The government has delayed the implementation of Making Tax Digital for Income Tax Self-Assessment (known as ‘MTD for ITSA’) until 6 April 2024, with MTD for general partnerships postponed to 2025. The change to the tax year basis for unincorporated businesses has also been delayed until at least April 2024.

The delays were announced to ensure businesses and landlords have sufficient time to prepare for MTD for ITSA in the aftermath of the COVID-19 pandemic.

Who does MTD for ITSA apply to?

MTD for ITSA applies to an individual, partnership or trust with total business or property income above £10,000 per year. The threshold of £10,000 applies to total gross income or turnover. For example, if an individual has £5,000 of rental income and £6,000 of sales from a sole trader or partnership business, they will be in the scope of MTD for ITSA because the total income (in this case £11,000) exceeds the threshold of £10,000.

What records need to be kept and submitted to HMRC?

Accounting records must be kept electronically (using compatible software or on a spreadsheet) and be filed quarterly with HMRC. The records must provide details of income and expenditure together with any other information specified by HMRC. 

A final end of period return will then be submitted after the tax year ends to complete the individual’s tax reporting.

Although the frequency of reporting is to change, the timing of tax payments will not and the current system of payments on account by 31 July and balancing payment by 31 January after the tax year should remain in place.

Penalties

To align with the introduction of MTD for ITSA in 2024, a new penalty regime is being introduced for Income Taxpayers required to use MTD in the tax year beginning in April 2024. For all other Income Tax taxpayers, the new penalty regime will be introduced in the tax year beginning in April 2025.

Each late submission of a return will result in a point. The penalty to pay is summarised in the table below:

A £200 fixed penalty will be applied for each omission where the points threshold has been exceeded. The threshold for quarterly ITSA is four points. All points expire after a 12 month period, provided return obligations are met.

What other changes were announced?

Simple partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025. HMRC will confirm at a later date when complex partnerships will be required to join.

Tax year basis

HMRC wishes all unincorporated businesses (such as sole traders) to switch to the tax year basis before the introduction of MTD ITSA in April 2024. The government hasn't yet responded to the consultation completed on the change. 

What this means for Crunch customers

If you are a sole trader or a landlord and your income exceeds £10,000 from your businesses, you will need to be ready for MTD for ITSA by April 2024. If you are a sole trader and your trading period does not match the tax year, you will need to make arrangements to switch by April 2024.   

Crunch software is compatible with HMRC requirements and will have all the features you need to make the necessary returns to HMRC under MTD for ITSA arrangements.