Most self-employed taxpayers will change how they report their business’s taxable profits from 6 April 2024, as Making Tax Digital for income tax self-assessment (MTD for ITSA) gets under way. 

From this point on, the traditional self-assessment tax return that needs to be filed on or before midnight on 31 January each year will become a thing of the past for sole traders and landlords.

General partnerships will still to file tax returns through self-assessment for 2023/24 before joining MTD for ITSA from April 2025, following another of Westminster’s famous U-turns to delay the scheme by one year. 

Once unincorporated businesses and landlords join MTD for ITSA, they must submit a summary of their business’s income and expenses to HMRC using MTD-compatible software every three months, if they have total taxable profits of £10,000 or more.

This will represent the second compulsory phase of the Government’s flagship scheme to digitise the way everyone pays tax. MTD for VAT launched in April 2019 and MTD for corporation tax is currently due to kick in from April 2026. 

Most of our clients already use HMRC’s Government Gateway to submit their income tax returns through self-assessment, but MTD for ITSA takes this a step further than you might expect. 

How basis periods tie in with this

Last month, we wrote about plans to reform basis periods. Three weeks’ later, Westminster moved the goal posts by announcing a one-year delay on both plans to reform basis periods and the introduction of MTD for ITSA.

From 6 April 2024, most unincorporated businesses will have to join MTD for ITSA, regardless of their current accounting period end dates. Changing to a tax-year basis, possibly from 2024/25, will require all businesses to report income and expenses that fall exactly into the tax year. 

Also, the draft legislation to enact this change looks certain to deem accounting periods ending on 31 March to be treated as ending on 5 April for tax purposes. Whether it’s included in Finance Bill 2022 remains to be seen.

Business partnerships that contain a corporate partner, LLPs, and limited partnerships will be able to defer joining MTD for ITSA for a period that’s currently undefined. 

Filing deadlines & requirements

From 6 April 2024, the quarterly filing deadlines for all unincorporated businesses filing under MTD for ITSA will be:

  • 5 August
  • 5 November
  • 5 February
  • 5 May.

You will need to keep digital records of your total sales income and expenses arising from each three-month period, ready to file quarterly MTD for ITSA returns on or before the above dates. 

Keeping digital records

For the purpose of digital record-keeping, you need to use MTD-compatible software which has been approved by HMRC. There are plenty of options to choose from. 

In our experience from dealing with MTD for VAT, KashFlow ticks the boxes well in terms of keeping digital records. We can set your unincorporated business up on KashFlow and show you how to use it. 

We think it really is easy to use, especially for business owners who might not necessarily be the most tech-savvy. To find out how we can help you prepare for MTD for ITSA, email or call 0141 221 2257 to get the ball rolling today.