Making Tax Digital for Income Tax Self Assessment (ITSA)

Making Tax Digital, or MTD, is the government’s plan to improve the way that businesses record and report their tax. The rules are already in place for VAT registered businesses, and from April 2024 will expand to include Self Assessment.

The changes mean that self-employed people and landlords earning over £10,000 a year must be compliant for MTD for Income Tax Self Assessment (ITSA) from April 2024. Now is the time to put the wheels in motion!

What is Making Tax Digital for Income Tax Self Assessment (ITSA)?

Put simply, MTD requires businesses to keep digital records of their finances, and submit this information to HMRC throughout the year. The idea is that this makes it easier for sole traders and small businesses to stay on top of their tax commitments. It should also make it more efficient and accurate.

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is the part of the MTD rules which deals with the way you report earnings to HMRC. Rather than submitting an annual Self Assessment tax return, you must keep digital records using software, and send updates throughout the year.

You can opt-in to MTD before the rules are mandatory, but if you do sign up you must follow the rules!

 

Whether you’re a new start-up business or have been going for a while, it’s well worth making the move to MTD-compliance as soon as possible. It might not be compulsory for you yet, but getting everything in place early could save a big headache later on.

MTD is about much more than simply paying your tax bill, and the real focus is on robust digital record keeping. If you use different types of accounting software, they must be “digitally linked”. This isn’t always easy, so take the time to prepare well in advance, and definitely talk to your accountant!

 

Do MTD rules affect me?

This depends on which tax services you must keep records for:
 

  • Now: For VAT, even if you don’t owe anything. This means you will need to follow MTD for VAT rules for the first full VAT period that comes after April 2022, and each one after that. And yes, there are penalties for failing to comply!
  • From April 2024: If the total income you receive from self-employment or property is over £10,000.

What software is compatible with MTD?

While you can use traditional spreadsheets alongside ‘bridging software’, the big focus is on MTD-friendly accounts software. There are lots of MTD software options, but be sure to take a good look beyond the marketing write up.

Some software providers advertise themselves as MTD compliant, yet still require you to download a report and submit your return through a separate portal. Ideally you should be able to report and submit to HMRC from within the software itself.

 

What features should my MTD software have?

Look for tools to help you manage your day-to-day business activities as well as a offering information in real time. This will help you spot any missing information more easily, so you’re less likely to make mistakes. It allows for better financial and business planning generally.

If you’re already using a software provider then it’s worth checking your existing package is fit for purpose. If you do need to make the move or upgrade it can take time, depending on who you’re with!

 

I’m already using a cloud-based accounting package. Does that make me automatically MTD-compliant?

Making Tax Digital has been on the radar for a while, so any fairly new cloud accounting software is likely to be MTD-friendly. Just keep in mind that some software providers might focus more on other countries, so their approach to MTD might be a bit of an after thought.

Simply updating your accounting software with the monthly total of all invoices won’t wash (unfortunately).

 

We can’t really emphasise this enough – you need comprehensive software that ticks all the boxes. Start researching now and if you have an accountant, discuss it with them as soon as possible. They’ll be able to use their experience to guide you in the best options for your business. It’s tempting to leave it, but that’s really not a great idea!

 

  • April 2024 will come round faster than you think. We get it, you’re busy. But the weeks fly by and the last thing you want is to be stressing at the last minute. Also, if you need to start keeping records, update software, or change some of your internal processes, you may hit problems you can’t predict. These will take time and brain space to solve.
  • The changes affect a large number of businesses. As times goes on, there’s likely to be congestion. Your accountant and software provider may be swamped and less able to help. The same applies to the HMRC helpline – so get in there early.

Some self-employed people, businesses, agents, and landlords already maintain digital records and provide updates to HMRC as part of a pilot scheme, rather than completing a Self Assessment tax return. You can also sign up on a voluntary basis on the Sign Up Your Business for Making Tax Digital for Income Tax page of the Gov.uk website.

 

Making Tax Digital for Corporation Tax

After 2024, the next big rollout is expected to be MTD for Corporation Tax. However, HMRC have made it clear that this won’t happen until at least 2026. We’ll put together a more detailed article nearer the time.

Learn more about our MTD-friendly cloud accounting software, Pandle! Sign up for a free trial – no payment details required.


Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible.


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