ICAEW's Tax Faculty provides answers to questions concerning the introduction of Making Tax Digital income tax self assessment from April 2024.
Is there a digital exclusion exemption for MTD ITSA?
Yes, with the same wording as for MTD VAT. Applications will not open until sometime in 2023. Apply for an exemption from Making Tax Digital for Income Tax.
MTD ITSA covers income from self-employment and property. How is other income reported?
If a taxpayer is in MTD ITSA, other income (eg, employment, pension, or investment income) does not need to be reported quarterly to HMRC. It is reported annually as part of the finalisation process in a way that is similar to (but not the same as) the self assessment tax return (and to the current self assessment deadline). There are three ways to report this other income:
- Using MTD ITSA software that has this additional functionality
- Using a different tax software product (eg, a commercial self assessment software product, upgraded to comply with MTD ITSA)
- Using an HMRC user interface that is being developed to replace the current online self assessment return
There will not be a paper option.
The current self assessment system (including the paper return) will remain available to taxpayers not in MTD ITSA but in due course may be replaced by the new user interface referred to above.
How does the £10,000 threshold work for MTD ISTA?
Taxpayers with turnover of £10,000 or less are not required to join MTD ITSA. The test is applied to:
- Turnover/gross income (not profits)
- Turnover from self-employment and property only, added together (see below for the specific boxes on the tax return)
- Each taxpayer individually (so where there is income from jointly held property the individual’s share of that gross income per the tax return is what counts)
Income not reported on the tax return is not included for the purposes of the £10,000 turnover test. Examples of this include income not reported because it is wholly covered by:
- the trading allowance;
- the property allowance; or
- qualifying care relief.
The test does not include partnership income or any other income that is not listed below:
|Self-employment turnover||SA103F box 15, SA103S box 9, SA200 box 3.6|
|Self-employment other income
||SA103F box 16, SA103S box 10
|UK property income
||SA105 box 20, SA200 box 6.1
|Other UK property income (grant of lease)
||SA105 box 22
|Other UK property income (reverse premiums)
||SA105 box 23
|Other UK property income (FHL)
SA105 box 5
|Foreign property gross income
||SA106 box 14
|Foreign property income (reverse premiums)
||SA106 box 16
Which period is the £10,000 test applied to for MTD ITSA?
When MTD ITSA starts in April 2024, the £10,000 test is applied to the information in the 2022/23 tax returns that are due to be filed by 31 January 2024. HMRC will automatically set up the obligations to file quarterly updates (there will be a requirement for each taxpayer, or their agent, to sign up individually). Where a taxpayer no longer has any income from self-employment or property, they will probably need to notify HMRC that these income sources have ceased and ensure that the MTD ITSA obligations are cancelled (the process has not yet been developed). A taxpayer whose turnover/gross income exceeds £10,000 in 2022/23 but drops below £10,000 in 2023/24 will need to comply with MTD ITSA requirements from April 2024.
A taxpayer that breaches the £10,000 threshold for the first time in a tax year (including a taxpayer new to self assessment) is required to join from 6 April following the due date for the self assessment tax return for that tax year.
Can you leave MTD ITSA if your turnover/gross income drops below £10,000?
A taxpayer who is in MTD ITSA and whose turnover/gross income falls below £10,000 for three successive tax years can claim exemption from the start of the following tax year.
Do MTD ITSA quarterly updates all have to be to tax year quarters?
Quarterly updates are required for standard tax year quarters (ie, to 5 July, 5 October, 5 January, and 5 April). There is an option to elect for calendar quarters (ie, to 31 June, 30 September, 31 January, and 31 March). This does mean a bunching of agents’ workloads and any clash with the timing of VAT returns also needs to be considered. The due date for the quarterly updates is 5 August, 5 November, 5 February, and 5 May regardless of whether an election for calendar quarters has been made
Does MTD ITSA apply to partnerships?
MTD ITSA will start for general partnerships (not LLPs, not partnerships with a corporate partner, and not partnerships with more than 20 partners) from 6 April 2025 – one year later than for individuals. The MTD ITSA obligations will apply to the partnership rather than individual partners. Until MTD ITSA is extended to partnerships, partners must continue to report partnership income annually along with income from other non-MTD sources.
How will MTD ITSA work for jointly held properties?
Each individual is required to comply with MTD ITSA requirements for their income from property. This includes their share of income from any jointly held properties. There is no form of joint reporting by property or portfolio of properties. This will create very significant practical problems for taxpayers who have different property holdings with different groups of joint owners. In some cases, the accounting may be done by different people and using different software products and the taxpayer may have great difficulty obtaining the information in time to submit the quarterly update and in complying with the requirement to have digital links from the transaction records through to submission. ICAEW has raised this as a major area of concern with HMRC.
How will MTD ITSA work where there are multiple sources of income from property and self-employment?
Separate obligations to comply apply to:
- Each separate trade (equivalent to the requirement to submit a separate SA103 for each trade)
- UK property income (equivalent to the SA105)
- Overseas property income (equivalent to the land and property section of the SA106 plus EEA furnished holiday lets)
There can be only one set of submissions (quarterly updates and EOPS end of period statement) for each obligation. If records relating to one obligation are held in more than one software product, they will need to be combined in one product before the submission is made to HMRC. This may be a problem where records for different divisions of the same trade or records for different properties are held in different systems.
Can MTD ITSA quarterly updates be amended?
Quarterly updates can be amended by resubmitting them. If there are open quarterly updates, the deadline for amendments is the date the next quarterly update is due. If all the quarterly updates have been submitted, the deadline for amendments is same as the due date for the EOPS end of period statement.
It is not yet clear which adjustments need to be made by resubmitting a revised quarterly update and which adjustments can be made as part of the annual adjustments process prior to completing the EOPS declaration. In particular, it is not clear how and where adjustments to reflect non-tax-year accounting dates will be made.