MTD ITSA: What You Need to Know About the Digital Tax Changes

Making Tax Digital (MTD) is a UK government initiative that requires businesses to keep digital records and submit tax returns using MTD-compatible software. MTD aims to simplify tax administration, reduce errors, and improve efficiency. 

MTD was originally introduced in 2019 for VAT-registered businesses with a turnover of over £85,000. However, MTD is expanding, and there is a new addition to the MTD scheme – MTD for Income Tax Self-Assessment (ITSA).

What are the requirements?

MTD ITSA will require sole traders, partnerships, and landlords with annual business or property income over £10,000 to report digitally quarterly with an annual adjustment. This means that they will have to report their income and expenses digitally at least five times per year. The original deadline for MTD ITSA was 2022, but it has been delayed twice, and now it is set to come into effect in 2026.

Why is MTD ITSA being introduced?

One of the main reasons for introducing MTD ITSA is to tackle the issue of cash jobs in the black economy. The government believes that MTD ITSA will make it easier for HMRC to identify businesses that are not declaring their full income and to flush out those who are operating in the black economy. However, it remains to be seen if MTD ITSA will be successful in achieving this goal.

Concerns around MTD ITSA

One of the concerns about MTD ITSA is the burden it places on small businesses and landlords.

Quarterly reporting and the annual adjustment mean that businesses will have to devote more time and resources to comply with the regulations. This is particularly true for those who are not already using digital record-keeping systems. MTD ITSA may be too onerous for some small businesses and landlords, who may struggle to keep up with the additional reporting requirements.

Another concern is whether HMRC can cope with the additional workload created by MTD ITSA. The delay in introducing MTD ITSA suggests that the government and HMRC are aware of the challenges and are taking steps to address them. However, it remains to be seen whether HMRC will be able to provide the necessary support and resources to help businesses comply with MTD ITSA.

MTD ITSA is a significant change that will affect many small businesses and landlords. While MTD ITSA aims to simplify tax administration and reduce errors, it remains to be seen whether it will achieve these goals. Businesses should start preparing for MTD ITSA now to ensure that they are ready when it comes into effect. 

Our friendly team can provide you with advice on how to comply with the regulations and minimise the impact on your business.