Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) compliance obligations are still being introduced in the UK. This was originally due to be implemented in 2023, but after much lobbying from a variety of professional bodies, this has now been postponed until April 2024.
Whilst this provides very welcome additional preparation time, it is important to appreciate the impact on individuals will be significant. HMRC will be requesting quarterly reporting of income sources, instead of the current annual reporting requirement via Tax Returns and they will expect this to be submitted electronically. There is no doubt this will add an additional compliance burden to all involved.
Who is affected
As of April 2024, any individual who carries on a sole trader and/or has rental property will be required to switch from Self Assessment (Tax Returns), to MTD if their relevant income is over £10,000 per annum. This threshold represents the combined income from rental property and any sole trader businesses.
UK Resident/UK Doms, will be required to report these types of income, even if some income sources stem from overseas. HMRC provide an example of this:
- Self Employed in the UK
- Rental income from Spain
- Combined income is over £10,000
- MTD ITSA REQUIRED
Impact on Non Doms and Non Residents
There is no exception to MTD for UK sourced income where individuals are either Non Resident or Non UK Dom. They will also need to follow MTD for ITSA rules, but only relevant to their UK self-employment and property income.
HMRC have also suggested that UK Resident Non Doms, who claim the Remittance basis of assessment will not be required to report similar overseas income in this way. In order to identify associated tax treatment, HMRC have confirmed however, that new registrants will be asked to confirm their domicile status when signing up for MTD for ITSA.
The new regulations encompass non-UK resident landlords and sole-traders who receive income of more than £10,000 from UK property and business, before deduction of expenses. Note however, there is an exemption for non-resident companies and for foreign businesses of non UK domiciled individuals.
Time to Prepare
There is a valuable window of opportunity to prepare for MTD and key to managing this efficiently will be maintenance of records in a digital format, which is compatible with the HMRC platform.
Agents already utilise software providers to create Tax Returns and some of these have been approved by HMRC as compatible.
For those who are reluctant to capture their income details electronically, and still choose pen and paper to record their details, we would recommend they embrace digital recording as soon as possible. MTD ITSA is not going anywhere and whilst some individuals may claim exemption, most will have to engage with the process sooner rather than later.
If you require assistance in relation to MTD for ITSA, or require further assistance in connection with your domicile or residence status, please contact Lynn Gracie, Private Client Tax Director, your usual AAB contact.
Find out more about our Private Client Tax service here