April 2024 Making Tax Digital for Self Assessment income tax will be implemented

Making Tax Digital for Income Tax Self-Assessment (known as ‘MTD for ITSA’) has been postponed until 6 April 2024, with MTD for general partnerships delayed until 2025. The change in tax year basis for unincorporated businesses has been postponed until at least April 2024.

The delays were announced to give firms and landlords ample time to prepare for MTD for ITSA following the COVID-19 pandemic.

Who is MTD for ITSA applicable to?

Individuals, partnerships, and trusts with a total business or property income of more than £10,000 per year are subject to MTD for ITSA. The £10,000 threshold applies to total gross income or turnover. For example, if an individual earns £5,000 in rental income and £6,000 in sales from a sole trader or partnership business, they will be subject to MTD for ITSA because their total income (in this case £11,000) exceeds the £10k threshold.

What documents must be kept and submitted to HMRC?

Accounting records must be kept electronically (using compatible software or a spreadsheet) and submitted to HMRC quarterly. The documents must include details of income and expenditure and any other information required by HMRC.

Following the end of the fiscal year, and end-of-period return will be submitted to complete the individual’s tax reporting.

Although the reporting frequency will change, the timing of tax payments will not, and the current system of payments on account by 31 July and balancing costs by 31 January following the tax year should continue.

Penalties

To coincide with the implementation of MTD for ITSA in 2024, a new penalty regime is being implemented for Income Taxpayers who are required to use MTD in the tax year beginning in April 2024. The new penalty regime will be implemented for all other Income Tax taxpayers in the tax year starting in April 2025.

Each omission that exceeds the points threshold will result in a £200 fixed penalty. The quarterly ITSA threshold is four points. All points expire after 12 months if all return obligations are met.

What other modifications have been announced? 

Simple partnerships will be exempt from MTD for ITSA until the tax year beginning in April 2025. HMRC will confirm when complex alliances will be required to join at a later date.

Tax year basis

HMRC wishes all unincorporated businesses to switch to a tax year before introducing MTD ITSA in April 2024. The government hasn’t yet responded to the consultation completed on the change. 

What does this imply for Crunch customers?

If you are a trader or a landlord and your income exceeds £10,000, you should be ready for MTD for ITSA by April 2024. If you are a proprietor and your trading tenure does not correspond to the tax year, you must make arrangements to switch by April 2024.

Crunch software is HMRC-compliant and includes all of the features required to make the necessary returns to HMRC under MTD for ITSA arrangements.

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