From April 2024, landlords and self-employed workers that earn qualifying income of more than £10,000 per year will have to deal with a new system for reporting their income tax. Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) will mean that tax return submissions must be made more frequently and will involve greater use of digital technology.
Under the new system, tax returns must be submitted to HMRC on a quarterly basis every three months, as opposed to the annual reporting system currently in place, as well as a fifth return at the end of the year. Furthermore, these quarterly returns must be submitted using cloud-based accounting software, while self-assessment customers will also need to keep tax records digitally in order to enable more frequent submissions.
Making Tax Digital not only covers MTD ITSA, but also MTD for UK VAT – which will apply to VAT-registered businesses with taxable turnover of more than £85,000 and comes into force in April 2022 – and MTD Corporation Tax – which will apply to businesses and organisations within the Corporation Tax charge and is scheduled to be implemented in 2026.
As a whole, the MTD system is designed to improve the efficiency and accuracy of tax filings. It is hoped that it will help taxpayers better understand how they can budget for tax bills, which could in turn help to ease the burden that unpaid tax puts on the government (unpaid tax was calculated at more than £8.5 billion in the 2018/19 tax year).
Anybody who earns more than £10,000 per tax year through self-employed work or rental will need to register for MTD ITSA. Once the scheme is up and running, turnover figures will be calculated based upon the most recent tax return and the scheme cannot be exited until turnover of less than £10,000 has been recorded for three consecutive years.
There have been widespread concerns that many self-employed workers are either unprepared for the changes or even unaware that the new system is set to be implemented in 2024. In order to help self-assessment taxpayers become more comfortable with the system, people can voluntarily sign up for MTD ITSA from April 2022.
Author: Steven English
28.01.2022
