So far thousands of businesses across the UK have been getting to grips with Making Tax Digital (MTD).

This requires organisations to record and report tax information digitally each quarter using HM Revenues & Customs (HMRC) compliant software.

This is the first stage in HMRC’s strategy to digitise the UK tax system and has so far only applied to VAT.

However, from April 2024, HMRC will roll out MTD for Income Tax Self-Assessment (ITSA). This will affect more than 4.2 million taxpayers with business and/or property income of £10,000 or more.

The clock is ticking on this landmark change and now is the time to act.

Who is affected?

Perhaps one of the most significant changes for sole traders, partnerships, landlords and property investors is the introduction of MTD for ITSA.

This will require the self-employed and landlords with combined annual gross business and/or property income above £10,000 to comply with MTD from April 2024 by recording and reporting their income using HMRC-compliant software every quarter.

Crucially, this applies to gross income or turnover, rather than profits.

However, the £10,000 threshold only applies to income declared on a 2022/23 Self-Assessment Tax Return. Trading income or property income below £1,000 would not be taken into account for the threshold if it was not included on the Self-Assessment Tax Return. Likewise, Rent-a-Room income below £7,500 that was not included on the Self-Assessment Tax Return would not be taken into account.

Someone mandated into MTD for ITSA as a result of their 2022/23 Self-Assessment Tax Return will not be exempt from MTD for ITSA in future years until their income falls below £10,000 for three consecutive years.

This will come into force in the tax year beginning April 2024 for the self-employed and landlords, and April 2025 for all other ITSA taxpayers, such as general partnerships.

What do you need to submit?

If this change affects you, you will need to complete four quarterly submissions, plus an annual return digitally.

According to the latest information from HMRC, taxpayers within the scope of MTD for ITSA must keep digital records of each transaction, including details of which category each of their transactions falls within and the total amount of income in each category.

Speak to our team today to find out how software can help you prepare for MTD for ITSA.