MTD ITSA Revised

Last week an update was given for MTD for ITSA (Making Tax Digital for Income Tax Self Assessment) reporting requirements.

The update sets out the categories of income and expenses that are required to be reported in the quarterly updates. The categories are repeated in the end of period statements (EOPS) for the particular business. The EOPS will also require additional information, such as capital allowances and accounting adjustments.

For most businesses, the income and expense categories in their quarterly updates and EOPS are an exact copy of the boxes on the self-assessment pages that are currently filled in.

This means that the recording and analysing of income and expenses currently undertaken for the self assessment tax return will be exactly the same as what is required for Making Tax Digital (MTD), except the data must be recorded and manipulated digitally.

The quarterly updates must be submitted for tax year quarters to; 5 July, 5 October, 5 January, and 5 April. Taxpayers will be able to elect to report for the calendar quarters to; 31 March, 30 June, 30 September, and 31 December, but no other pattern of quarterly reporting will be permitted.

The update makes it clear that businesses with annual turnover below the VAT registration threshold (frozen at £85,000 until April 2024) will be able to submit a simplified quarterly update compromising only two figures; total income and total expenses. This two-figure reporting is also used in the EOPS for businesses that use the simplification. 

The advantage is that small businesses won’t have to analyse their trading expenses between 14 different categories, but can instead record all of their costs in one column on a spreadsheet, and all their sales in another column. The totals of those two columns are then included on the quarterly update. This must be submitted to HMRC using some form of MTD-compatible software.

All types of businesses, including landlords, can take advantage of this simplification. However, landlords of residential property will need to separately report their property finance costs in order to claim the 20% tax credit given in place of a deduction for those costs.

This notice makes it clear that once the business transactions have been recorded digitally any further work on that data – modification, transfer or recapture – must be performed digitally.

If you have any questions regarding this then please do get in touch.