MTD for income tax (MTD ITSA)
If you’re a landlord, or you’ve got a business, Making Tax Digital for income tax (MTD for income tax) may really impact you. You’ll have to keep your records electronically and submit income and expenditure details to HMRC at least quarterly.
Currently, as a landlord or small businesses owner you can keep details of your income and expenditure pretty much how you want. However, from April 2024 this will change, and you’ll have to maintain digital accounting records on a spreadsheet or MTD compatible software. Keeping paper records won’t meet the legislative requirements.
Currently you only have to let HMRC know about your taxable income once a year, by 31 January. However, as you’ll see later on, from April 2024 you’ll have to make at least quarterly submissions to HMRC.
Who does MTD for income tax apply to?
You’ll have to report under MTD ITSA where your gross income from self-employment and / or property, when combined, is over £10,000.
It’s important to note this is INCOME, not profit. So, assume you have a property business receiving rental income of £11,000 and have costs of £10,000, leaving a profit of £1,000. In this case, even though your profit is only £1,000, your income is £11,000, so it’s over £10,000, and you’re caught by MTD ITSA.
You also need to remember that it’s combined income from ALL businesses. So, if you receive rent of £7,000 and make sales of £7,000 in your self-employment, your combined income is £14,000. Although neither business exceeds the £10,000 threshold, when combined, they do.
When does MTD for income tax apply from?
If you were self-employed or collecting property income BEFORE 6 April 2023 MTD ITSA is mandatory from April 2024 if:
- you’re registered for Self Assessment
- you have business income of more than £10,000
If you become a sole trader or landlord AFTER 6 April 2023 you don’t need to sign up until after you’ve submitted your first Self Assessment tax return. HMRC will then let you know if your qualifying income is over £10,000 and if you must sign up for Making Tax Digital for Income Tax.
What do I have to do if MTD for income tax impacts me?
Currently you let HMRC know your taxable income by 31 January. However, when MTD ITSA starts you’ll have to send information a lot more frequently. Information will be sent as follows:
- EACH business will have to submit a quarterly summary update of business income and expenditure
- EACH business will have to submit an end of period statement by 31 January after the end of tax year.
- A final declaration which includes any business and personal data needed to be provided to HMRC to reach the final tax liability for a specific year. This must be submitted by 31 January after the end of tax year..
For example, assuming you’re self-employed and have a property you rent out, you’d have to do quarterly submissions and an end of period statement for BOTH the self-employment AND the property business during the year. You’d then need to do a final declaration to confirm the combined self-employment, property business profits, and other income as necessary to arrive at the tax liability.
What is a quarterly summary update, and what needs to be included?
A quarterly summary update is a summary of your business income and expenses for the quarter, which is then sent to HMRC.
During the quarter you will record each individual income and expense transaction into your bookkeeping software. At the end of the quarterly you will run a report which will summarise the income and expenses, and submit this to HMRC electronically.
For example, if you have a rental business, you would record rental income in the quarter, and costs of the rental property such as interest, repairs etc. If you had a plumbing business, you would record sales to customers, and expenses such as purchases, repairs, vehicle running costs etc.
What is an end of period statement, and what needs to be included?
At the end of the tax year you need to finalise your business income. For each income source you’ll submit an end of period statement. This is where you:
- make any accounting adjustments
- claim any reliefs
- confirm that the information you’ve sent is correct and complete
What is a final declaration, and what needs to be included?
The final declaration replaces the Self Assessment tax return. Once you’ve finalised your income by submitting an end of period statement, you’ll need to:
- tell HMRC about any personal income you have and submit claims for reliefs
- submit your final declaration for the tax year
You must submit your final declaration and pay the tax you owe by 31 January the following tax year.
Give me an example of the deadlines for MTD ITSA
Assume you just have self employment income and your year end is 6 April 2025.
The summary updates and deadlines in the tax year are:
| Quarterly period | Quarterly deadline |
| 6 April to 5 July 2024 | 5 August 2024 |
| 6 July to 5 October 2024 | 5 November 2024 |
| 6 October to 5 January 2025 | 5 February 2025 |
| 6 January to 5 April 2025 | 5 May 2025 |
You would then have to submit the end of period statement for the year to 5 April 2025 by 31 January 2026.
You would then have to submit the final declaration for the year to 5 April 2025 by 31 January 2026.
Will MTD for income tax change when I pay tax?
The payment dates will stay the same as they are now, so you’ll pay self-assessment tax in January and July each year.
What types of income does MTD for income tax apply to?
MTD for income tax applies to any self-employed business and property income.
Will I still have to do a Self-Assessment tax return if MTD for income tax applies?
The final declaration part of the MTD ITSA (See stage 3 above) replaces the Self-Assessment tax return.
How long after breaching £10,000 threshold do I need to start reporting under MTD ITSA?
If you were self-employed or collecting property income BEFORE 6 April 2023 MTD ITSA is mandatory from April 2024 if:
- you’re registered for Self Assessment
- you have business income of more than £10,000
If you become a sole trader or landlord AFTER 6 April 2023 you don’t need to sign up until after you’ve submitted your first Self Assessment tax return. HMRC will then let you know if your qualifying income is over £10,000 and if you must sign up for Making Tax Digital for Income Tax.
What happens if you get income from jointly owned property?
The income that counts towards the £10,000 threshold is your share of the income. Assume you own a property 50:50 with your spouse (or anyone else) and the rent from the property is £15,000 per year in total. Your share is 50%, so £7,500. This is less than £10,000, so you don’t have to sign up to MTD ITSA.
When do you have to submit the quarterly returns?
You must submit quarterly updates within one month of the end of that quarterly period. If you don’t submit by this deadline, you may have to pay a penalty.
Use standard quarterly period dates
The standard quarterly periods and deadlines in each tax year are:
| Quarterly period | Quarterly deadline |
| 6 April to 5 July | 5 August |
| 6 July to 5 October | 5 November |
| 6 October to 5 January | 5 February |
| 6 January to 5 April | 5 May |
Use calendar quarterly period dates
At a later date, you’ll be able to choose to use calendar quarters. HMRC will let us know how you can do this, when it is available.
Calendar quarterly periods and deadlines are:
| Quarterly period | Quarterly deadline |
| 1 April to 30 June | 5 August |
| 1 July to 30 September | 5 November |
| 1 October to 31 December | 5 February |
| 1 January to 31 March | 5 May |
Useful links
Find out when you must sign up for Making Tax Digital for Income tax: https://www.gov.uk/guidance/check-when-to-sign-up-for-making-tax-digital-for-income-tax
Find out about keeping digital records, signing up and using software to send income and expenses updates: https://www.gov.uk/guidance/using-making-tax-digital-for-income-tax
If you’re looking for help with Making Tax Digital for Income Tax, please contact us to let us know how we can help.