Under Making Tax Digital for Income Tax Self Assessment (MTD for ITSA), you need to submit quarterly returns to HMRC, which sounds like a lot of work. However, there’s good news: the quarterly reports are cumulative, meaning each one builds on the last, and they’re then sent as a report of the tax year so far, rather than three months in isolation.
However, this is a new way of working for many of us, which means there are questions about how it works and what needs to be done.
What does “cumulative” actually mean?
When using MTD for ITSA, qualifying sole traders and landlords must keep digital records and send regular updates to HMRC throughout the tax year, rather than submitting a single Self Assessment after the year ends.
The cumulative aspect comes in because each report isn’t a snapshot of the quarter on its own. Rather, every update restates your income and expenses for the tax year to date. This sounds complex, so let’s break it down a little:
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First Update: covers the period from the start of the tax year to the end of the first quarter
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Second Update: covers the start of the year through to the end of the second quarter (including the first quarter’s figures again)
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Third Update: covers the start of the year through to the end of the third quarter (including the figures from the previous two quarters)
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Fourth Update: Covers the full year to date
Put another way, the submissions are a running total. Each submission is a complete picture so far, rather than disconnected snapshots.
Why is this a good thing?
This sounds like a lot more work than submitting a final report at the end of the year, so why is this seen as a good thing?
Simply, it’s easier to correct mistakes as you move through the year.
Imagine you missed an expense or failed to correctly categorise your income. Rather than re-opening the report, correcting the error and re-submitting it to HMRC, you can simply correct it in the next report. The cumulative update then carries the corrected year-to-date totals to HMRC.
Therefore, you’re not expected to get it right on the first attempt. Your figures are a work in progress until your final submission at the end of the year, which should include all the corrections made as the year has progressed.
How am I supposed to keep on top of my records?
As a sole trader or landlord, you might have found in previous years that you don’t need to keep on top of everything all the time. As long as it’s all there at the end of the tax year, there was no pressure to keep on top of it then and there.
However, with cumulative updates, you now need to ensure your records are current and consistent throughout the year. This means there’s no big push at the end of the year to get everything in order in time for the deadline.
Keeping on top of your accounting is made simple with QuickFile, from income to expenses, you can see and track everything all in one place. For more information on the solutions we can offer you, check out our website.
What isn’t changing with cumulative updates
Cumulative updates simply change how you report to HMRC, not what you report or whether you owe any tax. In other words, cumulative updates:
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Are not bills: any tax estimates based on cumulative updates are indicative only. You can use these estimates to predict the amount of tax you will owe at the end of the tax year, but they are not demands for payment.
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Don’t move your payment date: your income tax due date is governed by the existing rules, not by the quarterly update schedule.
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Don’t replace the finalisation: the quarterly updates are not the whole picture of your self assessment. Your finalisation still brings in anything that sits outside the quarterly summaries and then accounts for reliefs and adjustments.
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Don’t include multiple businesses: if you need to provide quarterly updates for multiple businesses, these need to be done individually.
Can QuickFile help with quarterly updates?
Yes, QuickFile can help with quarterly updates. We allow you to track income, expenditure and payments within your account. You can then categorise your income and expenditure in line with your reporting requirements: UK Property Reporting Categories or UK Self Employment Reporting Categories.
When it comes time to submit your quarterly update, simply follow the steps outlined in the relevant video on our YouTube channel: Submit a UK Property Cumulative Update in QuickFile or Self Assessment Completing your Cumulative Update.