The next stage towards Digital Tax – Making Tax Digital for Income Tax Self Assessment
10 August 2021
HMRC have a general plan to lead the way in a revolutionary tax system, the main idea being why pay tax based on last years income when you can pay based on actual income. Of course of live real time reporting will bring many benefits to HMRC such as avoiding overpaying tax credit claims or collecting tax faster.
Covid 19, contactless payment and open banking are just a few reasons why there has been a big shift in the way we live our lives. In short we have the technology to implement these big changes. The new MTD ITSA will be implemented from April 2023.
What does Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) mean and how will it affect me?
This is the next step towards a digital taxation system following on from MTD for VAT. This means that for any sole traders, partnerships and landlords with income above £10,000 will have to comply with the new way of reporting from April 2023. The new rules are:
- Keeping records digitally (no more paper records)
- Using software to submit the records to HMRC (such as FreeAgent, or XERO for example).
- Quarterly reporting to HMRC via your HMRC digital account.
- Further 2 submissions to confirm accounting adjustments have been made and final declaration to HMRC (replaces Self-assessment).
We do not yet know if Covid 19 or Brexit has caused any delays to the launch date of April 2023, but what we are sure of is these changes will definitely be implemented. It is clear to me that eventually all aspects of your tax return will become digital.
What do you need to do now?
We know many of you will not be keen to take up the digital reporting sooner than you need to, however we also know that for many taxpayers this will be a big task and burden. What we recommend you consider doing between now and April 2023 is start looking at the way you are running your business/rental business. Consider the following:
- If you are using multiple bank accounts, consider using one instead. Keep this one account separate from your personal expenses so you have one business account that you use for all your business income and business expenses.
- Look at software, start exploring software. There are many online bookkeeping software to choose from. The two we use are XERO and FreeAgent. Try the free trial and see how you get on.