This summer has seen a fl urry of activity on the Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) front. HMRC released four draft notices in July 2022 for a short-lived consultation, followed by guidance at the end of August on who can sign up, and how those signed up should meet the requirements. The July notices, which will form the tertiary legislation for MTD for ITSA and specify the proposed dataset requirement, covered the following:
- confirmation that any transfer, recapture, or modification of a digital record entered within functional compatible software “must happen digitally and not manually”;
- confirmation on how information is to be provided in a quarterly update; the information that should be provided in an End of Period Statement;
- and the information that should be included (or excluded) in a gross daily retail sales digital record.
But have any of these recent updates clarified issues for practitioners and their clients? Jon Martingale, group product manager at cloud-based accounting software firm FreeAgent, says the updates “will have little impact on the self-employed, the majority of whom will still need to be ready for the legislation in April 2024”.
Meanwhile, Stephanie Court, tax director at accountancy firm RSM, says: “While the available MTD guidance from HMRC is still woefully lacking in practical detail, the framework for MTD has been established – and practitioners should consider how they will manage their business practices and support clients, including whether changes should be made sooner rather than later.”
Quarterly submission information
A number of notices were published by HMRC on 1 July which set out the detail to be reported on the quarterly updates under MTD for ITSA,” Court notes. For the self-employed reporting trade profits, the quarterly submission information required “essentially mirrors the income and expenses boxes from the tax return pages”.
However, Court explains, “where an individual has turnover below the VAT threshold, they can choose to provide the total of all income and all expenses instead of categorising in detail. While this might make quarterly submissions simpler, the income and expenses will still need to be categorised fully for the End of Period Statement, along with relevant tax adjustments, so this could create more work later.” What to do now? Crucially, will practitioners need to Image: iStock alter their client management strategy in the light of the new releases?
“Every practice is different, so naturally their clients’ requirements are also likely to be different,” says Martingale. “It’s therefore important for practitioners to look carefully at their own business and determine whether changes are needed to the way they manage their clients – and plan accordingly for how to implement these.”
“Practitioners and business owners should make sure they are aware of how and when MTD for income tax will affect them, and whether steps need to be taken in readiness to meet the record keeping and fi ling requirements that will shortly be placed on them,” Court advises.
Some software companies, such as FreeAgent, have been inviting accounting firms to sign up to their MTD for ITSA pilot scheme so they can “test and learn” their own client management strategy ahead of April 2024.
“To them, testing the HMRC and [the software companies’] systems is very much a secondary consideration,” Martingale explains. “It gives all three parties involved – the software firm, the adviser, HMRC – great insight into what works well and what does not, while there’s still time to make changes to processes and upskill staff and clients.” Although he believes many advisers have been given enough time to plan for MTD for ITSA, Martingale adds: “Advisers should start preparing sooner rather than later. At the risk of slipping into adage, the best time to start planning was last month. The second-best time is now.”
REQUIREMENTS
From 6 April 2024, MTD for ITSA will apply to unincorporated businesses and landlords with business and/or property income over £10,000. They must use MTD-compatible software to keep and preserve business records digitally, send quarterly updates of their records to HMRC, and submit an End of Period Statement to HMRC. HMRC will publish guidance “later [this] year” explaining how to refl ect any accounting and tax adjustments required to reconcile quarterly submissions to the fi nal taxable profi ts for the year.
WHEN TO SIGN UP
Eligible taxpayers with a qualifying income of over £10,000 will need to submit their 2022/23 self-assessment tax return by 31 January 2024, and HMRC “will write and confi rm [they] must meet the MTD for ITSA requirements”. Those becoming self-employed or landlords after 6 April 2023 do not need to sign up until after submitting their fi rst self-assessment tax return. Partnerships do not need to sign up until 6 April 2025.
