Making Tax Digital review for small businesses

Under the government’s original plans, anyone required to submit Income Tax Self-Assessment returns to HMRC would have been obligated to sign up for the Making Tax Digital (MTD) service by April 2024 – but the implementation of MTD for ITSA has since been delayed until April 2026.

Switching to the online tax service will initially be mandatory for landlords and self-employed earners with income over £50,000 a year, while those with annual income below this but above £30,000 will be required to join from April 2027.

Before setting a deadline for extending MTD to smaller businesses earning less than £30,000 a year, the government conducted a review to consider how this might affect the needs of small businesses.

The outcome of the MTD small business review is the announcement that there are no plans to extend MTD for ITSA to landlords and the self-employed earning below £30,000 a year for the foreseeable future – though this may be reviewed again.

Here’s a short guide explaining what self-employed workers and landlords should know about current changes to MTD for ITSA.

How MTD for ITSA works

Making Tax Digital is the official campaign moving small businesses and self-employed individuals over to the government’s new online tax system, scrapping paper tax returns to improve efficiency and reduce tax fraud.

This involves registering for the MTD service when requested, depending on the type of earnings, economic activity, and specific taxes that apply. HMRC has been rolling out its implementation gradually to give people to adjust to these changes.

Once registered and mandated to use the service, businesses and individuals must submit the requested financial information and updates using MTD-compatible software instead of submitting an annual tax return online or by post.

Quarterly updates with accurate income reports will allow taxpayers to estimate the tax bill they’ll have to pay at the end of the year, so they can budget in advance.

A date has still not been set for general partnerships (with individuals), non-general partnerships (with corporate partners), or limited liability partnerships (LLPs) to join.

Changes to reporting income

Some changes to the obligations for reporting income under MTD for ITSA were also announced in the executive summary of the Autumn Statement 2023.

Instead of requiring an end-of-period declaration and a separate final declaration for year-end reporting, there will now be one final declaration. Removing the end-of-period statement should reduce confusion and administrative burdens.

Quarterly reports will also now be cumulative, so each update will include information from previous quarters to build a full summary of the year’s income and expenditure to date. Businesses can correct previous details with each report instead of resubmitting.

Additionally, landlords who jointly own property can maintain less detailed records for these properties to simplify transferring digital records between owners, and are free to not submit quarterly expense updates for jointly owned properties if they choose.

However, records for jointly owned properties must still be submitted before landlords can finalise their reports and tax positions at the end of the year.

Concerns about MTD for ITSA

Despite the government’s efforts to make the MTD process simpler for everyone who will have to use it, many people are still concerned that HMRC has lost sight of taxpayer needs – as shown by its design flaws, missed deadlines, and spiralling costs.

HMRC has shared an online guide to MTD for ITSA explaining when to sign up and how to use it. Even if you don’t qualify for mandated registration, you may still be able to register voluntarily to help HMRC with testing and developing it.

It’s important to note that the threshold limits of £50,000 and £30,000 apply to total income from self-employment and property, not profit.

If you are a landlord or self-employed and affected by the MTD for ITSA requirements, or other regulatory changes such as basis period reforms, you may want to get assistance from professional accountants to update your accounting processes.

At gbac, we have a team of trained accountants in Barnsley who can help with setting up cloud accounting software and making tax management more efficient.

To discuss how we could help you or your business, get in touch with our team by calling 01226 298 298 or emailing info@gbac.co.uk.