Making Tax Digital - Self Assessment

The idea of MTD was initially announced by HMRC back in 2015, where key parts of the tax process are moved to a more efficient and streamlined digital process. The first tax to go digital was VAT, and in 2019 we enabled businesses to submit their VAT returns as part of MTD.

Initially, businesses with a taxable turnover above the VAT threshold of £85,000 were required to sign up for MTD for VAT. Businesses under the threshold are allowed to do so voluntarily.

However, as of April 2022, this will become a requirement for all VAT-registered businesses, meaning businesses will have to submit a VAT return using the HMRC MTD link while maintaining a digital link with the original data.

Following in the footsteps of MTD for VAT

Following the introduction and rollout of MTD for VAT, HMRC aims to launch MTD for ITSA (Income Tax Self Assessment).

MTD for ITSA will come into effect as of April 2024 (subject to change) for unincorporated businesses and landlords with a total business or property income above £10,000 per year. This date, just like the initial MTD for VAT timescales, has been pushed back several times before, watch this space for updates.

Similar to the introduction of MTD for VAT, there will be a soft launch initially, with most businesses benefitting from a two year “prepare and test” service before it’s more widely introduced.

How will MTD for ITSA work?

Those who use the scheme will be required to submit a quarterly summary of their business income and expenses using MTD compatible software, such as QuickFile.

As a result of sending this to HMRC, an estimated tax calculation will be sent in response, helping you improve your budgeting for any tax that will be due.

In addition to the quarterly summary, one final year-end submission has to be made, where you can also add any non-business information, including other income sources, such as:

  • employment income
  • dividends
  • bank or building society interest
  • student loan repayments
  • gift aid
  • pension contributions
  • and more

This process will replace the need for a Self Assessment tax return, so it’s all done in one place.

How does MTD affect Self Assessment deadlines?

The deadlines won’t be changing. All that will change is a new quarterly submission will be required and that your end of year submission (“self assessment”) will be submitted through MTD compatible software.

The timing of the quarterly submissions is decided by the start date of the tax year, so you’ll have the following periods:

  • 6th April to 5th July
  • 6th July to 5th October
  • 6th October to 5th January
  • 6th January to 5th April

How is QuickFile preparing for MTD for ITSA?

We’ve been gearing up for this for quite some time, right back to the initial launch of the MTD Periodic Reports in 2017.

We understand how important this scheme is for businesses who have to use the new setup. We’re working hard behind the scenes to bring you new tools and reports to help you stay on top of the quarterly summary and other aspects of Making Tax Digital.

We are more than happy to answer any questions you may have regarding our support for this scheme - just let us know below.

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When filing a quarterly MTD Periodic Report this will report Profit/Loss but not include Capital Allowances as these have usually been dealt with annually. The tax liability calculated will be over estimated without including an adjustment on a quarterly basis.

Will there be a way to include an estimated quarterly Capital Allowance when submitting the Periodic Reports to HMRC?

Not sure about this as yet. HMRC have stated that they are not looking to collect tax on a quarterly basis but i suspect they may change their mind!

We will need to advise clients on whether to change their accounting year ends before April 2024 - could be quite messy and there is a 5 year period to pay overlap relief taxes. I will dig out some some detail and post when i have the chance. Most year end should be 31st March or 5th April to match the tax year.

Hi @alan_mcbrien

Adjustments and allowances are submitted annually as part of the End of Period Statement.

Quarterly filings just provide an estimate of the tax due allowing you to budget, so I don’t believe the capital allowance will come into play with this.

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Hi Matthew, Glenn and the team…kudos to you all for planning ahead with this major change for sole traders and partnerships. Those businesses with year ends 31st March, 1st, 2nd, 3rd, 4th of April will be deemed to be 5th April year ends and therefore tie into the tax year. From 6th April 2024 MTD for ITSA will be law and the quarterly reports as noted above by Matthew will need to be submitted.
Those businesses with different year ends to the tax year will have complex rules - https://www.accountingweb.co.uk/tax/business-tax/tax-year-basis-is-law-but-problems-remain

Limited Companies will join the MTD system from 2026 at the earliest.

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Since MTD for the self employed and for those with property income was announced I have been reading as much as I can about it.
The total joint income threshold of just £10,000 (Self employment turnover plus property rental income), will put 20+ of our clients into that bracket… So we will have to migrate those from our own system into quickfile.
We have started the preparations and have many unanswered questions, the main one is as follows:

When a self employed person with a £8,000 turnover who also has a property producing £7,000 rent, has exceeded the £10k threshold for MTD so switches to Quickfile for the self employment how does he/she report the property rental?

The property rental has to be kept separate from the self employment so will quickfile have a separate place on the quarterly submissions for the rent and the odd rental expense as these only require a few entries?

Just been reading on AccountingWEB news about the five business types that MTD Periodic Updates quarterly reports will be required…MTD ITSA legislation: HMRC green-lights three-line accounts | AccountingWEB

The “business types” in MTD Report Settings do not presently include all five types…perhaps something to review and include before this is a requirement by HMRC.