From April 2024 things are gonna change for self-employed peeps… in a BIG way.
Anyone with gross income (that’s before expenses) of over £10k will have to join in, so that covers most of us.
MTD ITSA is being put forward by HMRC as a bonus for us all. We already do loads of things online and this will make our lives easier. We’ll get a nice tax estimate that will help us budget throughout the year, rather than having the usual last-minute panic at the end of Jan. Plus it’s probably gonna cost us more money to pay for software (if you don’t already) so that’s a bit of tax saved. Silver linings, right?
So what does it actually mean in practical terms?
You’ll need to submit a “quarterly summary of…business income and expenses”. Yeah you read that right… quarterly. At the moment we don’t know how detailed this will need to be, but essentially you do four mini tax returns instead of one big one.
These returns have to be submitted online using software. So if you don’t use any accounting software at the moment, now might be a good time to start weighing up your options. (If only you knew a superstar bookkeeper who could help you out…) The HMRC list of approved software is very short at the moment, but I’ll be very surprised if the heavy hitters like Xero, Quickbooks, Sage etc aren’t on the list by the time this goes live.
At the end of each year there will be a fifth return to tidy things up and make any necessary accounting adjustments. This also needs to be done via software. The deadline for this isn’t changing… you’ll still have until Jan the following year to finalise the return and pay the tax, but let’s be honest, if we’re submitting quarterly, we shouldn’t really need that long.
It’s also worth noting that if you have a year end that isn’t in line with the end of the tax year, you’ll need to change that. There will be a transitional period to line things up.
What we don’t know…
At the time of writing we don’t know how long after the end of each quarter we’ll have to get the numbers together. If it follows VAT, you’ll get a month and 7 days. But this is HMRC… where logic is a dirty word. Who knows what the deadline will be?
As mentioned above, we don’t know what software will be up to the task. At the moment it looks as though bridging software will be acceptable. Bridging software sits over an Excel spreadsheet so that you can submit your numbers digitally, without having all the gubbins behind it in software as well. (Yep… that was an audible sigh of relief)
And there is a glimmer of hope because we don’t know for certain that it will definitely go ahead. It’s already been pushed back a couple of times… It may yet happen again.
Summary
So big changes overall and this is something that almost all businesses are going to have to face up to, sooner or later. Even if it gets pushed back another year, it’s not going away. It’s going to be fun for us number geeks, when what was once an annual thing, starts popping up every quarter. You can expect your tax returns to get more expensive, thanks to all the extra work we’re having to do.
But it’s not a bad thing to start encouraging people to use software. There are lots of benefits and if you’re serious about growing a successful business, then software is something you should definitely have in your arsenal anyway.
And it’s going to be handy to know what your tax bill is going to be ahead of time. It’s something we’re always banging on about anyway. We’ve all gotta get way more organised and make sure our ducks are in rows and not floating off down the river somewhere. So do yourself a favour and start planning what needs to change now.