Initial Thoughts on MTD ITSA

A blog by Ashley MacDonald

What is MTD ITSA?

Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA). So HMRC are looking to introduce a new way of submitting and filing your self-assessment income. In recent years they introduced online filing which now seems the norm and this new change will see additional filings in an attempt to have real time figures for your personal tax.

The change will mean that you will need to submit figures on a quarterly basis albeit draft figures with a final end of year submission to be completed. This being the filing that will supersede all the quarterly filings and replace your current self-assessment tax return.

The current structure means that as well as the quarterly returns you will be required to file separate returns for different trades and streams of income, suggesting if you have multiple income streams these will all be split into separate returns.

Initial Thoughts on MTD ITSA

When is it coming in to play?

This was due to be introduced in April 2023 but following disruptions with COVID this has been pushed back to April 2024.

Currently a similar scheme has been set up for VAT registered businesses with a turnover of over £85,000 and this next move will look to mop up all individuals who file a self-assessment tax return. Again, this will be phased depending on your circumstances.

Why is it changing?

HMRC are looking to move towards real time tax calculations. At present you will generally be filing your tax and paying for and tax due over a year after the income has been received.

If you were to have had a big sale on the 10th of April this would (potentially) fall into a new tax year which you wouldn’t need to declare until the following year. In fact, the deadline would mean it could be 21 months after you received that income before you pay tax on it.

HMRCs quarterly filings would see this income declared to them within 4 months (providing the filing deadlines would be similar to those of quarterly VAT returns) although initially the payment of taxes will remain the same. This would mean HMRC, and the client would be aware of the liability well in advance of the deadline.

Who benefits? HMRC / Individual / accountant?

HMRC – The pessimistic view is HMRC will benefit as they will look to have up to date figures that will mean in time, they will look to chase in tax earlier as well as have a better understanding of your current financial position. A lot of businesses I have spoken to are unsure why HMRC need to know their quarterly figures and what they will use them for, especially those who have seasonal fluctuations, and it will be interesting to see where HMRC go with this.

Individual – for the exact same reasons above and how HMRC will benefit, as an individual having access to real time figures puts them in more control of their finances. Rather than waiting all year wondering what the results might show and how much tax will be due the quarterly returns will give the individual have a better understanding all round. If, HMRC were to then look at quarterly tax payments in the future then again this could be seen as a positive for cashflow purposes as more manageable figures would be due more regularly.

Accountant – From an accountant and business point of view our workload has potentially increased 5-fold for all our self-assessment clients. This will obviously be a strain on resources but also lead to increased charges to clients. Honestly this isn’t something we are happy about but isn’t something we can control. Being realistic we will be filing something 5+ times a year compared to once a year and with that we will be spending more time and this time will have to be charged. It will lead to a natural growth in our businesses but for some I do wonder if this is a manageable growth.

How I see it going

My honest opinion is that whatever product HMRC come out with will have to be simple and easy to use, I know cloud-based software companies are already working hard in the background to develop products that will help with all filings and this will no doubt be the way in for many. Much like filings for VAT returns I have seen demos of bookkeeping software that will help report quarterly figures for ITSA.

The extension from 2023 to 2024 should help iron out the creases and I fully expect the goal posts to move a few times in the next 18 months, this is something that is coming, and we need to be ready for it.

My advice is to those who have small businesses and trades look into accounting software solutions and be ready otherwise moving onto software and managing a new quarterly submission process will be a huge shock to the system. Turn what looks to be a negative into a positive for your business.

How can we help?

If you would like to discuss MTD for ITSA further or possibly look at ways you could update your current bookkeeping systems, please contact one of our client managers via email or call us now on 01284 755956.