MTD ITSA / MAKING TAX DIGITAL FOR INCOME TAX (Sam Bacall)
CHANGE IS COMING!!
WHO WILL IT IMPACT & WHEN?
From April 2024 individuals with business and rental income over £10,000 per annum will need to make quarterly reports under Making Tax Digital for income tax (now dubbed MTD ITSA). This will include many sole traders and landlords.
General partnerships with income greater the £10,000 will be required to comply in the same way from April 2025.
There are limited exemptions, which must be applied for with HMRC. Click here for more information.
- Business records (income & expenses) to be kept digitally. These can be kept using an accounting software such as Xero or Sage.
- Quarterly updates to HMRC for each type of income (business or property). The deadlines for submitting quarterly updates will be the same for everyone, 5th August, 5th November, 5th February and 5th May. Submissions will be able to be made via accounting software.
- An annual end of period statement (EOPS) along with a final declaration that replaces the current Self-Assessment tax return. You’ll have to submit the EOPS and final declaration and pay the tax you owe by 31st January of the following tax year.
BASIS PERIOD REFORM
WHO WILL IT IMPACT & WHEN?
This will be taking place alongside but separate to Making Tax Digital and will impact all unincorporated businesses, such as sole traders, even if they don’t meet the requirements for Making tax Digital.
These changes will come into place in the 2024/2025 tax year, but will need planning for beginning from April 2023.
From the 2024/25 tax year, all business profits subject to income tax, will be assessed on the profits arising in the tax year to 5th April, no matter when their accounting period ends.
Currently businesses are taxed based on when their accounting periods end. For example, profits from a business period ended 31 August 2021, will be treated and taxed as the 21/22 tax year profits.
The reforms will accelerate tax payments for many businesses. Going forward, businesses whose accounting period does not run to 5 April or 31 March, will have a shorter period to finalise their figures.
For example, accounts currently made to 31 May have 21 months before the filing deadline, but in future they will have 10 months.
Those businesses whose period end doesn’t currently line up with the tax year, will use 2023/24 as the transition period. This will mean either putting together sets of accounts: one up to the end of the existing basis period, and transitional accounts drawn up to 31 March 2024. Or accounts could be drawn up for the full period.
Any overlap profits from when the business was established will be deducted from the transition period profits, leaving the taxable, transitional amount.
Because this is likely to create larger tax bills, HMRC will be offering transitional relief, allowing these businesses to pay the tax over 5 years.
If you need assistance with Making Tax Digital for Income Tax (MTD ITSA), please get in touch with the team at FFT. Click here to get in touch