With the first phase of Making Tax Digital now rolled out to all VAT registered businesses, the next milestone is on the horizon and quickly approaching. Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will be live from April 2024 and it comes at the same time as changes to the basis period reform.

What’s changing?

From 6 April 2024, MTD for ITSA will be mandated for individuals with a total gross income from self-employment and property exceeding £10,000 in a tax year. Businesses and landlords will be required to submit quarterly returns to HMRC using MTD-compatible software, with the standard quarterly periods aligned to the tax year. However, businesses can choose to submit updates based on fixed calendar quarters (i.e. 31 March, 30 June, 30 Sept, 31 Dec), instead of the standard quarterly periods (5 April, 5 July, 5 Oct, 5 Jan).

What do I need to do?

Taxpayers affected by the new rules will need to keep digital records of their income and expenditure transactions in order to report these within their quarterly returns. For businesses with turnover over the VAT threshold of £85,000, this includes details of which “category” the transaction falls into, and HMRC has provided guidance on what these categories are. At the end of the accounting period, businesses over the VAT threshold will also be required to reconcile income less expenses to taxable income; further details on this are expected in due course.

Like MTD for VAT, early preparation and implementation is key for a smooth transition to MTD for ITSA. Many businesses will already have transitioned or be transitioning to a more digital way of working. If, however, you are not already operating a compliant digital software solution to keep records and submit returns, we recommend selecting and implementing this as soon as possible. It’s important not to underestimate how long it can take to choose a new software and embed new processes, so doing this sooner rather than later ensures that you will be comfortable and compliant ahead of the deadline, avoiding last-minute concerns and potential penalties.

We’re here to help

Our specialist Private Client Tax team can support you through the transition to MTD for ITSA and ensure you are reporting the right information in the right way.

Our Digital Advisory team have also been helping businesses of all sizes prepare for MTD for some time now and can guide you on the most compatible software solution if you haven’t considered this yet.

If you have any queries or for more information, please don’t hesitate to get in touch with me at senga.prior@jcca.co.uk, or Alex Docherty.