Making Tax Digital for Self Assessment ITSA
Learn about Making Tax Digital for Self Assessment, its impact, and how to prepare for this crucial change. Stay ahead with our simple guide.
What is Making Tax Digital for Self Assessment?
Making Tax Digital for Self Assessment, also known as MTD ITSA, is a major change coming to how you report your taxes in the UK. From April 2026, if your income is over £50,000 from self-employment and/or rental properties you must keep digital records and send quarterly updates to HMRC. This threshold reduces to £30,000 from April 2027. These rules mean you need to use special software to keep track of your earnings and send regular reports.
This change aims to make tax reporting easier and more accurate, improving overall tax management. It affects anyone with self-employment income or rental income, but not those whose income comes from employment, interest, or dividends. Understanding how MTD ITSA works and getting ready early can save you a lot of hassle later.
Making Tax Digital Criteria
Qualifying income includes earnings from self-employment or rental properties, but does not cover income from employment, interest, or dividends. Under MTD ITSA you must use HMRC-approved software to record transactions and submit reports. Quarterly submissions ensure that HMRC receives timely updates on your financial status, helping them estimate the annual tax liability.
After submitting all quarterlies, you have until 31 January of the following year to file their End of Period Statement (EOPS) and year-end tax return. This final submission includes all income streams and necessary adjustments.
How MTD ITSA Will Impact You
If you fall under the MTD ITSA rules, you must adapt to new reporting requirements. First, you need to use digital tools to maintain records and make quarterly submissions. This change means abandoning traditional paper records and familiarising yourself with new approved software solutions, ensuring compliance with HMRC’s guidelines.
Accessing HMRC's pilot programme, launched in April 2024, is a great way to prepare. The pilot allows you to trial the new system before it becomes mandatory, offering early access to support and feedback from HMRC. This early adoption can ease the transition, making it less stressful when the official deadlines arrive.
Additionally, using compatible spreadsheets with bridging software might be an option. This approach allows you to continue using familiar tools while complying with digital submission requirements. Overall, the shift to MTD ITSA involves an adjustment period but brings long-term benefits in terms of efficiency and accuracy.
Steps to Prepare for MTD ITSA
Preparing for MTD ITSA involves several important steps.
First, you should select and familiarise yourself with the approved software you'll need to use. Choosing the right software early gives you time to learn its features and how it fits into your current accounting processes. This will make the transition smoother when MTD ITSA becomes mandatory.
Second, if you use spreadsheets to keep track of your earnings and expenses, make sure they can connect with bridging software. Bridging software will allow you to submit your figures to HMRC, keeping you compliant with the new rules without having to change your entire record-keeping system.
Third, consider joining HMRC’s pilot programme. This allows you to trial the new reporting environment, get used to the system, and access dedicated HMRC support. Participating in the pilot can help you identify potential issues early and provide feedback to improve the system before the full rollout.
Benefits of Early Adoption
Adopting MTD ITSA early comes with several benefits. Firstly, getting a head start allows you to spread out the learning curve. You’ll have more time to understand the software and integrate it into your daily operations. This reduces the pressure of learning everything at once when the new requirements kick in.
Additionally, early adoption can lead to improved tax planning and cashflow management. By keeping digital records and submitting quarterly updates, you always have a clear view of your financial situation. This helps you make informed decisions and avoid any last-minute surprises when your tax bill is due.
And finally…
Making digital tax for self-assessment is a significant change, but with careful preparation and early adoption, you can navigate it smoothly. Embracing digital tools and updating your reporting practices can make tax management in the UK easier and more accurate. Selecting the right software, ensuring spreadsheet compatibility, and joining HMRC’s pilot programme are key steps to take now.
At ABMV, we are committed to helping you prepare for MTD ITSA. Contact us today for expert advice and tailored support to ensure a seamless transition. Prepare now and set your business up for success in the digital tax era!
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