The technical team are always interested in receiving feedback from members on all aspects of MTD for Income Tax and hearing about their practical experiences. Please atttechnical [at] att.org.uk (subject: Making%20Tax%20Digital%20for%20Income%20Tax) (email) your information to us.
- Latest News
- What is MTD for Income tax?
- Timetable for MTD for Income tax
- HMRC Pilot
- Exemptions from MTD for Income Tax
- Agent Services Account (ASA)
- Further information and guidance
Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) - HMRC Q&As
HMRC have provided a list of answers to the most commonly asked questions during their MTD for ITSA webinar held on 29 July 2020. The Q&As and some further information can be found here.
What is MTD for Income Tax?
Under the requirements of MTD for Income tax, individuals who are subject to income tax on the profits of their trade, profession, vocation or property business will be required to keep their accounting records electronically (either using suitable software or on spreadsheet) and file quarterly returns to HMRC with details of their income and expenditure together with any other information that HMRC specifies. A final end of period statement will then be submitted after the tax year to complete the individual’s tax affairs.
Although the frequency of reporting is to change, the timing of tax payments will not and the current system of payments on account and balancing payment by 31 January after the tax year is currently expected to remain in place.
Timetable for MTD for Income Tax
On 21 July 2020, HMRC confirmed that MTD for Income tax will be introduced from April 2023, for unincorporated businesses and landlords with gross income over £10,000. The rules will also apply to partnerships and trusts with business or property income.
The rules will also apply from April 2023 to partnerships with business or property income that only have individuals as partners. All other partnerships (e.g. those that have corporate partners and Limited Liability Partnerships) are not required to join MTD for ITSA in April 2023, but will be required to join MTD at a future date (to be confirmed).
Trusts, estates, trustees of registered pension schemes and non-resident companies will not be required to join MTD for ITSA.
The MTD for Income tax pilot entered its public beta testing phase on 15 March 2018. Taxpayers can sign up for the pilot here.
To take part in the pilot, businesses will need to record their income and expenses in MTD compliant software which lets them send quarterly income tax updates to HMRC. At the end of the accounting period, they will need to send a final report to confirm their income and expenses for the year. If they need to claim allowances and reliefs, they can do this within that final report. They will then be able to see a tax calculation for the year in their business tax account as well as through their software.
Likewise, agents that sign clients up to the pilot (including clients whose digital records are being kept by the agent and clients that keep their own digital records) will need a software package that lets them send the updates to HMRC on their clients’ behalf.
The current list of MTD for Income tax compatible software products is set out on GOV.UK here. We understand that there are a number of other products at various stages of development and HMRC have said that they will continue to add to this page as new products become available.
Warning: Anyone who has received COVID-19 support payments (other than Statutory Sick Pay) will not be eligible to take part in the trial until April 2021.
Exemptions from MTD for Income Tax
In order to be within scope, the individual, partnership or trust must have total business or property income above £10,000 per year.
The threshold of £10,000 applies to gross income or turnover, not profit, and we understand that it applies to the total gross income where the individual or entity has more than one trade or property business. For example, if the individual has £6,000 of rental income and £7,000 of sales from a sole trader or partnership business, they will exceed the limit and be in scope.
In line with the exemptions for MTD for VAT, individuals should not have to follow the MTD for Income tax rules if any of the following apply:
- It’s not reasonably practicable for them to use digital tools to keep their business records or submit quarterly returns due to age, disability, remoteness of location or any other reason (often referred to as ‘digital exclusion’).
- They are subject to an insolvency procedure.
- The business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.
Where any of the above apply, the individual has to apply to HMRC to claim an exemption.
For partnerships, all of the partners need to be excluded in order for the partnership as a whole to be exempted from the requirements. We presume that on the same basis, all trustees would need to be exempted for the trust to quality.
We understand that where a business has already qualified for an exemption from MTD for VAT, they will also be exempt from MTD for Income tax.
Agent Services Account (ASA)
In order to access MTD services and to supply updates on behalf of clients, agents need an Agent Services Account (ASA). This is in effect a new Government Gateway to access the new service. Each agency will have just one ASA per firm, and will be able to set up staff with administrator or assistant access to the account. Many firms may already have created an ASA in order to submit MTD for VAT returns or Trust Registration Service returns.
A basic outline of the ASA and how to set one up can be found here.
HMRC publish details of any down time for maintenance or service issues.
Enabling primary legislation for MTD for businesses for Income Tax was included in Sections 60 to 61 and Schedule 14 of Finance (No.2) Act 2017. The explanatory notes to the original Bill can be found here.
Draft regulations were also published in 2017, but not finalised.
Further information and guidance
Individuals within MTD for Income tax will be required to use software to keep their records and submit returns to HMRC via their Application Programming Interface (API).
There are essentially three different types of MTD compliant software:
- Software packages that can be used to keep digital records and file returns via HMRC’s API.
- API enabled spreadsheets – spreadsheets with an inbuilt function allowing them to file returns via HMRC’s API.
- Bridging software which can take return information from an existing spreadsheet and submit this to HMRC via their API.
Where a spreadsheet is used, the relevant data must be digitally transmitted from the spreadsheet or other source where the digital records are kept, directly to HMRC. The summary information for completion of the quarterly and final returns must not be physically re-typed into another software package.
The current list of MTD compatible software for income tax is here.
Other information and guidance from HMRC
HMRC have produced a Making Tax Digital for Business – stakeholder communications pack which contains a variety of information for both Income tax and VAT, including some frequently asked questions.
HMRC also publishes regular MTD Updates for Agents which can be found on our HMRC publications page.