HMRC release report on Making Tax Digital for ITSA and VAT
Date Published: March 30, 2020
Category: HMRC News, Making Tax Digital
This blog is the second of two looking at the report released by HMRC to update the public on Making Tax Digital for VAT and ITSA. In this post, we look at the ITSA service.
What is MTD for Income Tax?
MTD for Income Tax requires businesses and landlords to keep their records digitally and submit their tax return directly from those records using MTD-compatible software. It is therefore similar to MTD for VAT, as there should be no manual transposition of data between systems, thus reducing the chance of errors. Unlike MTD for VAT, where returns are submitted monthly, quarterly, or annually, MTD for Income Tax will require businesses and landlords to report quarterly but file their return annually.
The change to quarterly reporting
Instead of only submitting an annual Income Tax return, businesses and landlords will have to send a quarterly update from their digital records, that is a summary of income and expenditure. There will be no requirement to make accounting adjustments on these quarterly summaries. There is then a finalization process at the end of the year. MTD compatible software will draw the updates from the digital records for submission.
HMRC hopes that this new system will help businesses and landlords take a view of their emerging tax position throughout the year, therefore helping them to budget for tax.
Businesses and landlords are encouraged to begin keeping records digitally ahead of the rollout of MTD for ITSA. HMRC advise that it is easier to change at the beginning of an accounting period – for many this is April.
For Agents, there is no need to create a new Agent Services Account for MTD for ITSA. HMRC are planning to simplify the customer journey, drawing on lessons learned from MTD for VAT. They have committed to working closely with professional bodies and will also gather customer insight.
Compliance with MTD for VAT
Through its compliance activity, HMRC will continue to follow up with businesses that it expected to sign up to MTD for VAT but haven’t yet joined. The end of the soft landing period in April 2020 means that HMRC will also seek to ensure signed up businesses are operating MTD correctly.
In the report, HMRC states:
“The launch of MTD for VAT in April 2019 was the beginning of an ambitious programme… to unlock the full benefits of going digital, the next stages – extending MTD to more businesses and other taxes – will be key.”
We asked Rob, CEO of BTCSoftware for his thoughts on the MTD for VAT and ITSA report. He said:
Going digital has a positive impact on productivity and accuracy for businesses and their accountants, giving a clearer view of business finances. I am pleased to see that HMRC has taken on board feedback from Agents at this stage of the Making Tax Digital rollout. Looking to the future, it seems HMRC will take lessons learned from the VAT rollout forward to Self-Assessment, and BTCSoftware looks forward to continuing to work closely with them in developing the service.
We have worked closely with HMRC since the initial pilot of MTD for VAT to provide a powerful bridging solution for Agents and businesses to allow them to manage their VAT digital record keeping and submissions. Our customers can collate information from multiple systems to build their VAT return data before submitting it to HMRC. We also support customers who have chosen to use spreadsheets to hold their digital records and VAT return data.