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Who does MTD for ITSA apply to?| How to Prepare for Making Tax Digital for Income Tax

Who does MTD for ITSA apply to?| How to Prepare for Making Tax Digital for Income Tax

Mike Wakeford

What is Making Tax Digital for Income Tax , and when is it being implemented?
Making Tax Digital (MTD) for Income Tax, also known as MTD for ITSA, was set up by HMRC as a new way for self employed business owners and landlords to report earnings and pay Income Tax.
HMRC is currently in the process of implementing MTD for ITSA, which was scheduled for 2024 but was pushed back last year, until April 2026. Self employed individuals and landlords with an income of more than £50,000 a year will have to comply with MTD for ITSA from that date. Those with an income of more than £30,000 but not more than £50,000 will have to follow the rules from 6 April 2027. There has been no further announcements on partnerships  

End of period statement
It had previously been announced by HMRC, that following the end of the tax year, an End of Period statement was required to report the final taxable profit for the year for a particular income source and in addition, a final declaration would then be required to present the taxpayer’s overall position for the year. The Government have since removed the requirement to submit an End of Period statement, meaning the final position for the tax year will simply be dealt with by way of the final declaration (which will be equivalent to the current income tax return).

How will MTD for ITSA impact you?
Storage of your records
One of the main changes with the MTD for ITSA initiative is that businesses will be required to hold all their records within this chosen HMRC-approved MTD software. HMRC want to make the process of completing your tax return and storing all the relevant information as easy as possible. Holding digital versions of your data will mean it's safely saved within your chosen software, making it much less likely to be lost. Making Tax Digital (MTD) has significantly changed the Income Tax Self Assessment (ITSA) process, making it easier for taxpayers to submit, store and process their records. This will help ensure the process is streamlined and efficient, making it more straightforward for taxpayers to comply with their tax obligations.

Whilst HMRC list a number of software’s on the MTD for ITSA guidance section of their website, our tax and business outsourcing team at Moore (South) recommend the use of Free Agent, Xero and Quickbooks. Our tax and business outsourcing team have the relevant experience and qualifications to be able to guide you to the software that is most suited to you and your business. 
Quarterly Updates
Under the new MTD for ITSA Rules, users are required to update their records via their chosen software every three months. Depending on what software you choose to work with, it should tell you when and how to send the updates. The Government website states that you must send a quarterly update within one month of the end of the standard quarterly period, it is important to not miss this deadline, or you may need to pay a late submission penalty.  
Standard quarterly period dates are:

Quarterly period

Quarterly deadline

6 April to 5 July

5 August

6 July to 5 October

5 November

6 October to 5 January

5 February

6 January to 5 April

5 May

The Government believes these quarterly updates will help ensure records are kept close to real-time. HMRC also hopes implementing quarterly updates will reduce common mistakes and the tax gap

Making Tax Digital Exemptions
There are two groups that will be exempt from MTD for ITSA: foster carers and customers without a National Insurance Number.

Foster carers will not be required to operate MTD for ITSA about receipts or qualifying care income. Those that are unable to obtain a National Insurance number will also be exempt from MTD for ITSA requirements.
Contact Moore (South)
Preparing for MTD for ITSA will be a big transition for many businesses and landlords across the UK. Moore (South)’s dedicated tax and business outsourcing team have successfully moved our clients impacted by MTD for VAT onto software suited to their business and are now ready to help clients meet the MTD for ITSA obligations.