All unincorporated businesses and individual landlords are due to enter the MTD for income tax (MTD ITSA) regime on 6 April 2023. This single start date for everyone is due to the switch from the current year basis to the tax year basis as we explained on 5 August 2021.
There is a chance that MTD ITSA will be delayed, or deferred for some taxpayers, as many issues relating to landlords and partnerships have not been bottomed out, but don’t count on that.
Those mandated into MTD ITSA will have to make quarterly submissions of the totals digitally recorded during the quarter by the accounting system of:
- sales income for each trade
- purchases/expenses for each category
The categories of expenses are expected to be those currently required in the self-employment section (form SA105) and property section (form SA103F) of the SA tax return. When the final MTD ITSA regulations are released (expected next month) we will know exactly what those expense categories are.
The quarterly submission is essentially a rough and ready profit and loss account. The taxpayer (or their tax agent) is not required to declare that the quarterly submission is a complete or correct reflection of the net or gross income of the business, as the submission does not contain an accuracy statement.
Thus, the quarterly submission is not a 3-month set of accounts, it is a data dump to prove to HMRC that the business is keeping some near-to-real-time digital records.
The HMRC computer will take the figures reported in the quarterly statement and reflect back to the taxpayer an estimate of the tax they will need to pay for the year. This may be a completely nonsense figure as the quarterly submission could be full of mistakes and won’t include any capital allowances or other tax reliefs.
Any errors or mistakes included in the quarterly submissions should be corrected in the end of period statement (EOPS), which will include a declaration of accuracy, just like the SA tax return.