Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is a huge change to how self-assessment will work for unincorporated businesses such as landlords and the self-employed. The rules will be mandated from April 2024 and will affect 3.6 million people!

If you have more than £10,000 of self-employed or property income in the current tax year (6th April 2022 – 5th April 2023) then you will need to follow the MTD rules from April 2024.

If you have no clue what this is about, have a look at my blog (on the link below) where I explain what MTD ITSA is and the changes that are coming:
* 28/09/21 Updated Upcoming Changes to Self Assessment

The most important thing to consider, for those who need some help, is timing. Right now, barely anyone outside the accountancy world knows about MTD ITSA. However, once it gets to 2024 every bookkeeper and accountant in the land is going to be busy helping clients to go digital, and possibly too busy to help new clients. HMRC will be launching an awareness campaign early next year so if you’re reading this right now, you are in a very good position to get the help you need to change to digital. Here’s a brief guide to what you can do right now to get ready:

You will need accounting software:

Moving to digital isn’t easy, especially if you’re part way through the business year, however if you have a very simple business, or a good grasp of the accounts, you may be able to manage this yourself. Moving as soon as is practically possible has a lot of advantages including:

  • You will gain peace of mind from knowing everything is correct, the addition, rounding and completeness of information (especially with a business bank account connected).
  • There are many benefits of software such as invoicing with ease, tracking if payments have been made and reporting easily on the business finances. Usually adopting software will reduce your admin time if you’re moving from paper or even spreadsheets/documents.
  • Accountants and bookkeepers are more likely have time to help you the sooner you decide to make the move.

To help small businesses comply with the making tax digital rules, HMRC have committed to provide free software for businesses who meet all of these conditions:

  • it is unincorporated (for example self-employed persons or landlords)
  • it has turnover within the scope of Income Tax below £85,000
  • it has no employees
  • it uses cash basis accounting*

However, there is no expectation that a free product will include VAT so if you’re VAT registered, free software is unlikely to be an option.

Some bank accounts provide you with free software (see below) . If you don’t qualify for free software, you can expect to pay between £10 and £40 per month, depending on what functionality you need. If you need help to decide on software please get in touch and we can chat through the options.

* You can see if you use Cash Basis accounting by looking on your previous tax return. Look at Box 8 on the Self-employment pages, and/or Boxes 5.2 and 20.2 on the UK property pages.

You will probably need a separate business bank account

Bank accounts can usually be linked to your accounting software, meaning the lines on your bank statement are automatically fed into the accounts.

If you use a personal account, you will spend extra time and/or money explaining away the transactions that don’t belong to the business.

Some business bank accounts offer free access to accounting software. FreeAgent software is free of charge to Natwest, RBS & Mettle Business Banking Customers

You may want to change your Year End Date

If your business year ends on a date that isn’t 31st March up to 5th April, MTD ITSAs transition will start much sooner than you think. In brief this will mean you report an extra long tax year and pay the associated tax.

There may be ways to reduce this potentially large tax bill – by deducting overlap profits if you have them, or by spreading the cost over 5 years. You can find out more about these on the blog linked below.

If this affects you, read more on the link below:
* 25/02/22 Basis Period Reform

Consider engaging a bookkeeper or accountant now

If digital isn’t your thing, or you will need help to get going, now is the time to find yourself someone who can help. You can plug your postcode in here to find a local bookkeeper.

If that happens to be me, get in touch.


For Reference:
An Overview of Making Tax Digital. Updated 1 April 2022
Policy paper on Basis period reform. Published 27 October 2021

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