May for the period from 6 January to 5 April
At the end of each tax year, taxpayers can make HMRC aware of any accounting adjustments or allowances that need to be made. They must also submit an End of Period Statement and a final declaration of their tax position by 31 January. Any tax owed to HMRC will need to be paid by 31 January.
Taxpayers cannot manually log their income and expenditure onto their income tax return or copy and paste the information. The tax return can only be submitted using a digital link between their software and HMRC.
Further requirements for MTD for ITSA compliance
In addition to meeting the compliance criteria set out above, taxpayers who are caught under the new MTD for ITSA rules should also be aware of the following points:
Self-employed people who are also VAT registered will need to comply with both MTD for VAT and MTD for ITSA.
Landlords with private, commercial, or furnished holiday lets, whether in the UK or overseas, must comply with MTD for ITSA.
Taxpayers with more than one business, such as an electrician with income from a holiday let, must submit separate records for each business. This also applies where different property businesses are trading.
What software is required?
To comply with the new rules, taxpayers must use MTD-compatible software to maintain their digital records and submit their tax returns. This software can be a standalone accounting package, or if they prefer to use Excel spreadsheets to log all their income and expenditure, they may be able to use MTD compatible bridging software. This software will digitally link their spreadsheet to HMRC's online MTD for ITSA platform.
What are the benefits of Making Tax Digital?
While the above changes can seem daunting on first inspection, the introduction of MTD for ITSA has several benefits for taxpayers. The main benefits include:
Reduced errors: The digital system is designed to minimise errors in tax reporting. Maintaining digital records and submitting tax returns digitally reduces the risk of errors.
Real-time information: The MTD system provides real-time information to HMRC, which enables them to monitor tax compliance more effectively.
Improved accuracy: Digital records are more accurate than manual records, which can be subject to human error. By maintaining digital records, taxpayers can ensure their tax reporting is more accurate.
Better cash flow management: By submitting quarterly tax returns, taxpayers can manage their cash flow more effectively, as they will better understand their tax liabilities throughout the year.
In conclusion, the new MTD for ITSA rules will significantly impact many self-employed individuals and landlords in the UK. While the new regulations may seem daunting, they offer several benefits, including reduced errors, improved accuracy, and greater efficiency.
How can Finch Tax help?
We would be happy to discuss the new MTD for ITSA process and to help you make the transition as seamless as possible. Please don't hesitate to contact Rhoda Cooper at firstname.lastname@example.org or call us for a no-obligation discussion at 0116 216 7681.