Making Tax Digital (MTD) is the governments initiative to reform and modernise the UK tax system by having one of the most digitally advanced tax administrations in the world.  This will involve tax payers keeping digital records and reporting their tax liabilities in real time.  It is the government’s intention that this will both reduce taxpayer errors and increase the information available to HM Revenue & Customs (HMRC).

The first phase of MTD was for VAT and has already come into effect.  This involves businesses and individuals filing quarterly digital records of their income and expenses for VAT purposes.

This is due to be extended to a much wider range of individual taxpayers from April 2024, when the second phase of MTD will be rolled out and will be known at MTD for ITSA (Income Tax and Self-Assessment).

MTD for ITSA is going to bring a fundamental change to how the majority of individual taxpayers report their income to HMRC. This is set to be the biggest change to the tax system since the introduction of self-assessment back in 1996.

Under MTD for ITSA, rather than sending one annual self-assessment tax return after the end of the year, individuals will be required to send quarterly updates to HMRC of their business and/or property income and expenditure.

After the end of the fourth quarter, an End of Period Statement will need to be submitted to finalise each business income source which will include any accounting adjustments. A Final Declaration must also be submitted on an annual basis to report all other sources of income, such as employment, savings, and investment income.

Those caught by the new MTD rules will be required to keep and maintain digital records and use MTD-compatible software to file their returns with HMRC.

The new rules will apply from April 2024. Originally the change was set to take place from April 2023, but in September last year, the Government announced that this would be delayed by 12 months.

MTD for ITSA will apply to sole trade businesses and landlords with a total gross business and/or property income of more than £10,000 per year. It is the gross income before any expenses are deducted, which is relevant for this purpose.

If you think that you will be required to file under MTD for ITSA, now is a good time to start thinking about your record keeping.

If you require any assistance or advice relating to the this, please do not hesitate to get in touch with your usual contact or email