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What's changing under MTD for ITSA
Who is affected by MTD for ITSA?
MTD for ITSA will apply to the following businesses with income of more than £10,000 per year:
- Self-employments.
- General partnerships with only individuals as partners.
- UK and overseas property businesses.
Those affected will need to follow the rules for MTD for ITSA from their first accounting period that starts on or after 6 April 2023.
The following are not currently required to join MTD for ITSA:
- All other partnerships, including limited liability partnerships.
- Trusts and estates.
- Trustees of registered pension schemes.
- Non-resident companies
Does the £10,000 threshold refer to income or profit?
The threshold refers to income rather than profit.
The draft Income Tax (Digital Requirements) Regulations suggest this relates to the income for the accounting period two years before the period in question. For example, for a period ending 5 Apr 2024, this would be the income for the period ending 5 April 2022. View early draft MTD ITSA regulations >
The threshold relates to the sum of the businesses, so income across all businesses that you'd normally include in your Self-Assessment return should be used to assess whether you are within the scope of MTD for ITSA.
Yes, if qualifying income is below £10,000 then you're exempt from the digital requirements under MTD for ITSA and should continue to complete and file a Self-Assessment tax return if required.
MTD for ITSA only applies to individuals with income from self-employment or property businesses that are subject to Income Tax. If you are required to complete a Self-Assessment tax return for another reason you will continue to do so in line with the current process.
Will limited companies be impacted?
Limited companies are not within scope for MTD for ITSA. However, they will be within scope for MTD for Corporation Tax which is expected to be mandated from April 2026 at the earliest.
Similar to MTD for VAT, MTD for ITSA requires businesses and landlords to keep their records digitally and to submit quarterly updates of business income and expenses to HMRC using MTD-compatible software.
Business owners and landlords will no longer file an annual Self-Assessment tax return. Instead, they will be required to send tax adjustments, known as the End of Period Statement, for each business, as well all other details to finalise their overall tax position after the end of the tax year, known as the Final Return.
The number of submissions depends on the number of businesses you have. For each business, you will need to file 4 quarterly updates and an End of Period Statement to finalise business profits. You will then submit a Final Return with any other income, gains or reliefs.
You will only need to complete a Self-Assessment tax return if the information that you need to submit is not supported under Making Tax Digital.
Any non-business income will be submitted after the end of the tax year in the MTD for ITSA Final Return.
The quarterly updates only need to include a summary of income and expenses for the business. Non-business income does not have to be submitted periodically.
No, MTD for ITSA only refers to digital reporting requirements. It doesn't affect existing tax rules, including how and when tax is paid.
What happens if I need to amend a submission?
MTD for ITSA sign up
For guidance from HMRC for both business sign up and agent sign up, visit GOV.UK.
You can continue to use the same Agent Services Account that you set up for MTD for VAT. However, you will need to copy your client's existing authorisation for Self-Assessment from your HMRC online services for agents account to your existing Agent Services Account.
If a client is not authorised on your agent services account, you can either:
- Copy your client's existing authorisation to your Agent Services Account, or
- Ask your client to sign their own business up, then authorise you for Making Tax Digital for Income Tax. Read more >
If your business meets the specified criteria, you will need to sign up for MTD for Income Tax.
Important dates
Businesses will need to sign up to MTD for ITSA in advance of their digital start date.
According to the draft Income Tax (Digital Requirements) Regulations, the digital start date is the date from which a business must keep digital records and make quarterly submissions.
For self-employments and partnerships, the digital start date is the day after the first accounting period that ends on or after the 5th April 2023.
For property businesses the digital start date is 6 April 2023.
According to the draft Income Tax (Digital Requirements) Regulations, the quarterly obligation periods will depend on the digital start date for a business, which is aligned with its accounting period.
According to the draft Income Tax (Digital Requirements) Regulations, the digital start date for income tax reporting may be different to the quarterly reporting periods for VAT. However, we understand HMRC are looking to address this in the future for those businesses who want to align their reporting periods.
According to the draft Income Tax (Digital Requirements) Regulations, quarterly updates are due one month after the end of the quarter.
In theory, yes. However, if the VAT periods and income tax periods are aligned, it may be possible to submit the VAT and income tax quarterly updates at the same time.
There is currently no guidance to indicate the reporting dates will be aligned. However, this may be addressed by HMRC further down the line.
Record keeping
The draft Income Tax (Digital Requirements) Regulations don't mention the use of spreadsheets. This will likely be addressed in the accompanying guidance due to be released this summer. However, the expectation is that spreadsheets will be as acceptable for MTD for Income Tax as they are for MTD for VAT assuming they are MTD-enabled or used with bridging software.
A relevant entity must keep digital records for each business for the period on and from the digital start date which applies to the business until the date on which the business ceases.
Digital records for a business means records of each of the transactions made in the course of the business, including:
- Transaction amounts.
- Transaction dates, according to the basis used by the relevant entity for recording transactions for the purposes of income tax.
- The categories into which the transactions fall, to the extent those categories are specified.
Digital links
A digital link is where data is transferred or exchanged electronically. This should not involve any manual intervention, such as copying and pasting or re-typing information.
A digital link includes linked cells in spreadsheets. For example, if you have a formula in one sheet that mirrors the source’s value in another cell, then the cells are linked.
To follow the rules for Making Tax Digital for Income Tax, you’ll need compatible software.
You can check which software packages are compatible by visiting GOV.UK
HMRC advise that using cut and paste, or copy and paste, to select and move information is not classed as a digital link.
Bridging software is a tool that allows information from non-MTD enabled software to be reported digitally to HMRC.
Landlords
The £10,000 threshold applies to the total of a taxpayer's property income and turnover from self-employment. The threshold would therefore relate to the landlord rather than individual properties.
Find out more at GOV.UK
The number of properties has no impact on the number of submissions you make. You will need to submit:
- Four quarterly updates covering the income and expenses of all properties.
- An End of Period Statement with any adjustments to the net profit or loss for the period.
- A final return with all other income, gains and reliefs.
The draft Income Tax (Digital Requirements) Regulations suggest that the threshold relates to the total income from a taxpayer's self-employment and property businesses.
Find out more at GOV.UK
Unless your client is exempt from digital reporting, the rules for Making Tax Digital for Income Tax will apply if their total income from property and self employment exceeds the threshold.
Partnerships
From April 2023, MTD for ITSA will apply to general partnerships with only individuals as partners and income of more than £10,000 per year. HMRC have not yet provided a timeline for any other partnerships, including limited liability partnerships.
Tax estimates don't apply to partnerships as they don't have a tax liability.
CIS
Yes, there are no exclusions for individuals whose income is partially or wholly within the scope of CIS.
HMRC have not indicated any change to CIS due to the introduction of MTD for ITSA.
MTD for ITSA solutions
Yes, a relevant entity must use functional compatible software to comply with the following requirements, known as the digital requirements:
- To record digital records.
- To preserve those digital records.
- To provide a quarterly update.
- To provide, as applicable, an end of period statement or a Schedule A1 partnership return.
Sage will have solutions for our customers to meet their MTD for ITSA obligations. Sage is working closely with HMRC, accountants and small business owners to understand and build a great user experience to support the next wave of Making Tax Digital that covers Income Tax.
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