HMRC update their guidance on MTD ITSA

Further details have been published on the forthcoming Making Tax Digital for Income Tax regime.

Further details have been published on the forthcoming Making Tax Digital for Income Tax

On 26 August 2022, HMRC updated four pieces of guidance on their plans to introduce Making Tax Digital (MTD) for certain taxpayers within the Income Tax Self-Assessment regime (ITSA) from April 2024. The updated guidance is helpful, particularly in terms of clarifying who needs to sign up for MTD and when, but a lot of detail on how the process will work in practice for different types of taxpayer, particularly landlords, is still outstanding. There is also information on who can sign up voluntarily in advance of mandation as part of the pilot but this is still very limited and it is unclear at the moment how much large scale testing of the new process will be possible before it becomes mandatory for millions of taxpayers.

The four pieces of updated guidance are as follows:

  • Check if you can sign up for Making Tax Digital for Income Tax: this page provides guidance on who will be within the scope of the new rules which, in summary, is individuals registered for Self-Assessment with total annual income from self-employment and/or property income of £10,000. It confirms that trustees, personal representatives of someone who has died, Lloyds members and non-resident companies are not within scope and then goes on to discuss which types of income are included when considering the £10,000 threshold. Of particular note is confirmation that non-domiciled individuals do not need to include their foreign income in the threshold calculation or follow the MTD requirements for that foreign income. There is also confirmation that income from a partnership is not included (partnerships themselves will fall within the MTD rules from a later date) UNLESS the income is in the form of disguised investment management fees or income based carried interest, an important point for the Private Equity sector.
  • Check when to sign up for Making Tax Digital for Income Tax: this page looks at how the commencement rules will apply in practice for taxpayers joining MTD once the rules become mandatory from April 2024 onwards. There is also further confirmation that general partnerships which only have individuals as partners do not need to comply with the requirements until April 2025, but the commencement date for other types of partnership is still to be determined.
  • Sign up as an individual for Making Tax Digital for Income Tax: this page explains how individuals who wish to sign themselves up for MTD (rather than asking an agent to do so on their behalf) would go about doing so but it also provides guidance on which taxpayers can sign up for the pilot in advance of mandation. At the moment it is still limited to taxpayers with the simplest affairs but our expectation is that further categories of taxpayer will be added in the next few months although it looks unlikely that more complex taxpayers will have the opportunity to test the entire process for a full year before the rules are rolled out to everyone. HMRC are asking taxpayers who are keen to join the pilot to contact their software provider to sign up. If you would be interested in joining the pilot in due course and are a current or potential KPMG ITSA compliance client please contact Chris Summers to discuss.
  • Using Making Tax Digital for Income Tax: this page is a more general overview of how the reporting rules will apply in practice, rather than the sign up process which the other three pages focus on. This is where the answers to many points of detail are still outstanding, in particular for landlords owning multiple properties managed by different agents and those with investments in jointly owned properties. HMRC also acknowledge here that their systems can currently only cope with standard quarterly period dates (i.e. ending on 5 July, October, January and April) and they are still making changes to allow calendar quarters to be used instead, a key requirement for many businesses that will be choosing to draw up accounts to 31 March each year as a consequence of the separate ongoing basis period reforms.

Please speak to your usual KPMG in the UK contact if you have any questions about how MTD ITSA will affect you.