If you run a VAT registered business you may have heard of MTD for VAT but HMRC also have MTD for Income Tax Self-Assessment (ITSA) on the table. This will arguably impact more businesses and mean that you need to think about compliance.
The project has been hit with delays. It was due to be introduced from 6 April 2024 for self employed businesses with an annual income above £10,000. However - it has been delayed and the income threshold will also be increased.
Currently, MTD for ITSA is planned to be introduced for businesses with incomes greater than £50,000 from April 2026. Those with incomes above £30,000 will have to comply from April 2027.
What it means for you!
So - if you fall within MTD for ITSA what does it mean for you? What do you need to change to ensure you comply with the new rules?
You will need to do the following:
Keep records of your business income and expenses in a digital format.
Send quarterly updates of business income and expenses to HMRC (this will be separate for each type of income so if you run two businesses they will need to be reported on separately)
Submit an end of period statement (EOPS) for each source of income along with a declaration (this is essentially your tax return)
So - what do you need to do?
The main thing businesses will need to do is start using accounting software. There are plenty of these on the market to choose from (e.g. Xero, Sage, FreeAgent, Quickbooks). We at Blue Arrow are big fans of Xero and would be happy to set you up with a free month’s trial of the software so you can see how useful it can be. We would suggest
looking at this as soon as possible so that you can familiarize yourself with the software and be fully prepared once MTD for ITSA comes into play.
Another point to consider is that your bookkeeping will need to be kept up to date so that you can make accurate quarterly submissions ahead of the deadlines. This is where Xero comes into its own. You can set up automatic bank feeds and connect it with another app, Hubdoc, so that you can take photos on your phone of receipts and forward invoice emails, directly into Xero. No more paper! Xero has a great app too so you can keep up to date with bookkeeping on the go (and keep an eye on that all important profit).
The deadlines for submitting quarterly updates will be:
Once the tax year has passed you will then submit a further return - the end of period statement (EOPS) and a final declaration. This essentially confirms that the updates you have sent are correct, and you can also add further information such as personal income or reliefs.
What about paying the tax?
The EOPS return and payment of any tax you owe will be due by 31st January of the following year (i.e. the same as now).
However - if you’ve kept everything up to date and made the quarterly updates then you will have plenty of time to ensure that you put aside enough money to pay the tax due.
To summarize - if your current business income is above £30,000 you need to start thinking about the impacts MTD for ITSA will have on you and your business. Now would be a great time to book in a chat with us about moving onto software. Drop us an email (firstname.lastname@example.org) or give us a call (07586163344)