Despite the current chaos in government all signs point towards Making Tax Digital for Income Tax Self Assessment – or the snappily named MTD for ITSA – going ahead from April 2024 as planned. Scarily that is now less than 18 months away. As accountants we spend a lot of time talking about MTD and preparing our clients about what is going to happen. But it doesn’t feel like the government is doing a whole lot to make the self employed community aware of what is coming.
So what is MTD for ITSA anyway
In short this will change income tax reporting for sole traders and landlords from April 2024 from a once a year tax return to a once a quarter digital filing. Plus an end of year true up (called an EOPS). Plus a tax return to ensure other income is covered. You could end up having to do more than one set of quarterly filings plus EOPS if you have more than one trade, or if you are a sole trader AND a landlord. Basically MTD for ITSA will spawn a much higher number of tax filings. You can read much more about what you need to know here.
If you are part of a self employed partnership or a limited company you don’t need to worry yet
The April 2024 start date is only for sole traders and landlords. If you are part of a self employed partnership you don’t need to worry for another year, for you it will kick in from April 2025. For limited companies the planned start date is April 2026. Realistically there could be further delays in these later start dates.
What about the £10,000 threshold?
If you’ve heard of MTD for ITSA then chances are you have also heard that there is a £10,000 threshold. What does that mean in practice?
- If your yearly turnover (i.e. sales) as a sole trader is £10,000 or more BEFORE DEDUCTING ANY COSTS then you are caught
- If your rental income BEFORE DEDUCTING ANY COSTS INCLUDING AGENCY FEES is £10,000 or more per year then you are caught
- There’s also devil in the small print – if you are a sole trader with property income then the £10,000 threshold covers both. So if your turnover plus rental income is £10,000 or more then you are caught, even if individually they are below
18 months will come around surprisingly quickly
It doesn’t feel that long ago that we were running seminars talking about MTD knowing that it was still 5 or more years away. Now there is only 18 months left. If you are already maintaining digital records then you should be in good shape to deal with filing digitally every quarter. If you end up totting up your expenses from a screwed up pile of receipts once a year then you have a lot of work to do. Don’t leave it too long – there are some simple steps you can take now which will start to make your life easier.
Our top 3 tips to start getting ready now
Set up a separate bank account
This will make your life much easier anyway, even without worrying about MTD for ITSA. If your self employed income and expenses, or your property income and expenses, are all in a completely separate bank account, then you have a really easy starting point to pull everything together for your tax return. Having a separate bank account doesn’t have to be expensive. Some of the challenger banks such as Starling Bank or Monzo offer free business banking.
Once you have a separate bank account you will be able to move to using digital accounting software (honestly not as scary as it sounds), link it to your bank account, and get the tech to do some of the heavy lifting for you. If you have a separate bank account it is also much easier to see if you are making money or not!
Build good habits
As a small business owner one of the most painful things is battling through that pile of fading receipts once a year. It doesn’t have to be that way. If you tackle your business accounts little and often then it makes everything easier. Set aside some time once a week and don’t let it get away from you. If you build good habits now then switching over to quarterly filing will be surprisingly straightforward.
Get smart with your tech
There are so many life changing apps out there. I know – “life changing” sounds over the top when you are talking about your business accounting records. But life as a small business owner is stressful. There are never enough hours in the day to get everything done. We talk to too many people who try desperately to catch up in their evenings and weekends. Just imagine if all you had to do was send out your sales invoices and take a few pictures of receipts. Sound too good to be true? Xero recently launched Xero Go, a free app (with paid for upgrades) which allows you to do just that.
We’ve been some of Xero’s biggest fans over the last 10 years, and we use Xero for all of our business clients. But sometimes for small business owners that are struggling to make ends meet having a free, scaled down app is exactly the right answer. And that is what Xero Go offers.
If you do one thing, do this
We are worried that the government just isn’t doing enough to let business owners and landlords know what is coming. We’re working on lots of lovely (free) content to help explain what is coming and what you can do. Sign up to our newsletter to be kept in the loop.
