Source – Accounting Web
When an individual taxpayer has a turnover exceeding £10,000 per year, they will be required to comply with MTD ITSA from 6 April 2024, or from a later date for partners in general or complex partnerships.
HMRC will check the turnover reported in the following boxes on the taxpayer’s last submitted tax return:
- Self-employment turnover: SA103F box 15, SA103S box 9, SA200 box 3.6
- Self-employment other income: SA103F box 16, SA103S box 10
- UK property income: SA105 box 20, SA200 box 6.1
- Other UK property income (grant of lease): SA105 box 22
- Other UK property income (reverse premiums): SA105 box 23
- Other UK property income (FHL): SA105 box 5
- Foreign property gross income: SA106 box 14
- Foreign property income (reverse premiums): SA106 box 16.
If the sum total of turnover from all these boxes exceeds £10,000, the taxpayer is mandated into MTD ITSA from the beginning of the next tax year. For taxpayers who have an existing trade or property business it will be the turnover reported in the current tax year, 2022/23, that will determine whether they have to comply with MTD ITSA from 6 April 2024.
If turnover is not reported on the tax return because it is covered by for example the property income allowance, sundry trading income allowance, or rent-a-room relief, it is not included in the MTD turnover test.
Foster Carers are included in MTD ITSA, if their foster income exceeds their qualifying care relief (see HS236) and that excess amount, plus any other trading or property income, in total exceeds £10,000.
Where the trade or letting commenced part way through the year, the turnover figures will be annualised to check against the turnover threshold. This makes the recording of the start date of the trade or property letting business very important.
The taxpayer won’t have to judge for themselves whether they need to comply with MTD ITSA, unlike for MTD for VAT.
The HMRC computer will issue a formal notice to the taxpayer to start submitting quarterly updates under MTD ITSA, if the £10,000 turnover threshold has been breached. For the first year of MTD ITSA (2024/25) this notice will have to be issued between 1 February 2024 and 5 April 2024, which is quite a short period. HMRC could not say whether or how the taxpayer’s tax agent would be advised of their client’s requirement to sign up to join MTD ITSA.
It is not clear how the process will work if the taxpayer has ceased trading or letting property before the commencement of MTD ITSA on 6 April 2024.
Each taxpayer will have to sign up to MTD individually, so there will be no bulk sign-up of categories of taxpayers by HMRC. Tax agents will be able to sign up clients up to 12 months before the taxpayer needs to comply with MTD ITSA.
We do not know how this sign-up process will work, but we do know it won’t be the same as the current MTD pilot sign-up process.
Joining the pilot
Currently taxpayers can’t join the MTD ITSA pilot directly; they have to sign up through their MTD-compatible software. The software provider will then pass the taxpayer’s UTR number to HMRC who checks this against a “white list” to see if the person is eligible to join the pilot.
Only sole traders and landlords using a 5 April accounting period end (not 31 March) can join the MTD ITSA pilot, not partners in any form of partnership. The taxpayer must also be tax resident in the UK, already registered for self-assessment and have submitted at least one self-assessment tax return.
If the taxpayer has income other than property and self-employment, they can join the pilot from now on, which is a new development. The list of categories of income and claims that are permitted in the pilot, in addition to the MTD-reportable income, is expanding all the time.
Anyone who is not up to date with their tax payments or tax return submissions can’t join the MTD ITSA pilot. This means that taxpayers who have set up a Time to Pay agreement with HMRC can’t join the pilot.
Spreadsheets in the future
HMRC was clear that spreadsheets will be part of the future requirements for digital record keeping under MTD ITSA. However, to make the required submissions to HMRC an MTD-compatible bridging product will be required.
However, for MTD ITSA this bridging software will have to receive data from HMRC as well as submit it. This is different from MTD for VAT, where the bridging software only has to send data in one direction.
General partnerships are not mandated into MTD ITSA until 6 April 2025. HMRC confirmed that large partnerships with 20 or more partners are excluded from the definition of “general partnership”, as are any partnerships that include companies as members or are LLPs.
There is no MTD ITSA start date for those partnerships that are not general partnerships.
What are we waiting for?
HMRC urged accountants to start preparing for MTD ITSA now by segmenting their clients into groups according to those that:
- keep digital records
- use cash accounting
- are VAT registered
- have multiple trades or property businesses.
HMRC recommends that accountants create a plan and transition timetable for each group, then communicate the MTD changes and plans to clients.
This will be a difficult task for accountants to complete as we are still waiting for all of the following information from HMRC:
- How MTD ITSA record keeping will work for jointly held property owners
- How taxpayers can apply for exemption from MTD ITSA
- HMRC’s communications plan – this may appear in Autumn 2022, apparently
- MTD ITSA Public Notices – may be published in “the next few months”
- Who will provide free software for simple businesses – this won’t be HMRC.
There are many other unanswered questions about MTD ITSA, but it seems HMRC’s policy is to provide accountants with little breadcrumbs of information every few weeks, just to keep us interested.